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What changed in INTRUSION INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INTRUSION INC's 2022 and 2023 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 2023 report.

+180 added−157 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in INTRUSION INC's 2023 10-K

180 paragraphs added · 157 removed · 109 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeBefore and after expiration of the solution warranty period, we offer both on-site and factory-based support, parts replacement, and repair services. Extended warranty services are separately invoiced on a time and materials basis or under an annual maintenance contract. 4 Employees As of December 31, 2022, we employed a total of sixty-seven persons, four of which are part time.
Biggest changeExtended 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.
The field sales and technical support force provides training and technical support to our resellers and end users and assists our customers in designing cyber secure data networking solutions. We currently conduct sales and marketing efforts from our principal office in Plano, Texas. Resellers.
The field sales and technical support force provides training and technical support to our resellers and end users and assists our customers in designing cyber secure data networking solutions. We currently conduct sales and marketing efforts from our principal office in Plano, Texas. 3 Resellers.
There can be no assurance that the steps taken by us to protect our intellectual property will be adequate to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology, although it would be extremely difficult to replicate the proprietary and comprehensive internet databases we have developed over the past 26 years.
There can be no assurance that the steps taken by us to protect our intellectual property will be adequate to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology, although it would be extremely difficult to replicate the proprietary and comprehensive internet databases we have developed over the past 25+ years.
Export sales did not account for any revenue in 2022 and 2021. 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 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.
Customer Services Our solution sales may include installation, operation of our technology and threat data interpretation and reporting. 3 Sales, Marketing and Customers Field Sales Force. Our sales organization focuses on major account sales, channel partners including distributors, value added resellers (VARs) and integrators; promotes our solutions to current and potential customers; and monitors evolving customer requirements.
Customer Services Our solutions may include installation, operation of our technology and threat data interpretation and reporting. Sales, Marketing and Customers Field Sales Force. Our sales organization focuses on major account sales, channel partners including distributors, value added resellers (“VARs”) and integrators; promotes our solutions to current and potential customers; and monitors evolving customer requirements.
Our principal competitors in the data mining and advanced persistent threat market include Niksun, NetScout, and Darktrace. 2 There are numerous companies competing in various segments of the data security market. At this time, we have little or no competitors for TraceCop ; however, we believe competitors could emerge in the future.
Our principal competitors in the data mining and advanced persistent threat market include Darktrace, Trellix, and Recorded Futures. 2 There are numerous companies competing in various segments of the data security market. At this time, we have little or no competitors for TraceCop ; however, we believe competitors could emerge in the future.
Our end-user customers include United States (“U.S”) federal government, state and local government entities, large and diversified conglomerates, and manufacturing entities. Sales to certain customers and groups of customers can be impacted by seasonal capital expenditure approval cycles, and sales to customers within certain geographic regions can be subject to seasonal fluctuations in demand.
Our end-user customers include U.S. federal government, state and local government entities, large and diversified conglomerates, and manufacturing entities. Sales to certain customers and groups of customers can be impacted by seasonal capital expenditure approval cycles, and sales to customers within certain geographic regions can be subject to seasonal fluctuations in demand.
Our Customers: Government Sales Sales to U.S. government customers accounted for 65.8% of our revenues for the year ended December 31, 2022, compared to 71.4% of our revenue in 2021.
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.
Savant uses several original patents to uniquely characterize and record all network flows. Savant is a network reconnaissance and attack analysis tool used by forensic analysts in the DoD, Federal Government, and corporations with in-house threat research teams.
Savant uses several original patents to uniquely characterize and record all network flows. Savant is a network reconnaissance and attack analysis tool used by forensic analysts in United States (“U.S.”) government agencies and corporations with in-house threat research teams.
In 2022, 65.8% 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 seven U.S. Government customers through direct and indirect channels; three U.S government customers individually exceeded 10% of total revenue in 2022.
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.
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 (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 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.
The Code cover 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 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.
This request should be directed to the Company’s Secretary at 101 East Park Blvd., Suite 1200, Plano, TX 75074.
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.
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 Security-as-a-Service (“SaaS”) solution that inspects and kills dangerous network (in and outbound) connections.
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.
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 in materials and workmanship for periods ranging from 90 days to 36 months.
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.
None of our employees are represented by a labor organization, and we are not a party to any collective bargaining agreement. 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.
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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.
Added
After years of gathering global internet intelligence and working exclusively with government entities, the company released its first commercial product in 2021.
Removed
On March 16, 2022, our board of directors, upon recommendation of our Nominating and Corporate Governance Committee, approved the following sentences to be added under the “Conflicts of Interest” section of the Company’s Code: “Any and all actual, perceived, or possible Conflicts of Interest involving either the Chief Executive Officer or the Chief Financial Officer shall be submitted in writing by a Company Agent to the Company’s Board Chair.
Added
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.
Removed
The Chair will then be charged with addressing the Conflict of Interest, or with presenting the matter to the full Board for consideration, in accordance with the Company’s policies including those regarding ‘related party transactions,’ with the ultimate goal of avoiding even the ‘hint of impropriety’ in the Company’s business dealings.” The full text of the amended Code is published on the Company’s website under the investor relations tab at www.intrusion.com.
Added
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.
Added
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.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to our Intellectual Property We must adequately protect our intellectual property to prevent loss of valuable proprietary information. We rely primarily on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures, and non-disclosure agreements to protect our proprietary technology.
Biggest changeWe rely primarily on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures, and non-disclosure agreements to protect our proprietary technology. However, unauthorized parties may attempt to copy or reverse engineer aspects of our solutions or to obtain and use information that we regard as proprietary.
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.
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.
Pursuant to that certain securities purchase agreement we entered into in March 2022 with to 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.
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.
These fluctuations may result in a hesitancy for investors to purchase and hold shares of our common stock, continued depression of the market value of our stock, and ultimately negatively affect our ability to raise capital through the issuance and sale of our common stock, particularly through our at-the-market program or otherwise.
These fluctuations may result in a hesitancy for investors to purchase and hold shares of our common stock, continued depression of the market value of our stock, and ultimately negatively affect our ability to raise capital through the issuance and sale of our common stock, particularly through our At the Market (“ATM”) program or otherwise.
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 convertible note immediately due and payable.
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.
Furthermore, we also must offer Streeterville with 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.
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.
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 convertible notes issued thereunder.
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.
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. 11 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.
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.
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. 7 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.
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.
Should any of the component parts required for the hardware interface our customers use to access and to utilize the INTRUSION Shield product, 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.
Further, many of our competitors are also trying to sell their product and solutions through these indirect sales channels, which could result in lower prices and reduced profit margins for the sales of our solutions. Our business depends on the continued service of our key management and technical personnel.
Further, many of our competitors are also trying to sell their products and solutions through these indirect sales channels, which could result in lower prices and reduced profit margins for the sales of our solutions. Our business depends on the continued service of our key management and technical personnel.
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 in the event that 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.
The current geo-political climate may add uncertainty in the dealings of our customers and could cause them to delay indefinitely certain cyber-security initiatives or to determine not to introduce or implement any new or innovative cyber-solution products into their information networks.
The current geo-political climate may add uncertainty in the dealings of our customers and could cause them to delay indefinitely certain cybersecurity initiatives or to determine not to introduce or implement any new or innovative cyber-solution products into their information networks.
If our solutions do not interoperate with our customers’ networks, installations will be delayed or cancelled and could harm our business. Our solutions are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple protocol standards and products or solutions from other vendors.
If our solutions do not interoperate with our customers’ networks, installations will be delayed or cancelled and could harm our business. Our solutions are designed to interface with our customers’ existing networks, each of which has different specifications and utilize multiple protocol standards and products or solutions from other vendors.
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 the possibility that the Company may not be able to continue as a going concern.
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.
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 at-the-market program.
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.
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, 2022, and 2021, we derived 31.5% and 37.5% 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, 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.
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 80.9% 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 66.4% of our existing revenues result from sales of TraceCop a cybersecurity solution.
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 24, 2023, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $28.7 million.
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.
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.
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.
TraceCop revenues were $6.1 million for the year ended December 31, 2022, compared to $6.3 million for the year ended December 31, 2021.
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.
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. 5 We are subject to certain contractual and regulatory limitations on our ability to consummate future financings.
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.
Continuing events in Eastern Europe and Russia have introduced a significant level of uncertainty in the dealings of our current and potential customers that could cause them to be hesitant to implement new cyber-security initiatives regardless of the efficacy of our INTRUSION Shield product.
Continuing events in many regions around the world have introduced a significant level of uncertainty in the dealings of our current and potential customers that could cause them to be hesitant to implement new cybersecurity initiatives regardless of the efficacy of our INTRUSION Shield product.
We experience significant shifts in the market value of our common stock as it trades on the Nasdaq Capital Market 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 $1.74 and $5.77 during the year ended December 31, 2022.
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.
Our principal competitors in the data mining and advanced persistent threat market include Niksun, NetScout and Darktrace.
Our principal competitors in the data mining and advanced persistent threat market include Darktrace, Trellix, and Recorded Futures.
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.
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.
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.
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.
For the year ended December 31, 2022, we had a net loss of $16.2 million and had an accumulated deficit of approximately $96.3 million as of December 31, 2022.
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.
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.
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.
This could hurt our operating results, damage our reputation, and seriously harm our business and prospects. 9 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.
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.
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.
Any reputational damage could result in a decrease in orders for all our solutions, the loss of current customers, and a decrease in our overall revenues which could in turn have a material adverse effect on our results of operations. 8 If we fail to respond to rapid technological changes in the network security industry, we may lose customers, or our solutions may become obsolete.
Any reputational damage could result in a decrease in orders for all our solutions, the loss of current customers, and a decrease in our overall revenues which could in turn have a material adverse effect on our results of operations.
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 convertible notes issued thereunder, which could result in an acceleration of payments due under those notes and other consequences.
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.
However, unauthorized parties may attempt to copy or reverse engineer aspects of our solutions or to obtain and use information that we regard as proprietary. Policing unauthorized use of our solutions is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property.
Policing unauthorized use of our solutions is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property.
Our primary source of cash for funding operations and growth in 2022 has come from net proceeds received from the issuance of notes payable, net proceeds received from our registered direct offering and from our at-the-market program in an aggregate amount of approximately $15.6 million.
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.
As of December 31, 2022, we had cash and cash equivalents of $3.0 million and negative working capital of $7.8 million.
As of December 31, 2023, we had cash and cash equivalents of $139 thousand and negative working capital of $13.1 million.
The network security industry is characterized by frequent product and service introductions, rapidly changing technology, and continued evolution of new industry standards.
If we fail to respond to rapid technological changes in the network security industry, we may lose customers, or our solutions may become obsolete. The network security industry is characterized by frequent product and service introductions, rapidly changing technology, and continued evolution of new industry standards.
A continued decrease in orders for our solutions by our government customers and losses of efficiency or diversions of resources in our own operations may continue to cause material adverse effect on our operations and financial results. 10 Scarcity of products and materials in the supply chain could hinder or prevent the deployment of our INTRUSION Shield for our customers who elect to use the wired version of our solution.
Scarcity of products and materials in the supply chain could hinder or prevent the deployment of our INTRUSION Shield for our customers who elect to use the wired version of our solution.
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. 6 The redemption feature under our convertible notes is dependent upon the market value of our common stock, which could result in significant dilution to our existing stockholders.
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.
Removed
These restrictions may delay or prevent us from entering into funding arrangements or being able to access the capital markets, including under our at-the-market program, on favorable terms or at all. We may be unable to generate sufficient cash to service our indebtedness.
Added
We are subject to certain contractual and regulatory limitations on our ability to consummate future financings.
Removed
Our ability to make scheduled payments on or to refinance our indebtedness and financial commitments to the noteholder under the convertible notes issued under our March 2022 securities purchase agreement depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions including financial, business, and other factors beyond our control.
Added
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.
Removed
The notes mature on September 10, 2023, and December 29, 2023. We may be unable to generate sufficient cash flow to permit us to pay the principal, premium, if any, and interest on that indebtedness which would have a material adverse effect on our financial condition and results of operations.
Added
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.
Removed
The terms of our March 2022 securities purchase agreement contain significant obligations and limitations that could restrict our right to enter into transactions that would otherwise be favorable to our stockholders.
Added
Global credit and financial markets have experienced extreme disruptions in the recent past, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that similar disruptions will not occur in the future.
Removed
Our debt agreements contain a number of significant covenants, including the obligations to not issue debt securities or certain equity securities where the pricing of such equity securities is tied to the public trading price of the Common Stock, in each case, without the noteholder’s prior consent, and offer the noteholder the right to purchase up to 10% of future equity and debt securities offerings, subject to certain exceptions and limitations.
Added
Deterioration in general economic conditions may result in lower tax revenues that could lead to reductions in government spending. Poor economic conditions could in turn lead to substantial decreases in our net sales or have a material adverse effect on our operating results, financial position, and cash flows.
Removed
These obligations and limitations may limit our ability to enter into certain, corporate, financing, operational or capital raising transactions.
Added
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline.
Removed
The noteholder has the right to redeem up to $0.5 million of the outstanding balance of each note per month. In January 2023, we amended the note agreements whereby the noteholder agreed to waive their redemption rights through March 31, 2023, in exchange for a fee equal to 3.75% of the outstanding principal balance.
Added
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Further, we are required to report any changes in internal controls on a quarterly basis.
Removed
We have the option to make such payments in either (a) cash, (b) by paying the redemption amount in the form of shares of common stock with the number of redemption shares being equal to the portion of the applicable redemption amount divided by the redemption conversion price or (c) a combination of cash and shares of common stock.
Added
In addition, we are required to furnish a report by management on the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”).
Removed
Since the redemption conversion price will be equal 85% multiplied by the average of the two lowest daily volume weighted average prices per share of the common stock during the 15 trading days immediately preceding the date that the noteholder delivers notice electing to redeem a portion of the note, the number of shares to be issued by us in satisfaction of this redemption will vary, perhaps considerably.
Added
If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, or if we assert that our internal control over financial reporting is ineffective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of the common stock could be negatively affected.
Removed
A reduction in our trading value could cause us to issue a greater number of shares under a redemption notice and therefore increase the dilutive effect to other stockholders. We must increase revenue levels in order to finance our current operations and to implement our business strategies.
Added
We also could become subject to investigations by the stock exchange on which our securities are listed, the Securities Exchange Commission (“SEC”), or other regulatory authorities, which could require additional financial and management resources, and could have a material adverse effect on the market price of our common stock.
Removed
The effect of the coronavirus, particularly in the diversion of time and resources of the federal, state, and local governmental entities which make up a significant concentration of our customer base have caused, and may continue to cause, material adverse effects on our operations and our financial results.
Added
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. 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.
Removed
A significant concentration of our federal, state, and local governmental customers has been forced to allocate scarce and competing resources and balance budgetary demands placed upon them because of the effects of the coronavirus, scarcity of commodities, and similar economic and operational effects of the virus upon their own constituencies.
Added
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.
Removed
These adverse effects have resulted in decreased demand by some of our customers for our current product offerings and cybersecurity solutions, negatively affecting historic revenue levels for the Company.
Added
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.
Removed
Supply chain interruptions have become frequent considering the lingering commercial effects of COVID and its related variants.
Added
We report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.
Added
In addition, in the first Annual Report on Form 10-K following the date on which we no longer qualify as a smaller reporting company, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.
Added
Our compliance with Section 404 of the Sarbanes-Oxley Act could require that we incur substantial accounting expense and expend significant management efforts including the potential of hiring additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
Added
If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Added
Nasdaq may delist our common stock from trading on its exchange, which could limit stockholders’ ability to trade our common stock. Our common stock is listed for trading on the Nasdaq Capital Market, which requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis to continue the listing of our common stock.
Added
If we fail to meet these continued listing requirements, our common stock may be subject to delisting.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market.
Added
If this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also have engineers and other employees working remotely in Texas as well as several other states. We believe that the existing facility will be adequate to meet our operational requirements through the expiration of the lease. We are currently evaluating the office rental market in proximity to our existing lease to identify and secure space or our future needs.
Biggest changeWe also have engineers and other employees working remotely in Texas as well as several other states. We believe that the existing facility will be adequate to meet our operational requirements through the expiration of the lease. We believe that our property insurance provides adequate coverage for our leased facilities.
Item 2. Properties. Our corporate headquarters are currently located in 17,250 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 November 2023.
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.
We believe that our property insurance provides adequate coverage for our leased facilities. See Note 5 – Right-of-use Asset and Leasing Liabilities to our Consolidated Financial Statements for additional information regarding our obligations under leases.
See Note 5 – Right-of-use Asset and Leasing Liabilities to our Consolidated Financial Statements for additional information regarding our obligations under leases. 13

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe 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. 12 Securities Investigation On August 8, 2021, we received a notification from the Securities and Exchange Commission, Division of Enforcement, that it was conducting an investigation captioned In the Matter of Intrusion Inc. and requesting we produce certain documents and information.
Biggest changeThe 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.
In 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 condensed consolidated financial position, operating results, or cash flows.
In 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.
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 (the “Defendants”).
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”).
However, there can be no assurance such legal proceedings will not have a material impact on our future results. 13 PART II
However, there can be no assurance such legal proceedings will not have a material impact on our future results. 14 PART II
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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, as well as Section 20(a) of the Exchange Act.
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.
On November 9, 2021, the Securities and Exchange Commission served a subpoena to us in connection with this investigation which formally requested substantially similar information as in the prior request. We are continuing to comply with the requests and is cooperating in the investigation.
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
The lead plaintiff filed his amended complaint on February 7, 2022. The amended complaint named the following additional parties as named defendants: Mr. Michael Paxton, a former director and executive officer; Mr. Gary Davis, a former officer; Mr. Joe Head, the current chief technology officer, and a former director; and Mr.
Added
The lead plaintiff filed his amended complaint on February 7, 2022.
Removed
James Gero, a current director and chair of the compensation committee.
Added
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
We can offer no assurances as to the outcome of this investigation or its potential effect on us or our results of operations. Stockholder Derivative Claim On June 3, 2022, a stockholder derivative complaint was filed in U.S.
Added
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.
Removed
The Plaintiff is seeking remedial actions including improvements in our corporate governance and internal control policies and reimbursement of legal costs.
Added
On September 28, 2023, we agreed to settle the claim. On October 2, 2023, public notice of the settlement agreement was given.
Removed
While we are not a named defendant, but a nominal plaintiff in the stockholder derivative claim, we will be providing the financial and other assistance for each of the Defendants that we are obligated to provide under our Articles of Incorporation, our Bylaws, as well as individual indemnifications agreements that are in effect between, us and each of the Defendants.
Added
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.
Added
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.

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 668 $ 5.22 158 $ 2.88 2,269 Equity compensation plans not approved by security holders – – – – – Total 668 $ 5.22 158 $ 2.88 2,269 (1) Included in the outstanding options are 162 from the 2005 Stock Incentive Plan, 390 from the 2015 Stock Option Plan and 116 from the 2021 Omnibus Incentive Plan.
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.
The following table provides summary information as of December 31, 2022, for all our equity compensation plans (in thousands, except per share data). See Note 9 – Stock-Based Compensation to our consolidated financial statements for additional discussion.
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.
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 24, 2023, there were approximately 89 registered holders of record of our common stock.
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.
Removed
On November 21, 2022, we sold 31,746 shares of common stock in a private placement under Section 4(a)(2) of the Securities Act to our Chief Executive Officer, Anthony Scott, at the then current market price, resulting in gross proceeds of $0.1 million, which we used for general corporate purposes.

Item 7. Management's Discussion & Analysis

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

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Biggest changeFor additional details, see Note 14 Correction of Immaterial Errors to the consolidated financial statements (Part II, Item 8 of this Form 10-K). 15 Comparison of the years ended December 31, 2022, and December 31, 2021 Year Ended December 31, Year Ended December 31, (in thousands) 2022 2021 2022 2021 Revenue $ 7,529 $ 7,277 100.0% 100.0% Cost of revenue 3,354 3,621 44.5% 49.8% Gross profit 4,175 3,656 55.5% 50.2% Operating expenses: Sales and marketing 6,510 10,935 86.5% 150.3% Research and development 6,465 6,328 85.9% 87.0% General and administrative 7,483 5,896 99.4% 81.0% Operating loss (16,283 ) (19,503 ) -216.3% -268.0% Interest and other income 2,028 722 26.9% 9.9% Interest expense (2,359 ) (21 ) -31.3% -0.3% Gain on lease termination 385 – 5.1% – Loss from operations before income taxes (16,229 ) (18,802 ) -215.6% -258.4% Income tax provision – – – – Net loss $ (16,229 ) $ (18,802 ) -215.6% -258.4% Net Revenue Total revenue increased 3.5% to $7.5 million in 2022 from $7.3 million in 2021.
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.
Investing Activities 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.
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.
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 FASB ASC Topic 606 to recognize sales and will follow that directive, also, to define revenue items as individual and distinct.
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 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 are 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.
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 at-the-market program of $2.0 million, and proceeds received from a private placement sale of common stock equal to $0.1 million.
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.
Streeterville purchased the first note on March 10 th and the second note on June 29th, each note with an aggregate principal amount of $5.4 million in exchange for $5.0 million less certain expenses. We received approximately $9.3 million, net of transaction expenses, in connection with these issuances.
Streeterville purchased the first note on March 10, 2022, and the second note on June 29, 2022, each note with an aggregate principal amount of $5.4 million in exchange for $5.0 million less certain expenses. We received an aggregate of approximately $9.3 million, net of transaction expenses, in connection with these issuances.
Allowances for Doubtful Accounts We maintain allowances for doubtful accounts 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.
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.
The decline in consulting revenues resulted primarily from the loss of a contract in the fourth quarter 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.
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.
S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, income taxes, warranty obligations, maintenance contracts and contingencies.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to credit losses, income taxes, warranty obligations, maintenance contracts and contingencies.
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.
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.
We recognize sales of its consulting services in accordance with FASB 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 include 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. 21 Consulting services including reporting are typically done monthly, and revenue is matched accordingly.
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, 2022, and 2021 totaled $4.2 million or 55% compared to $3.7 million or 50%.
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%.
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 which could have a material adverse effect on our financial results.
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 entered into a securities purchase agreement (the “SPA”) with Streeterville Capital, LLC (“Streeterville”) on March 10, 2022, pursuant to which Streeterville purchased two unsecured promissory notes with substantively identical terms.
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.
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 24, 2023, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $28.7 million. 2022 Convertible Notes Issuance.
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.
While the loss of this contract significantly impacts Intrusion’s top-line revenue, the gross margin on this contract was 14% and, as a result, has a marginal impact on profitability. We will continue to pursue new consulting opportunities and expect to see an increase in consulting revenues in 2023. 16 Concentration of Revenues .
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.
Insurance expense for our Directors’ and Officers’ insurance policy increased in 2022 when compared to 2021 as a result of the Class Action lawsuits and related claims activity and, increasing coverage limits for our new policy year. Interest Expense Interest expense increased to $2.4 million in 2022 compared to $21 thousand for the year ended December 31, 2021.
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.
As discussed above in Financing Activities , our principal sources of cash for funding operations in 2022 was through the 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.
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.
Revenues from sales to various U.S. government entities totaled $5.0 million, or 65.8% of revenues, for the year ended December 31, 2022, compared to $5.2 million, or 71.3% of revenues, for the same period in 2021. In both 2022 and 2021, sales to three government entities individually accounted for over 10% of total revenues.
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.
Consolidated Statements of Cash Flows Our cash flows for the years ended December 31, 2022, and 2021 were: Year Ended December 31, 2022 December 31, 2021 Net cash used in operating activities $ (13,190 ) $ (16,557 ) Net cash used in investing activities (1,479 ) (1,148 ) Net cash provided by financing activities 13,584 5,101 Change in cash and cash equivalents $ (1,085 ) $ (12,604 ) 18 Operating Activities 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 $0.5 million; an increase in other receivables relating principally to the remaining Employee Retention Credits (“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, 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.
On December 31, 2022, we had $3.0 million in cash. 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 or even continue our operations.
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.
Sales to commercial customers totaled $2.6 million or 34.2% of total revenue for year ended December 31, 2022, compared to $2.1 million or 28.7% of total revenue for the same period in 2021. Two commercial customers individually accounted for over 10% of total revenues in 2022 compared to one commercial customer in 2021.
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.
We also offer software on a subscription basis subject to software as a service (”SaaS”). Warranty costs and sales returns have not been material.
We also offer software on a subscription basis subject to SaaS. Warranty costs have not been material.
Recent Accounting Pronouncements See Note 2 to the consolidated financial statements (Part II, Item 8 of this Form 10-K).
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).
INTRUSION Shield was designed to allow businesses to incorporate a Zero Trust, reputation-based security solution into their existing infrastructure and 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.
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.
Historically, our estimate for sales returns and doubtful accounts have not differed materially from actual results. 22 Fair Value of Financial Instruments We calculate the fair value of our assets and liabilities which qualify as financial instruments and include additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments.
Fair Value of Financial Instruments We calculate the fair value of our assets and liabilities which qualify as financial instruments and include additional information in the Notes to Consolidated Financial Statements when the fair value is different than the carrying value of these financial instruments.
The improved gross profit in 2022 is mostly due to Shield revenues representing a larger percentage of revenues, 16% compared to 7% in 2021. 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 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.
In August of 2021, we engaged B. Riley Securities, Inc. to act as sales agent under our at-the-market program, which allows us to potentially sell up to $50.0 million of our common stock on a delayed or continuous basis through the use of a shelf-registration statement on Form S-3.
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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General The following discussion and analysis include information management believes is relevant to understand and assess our consolidated financial condition and results of operations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General The following discussion and analysis include information management believes is relevant to understand and assess our consolidated financial condition and results of operations. This section should be read in conjunction with our Consolidated Financial Statements, accompanying notes and the risk factors contained in this report.
Shield revenues increased $0.7 million year-over-year as a result of the full year impact of sales from prior year, the expanded use of Shield from existing customers and new customers signed in 2022. The increase in Shield revenues was partially offset by a decline in consulting revenues of $0.4 million.
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.
If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, increased allowances may be required.
If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, increased allowances may be required. Historically, our estimate for sales returns and credit losses have not differed materially from actual results.
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.
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.
For so long as our public float is less than $75 million, we will be subject to the restrictions set forth in General Instruction I.B.6 to Form S-3, which limit our ability to conduct primary offerings under a Form S-3 registration statement, including with respect to issuances under our at-the-market program.
For the year ended December 31, 2023, we received $4.7 million, net of fees for sales of common stock pursuant to the program. For as long as our public float is less than $75 million, we will be subject to the limitations set forth in General Instruction I.B.6 of Form S-3, which limit our ability to conduct primary offerings.
Net cash used in investing activities for the year ended December 31, 2022, was ($1.1) million which consisted of the purchases of property and equipment and a domain name. Financing Activities Net cash provided by financing activities was $13.6 million for the year ended December 31, 2022.
Net cash provided by financing activities was $13.6 million for the year ended December 31, 2022.
We have increased our Shield sales and marketing efforts by expanding our reseller channels. On December 31, 2022, our Shield opportunities comprised a large percentage of our sales pipeline.
We have increased our Shield sales and marketing efforts by expanding our reseller channels.
After many years of gathering intelligence and providing our INTRUSION TraceCop and Savant solutions exclusively to government entities, we released our first commercial product in 2021, the INTRUSION Shield .
Overview Intrusion Inc. offers businesses of all sizes and industries products and services that leverage the Company’s exclusive threat intelligence database of over 8.5 billion IP addresses and domain names. After many years of gathering intelligence and providing our INTRUSION TraceCop and Savant solutions exclusively to government entities, we released our first commercial product in 2021, the INTRUSION Shield .
The increase relates to the Streeterville notes payable entered into in March and June of 2022 and related debt issuance cost amortization as well as interest expense from finance leases. Interest expense will vary in the future based on our cash flow and borrowing needs.
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.
While we can provide no assurances that we will be able to raise additional funds through any future equity or debt financings, 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. 20 Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.
Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.
Net cash provided by financing activities was $5.1 million for the year ended December 31, 2021, which was primarily the result of net proceeds from our at-the-market program public offering of $5.6 million, proceeds from exercise of stock options of $0.2 million offset by the payment on principal of finance right-of-use leases of ($0.7) million.
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.
We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. With our newest product, INTRUSION Shield , we began offering software on a subscription basis. INTRUSION Shield is a hosted arrangement subject to software as a service guidance under ASC 606.
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.
Gain on Lease Termination In 2022 we recorded a gain of $0.4 million relating to the settlement of our lease abandonment lawsuit. Income Taxes Our effective income tax rate was 0% in 2022 and 2021 as valuation allowances have been recorded for the entire amount of the net deferred tax assets due to uncertainty of realization.
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.
The increase in general and administrative costs relates primarily to increased legal defense costs associated with the various legal proceedings as described in more detail in Item 3. Legal Proceedings of this report.
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.
Removed
This section should be read in conjunction with our consolidated financial statements, accompanying notes and the risk factors contained in this report. 14 Overview Intrusion Inc. offers businesses of all sizes and industries products and services that leverage across our exclusive threat intelligence database which contains the historical data, known associations, and reputational behavior of over 8.5 billion IP addresses.
Added
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.
Removed
During 2022 we spent significant time and resources on: · Addressing and correcting performance issues encountered with the Shield On-Premise solution; · Developing Shield Cloud and Shield End-Point; both released in September 2022; · Further refining our go-to-market strategy by partnering with targeted new value-added resellers, managed service providers and managed security service providers, and · Building out our management team.
Added
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.
Removed
We feel that these efforts provide the resources needed to implement our business plan. In 2022, we raised $15.6 million through the combined issuance of notes payable pursuant to the Securities Purchase Agreement with Streeterville Capital, LLC dated March 10, 2022, the sale of common stock through our at-the-market-program and a registered direct offering.
Added
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.
Removed
Results of Operations The following table set forth, the results of operations for the fiscal years ended December 31, 2022, and 2021. Certain historical amounts have been reclassified to be presented on a comparable basis.
Added
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.
Removed
Sales and Marketing Sales and marketing expenses decreased to $6.5 million in 2022, compared to $10.9 million in 2021. In 2021, with the launch of the INTRUSION Shield commercial product, we aggressively ramped up selling and marketing costs in anticipation of driving revenue growth from Shield sales.
Added
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 .
Removed
As a result of our inability to successfully market and gain traction with sales of the Shield On-Premise solution, we implemented cost saving measures which included changing our go-to-market strategy. We changed from primarily a direct sales effort to a fully indirect channel program including value added resellers, managed service providers, managed security service providers and strategic partners.
Added
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.
Removed
This change contributed to significantly lowering year-over-year spend with reductions in sales and marketing headcount from a high of 40 in mid-2021 to 9 employees on December 31, 2021, and 2022.
Added
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.
Removed
Other cost saving measures implemented in late 2021 that carried forward into 2022 included reduced spend on web marketing, trade shows and other forms of business development and advertising costs. Sales and marketing expenses may vary in the future. Research and Development Research and development expenses increased to $6.5 million in 2022 compared to $6.3 million in 2021.
Added
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.
Removed
In 2022, we implemented the Agile methodology of software development to manage and track our development costs. As a result, we are now able to accurately quantify and capture the cost associated with each stage of the development life cycle.
Added
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.
Removed
As required under ASC Topic 350-40 Internal Use Software Accounting-Capitalization, we began capitalization of costs incurred during the application development stage. In 2022, we recorded $1.4 million of research and development costs to internal use software.
Added
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.
Removed
The net increased spend year-over-year, when including amounts capitalized, of $1.6 million related to costs to design, develop and launch the new Shield Cloud and End-Point solutions as well as costs to support and enhance Shield On-Premise. 17 General and Administrative General and administrative expenses increased to $7.5 million from $5.9 million in 2021.
Added
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.
Removed
In late 2022 we hired an in-house General Counsel which we believe will help to reduce any remaining expense for the Legal Proceedings described herein and expense for legal matters going forward. Also, in late 2021 and early 2022, we experienced significant turnover in our finance department which resulted in higher contract labor and recruiting costs.
Added
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.
Removed
Interest and Other Income Other income totaled $2.0 million for the year ended December 31, 2022, compared to $0.7 million for the year ended December 31, 2021.
Added
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.
Removed
In 2022 we recorded a $2.0 million to Other Income related to an Employee Retention Credit refund due from the federal government as a result of amending 941 returns for the 2020 and 2021 tax periods. Other income in 2021 related to the forgiveness of our U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) loan principal and accrued interest.
Added
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.
Removed
Net cash used in operations for the year ended December 31, 2021 was ($16.6) million due primarily to a net loss of ($18.8) million partially offset by the following sources of cash and non-cash items: $0.4 million increase in deferred revenue, primarily due to increases in cash advances from certain customers shifting to making upfront payments for our services for their contract term of one year and an increased customer base related to our INTRUSION Shield product, a $0.2 million decrease in accounts receivable, primarily caused by timing in receipt of receivables from our customers, a ($0.6) million in gain on the extinguishment of the PPP Loan, $1.3 million in stock-based compensation, $0.8 million in depreciation and amortization expense and $0.2 in noncash lease costs.
Added
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.
Removed
Liquidity and Capital Resources As of December 31, 2022, we had cash and cash equivalents of $3.0 million, down from $4.1 million as of December 31, 2021; and a working capital deficit of ($7.8) million on December 31, 2022, compared to $2.1 million in working capital on December 31, 2021.
Added
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.
Removed
On February 23, 2023 we sold a secured promissory note to Streeterville in the aggregate principal amount of $1.4 million plus certain reimbursed expenses in exchange for $1.3 million. The note provided for weekly principal payments of $50 thousand until its maturity on March 31, 2023.
Added
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.
Removed
The note was secured by all employee retention credits (“ERC”), or other funds still owed or otherwise payable to the Company under the Cares Act. We received payment for the ERC owed to Intrusion on March 13, 2023 and on March 14, 2023 we repaid in full the secured promissory note with Streeterville. 19 Current At-The Market Offering.
Added
We need to raise additional funds to continue operations and comply with our financial obligations. We are executing a plan to regain compliance with the Nasdaq listing standards as described more fully in Item 1A Risk Factors.
Removed
As of December 31, 2022, we have received proceeds of approximately $7.5 million net of fees from the sale of 1,843 thousand shares of our common stock pursuant to the program.
Added
This multi-step plan includes: 1) continued utilization of our ATM program, 2) private offerings of common stock, 3) a warrant inducement offer for the sale of common stock at a reduced exercise price to warrant holders from the Company’s 2022 registered direct offering and November 2023 private offerings, and 4) a series of three transactions in the fourth quarter 2023 and two transactions in March 2024 exchanging $10.0 million in senior debt for $750 thousand in common stock and $9.3 million new preferred Series A stock.

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