Intrusion(INTZ) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the period ending June 30, 2024, reflect a balance sheet improvement from debt-to-equity conversion, shifting to positive equity, yet ongoing net losses and substantial doubt about its going concern status persist, with financing activities serving as the primary liquidity source - The company's auditors expressed substantial doubt about its ability to continue as a going concern for the year ended December 31, 2023, a condition that persists as of June 30, 2024, due to recurring net operating losses[15][16] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 | December 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $1,506 | $139 | +$1,367 | | Total Assets | $7,477 | $6,248 | +$1,229 | | Notes payable | $511 | $10,823 | -$10,312 | | Total Liabilities | $4,529 | $15,703 | -$11,174 | | Total stockholders' equity (deficit) | $2,948 | ($9,555) | +$12,503 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,460 | $1,468 | $2,591 | $2,777 | | Gross Profit | $1,110 | $1,138 | $2,015 | $2,134 | | Operating Loss | ($2,033) | ($2,921) | ($4,505) | ($6,965) | | Net Loss | ($2,067) | ($3,129) | ($3,783) | ($7,863) | | Net Loss Per Share (Basic & Diluted) | ($0.53) | ($2.92) | ($1.31) | ($7.40) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,036) | ($3,275) | | Net cash used in investing activities | ($697) | ($717) | | Net cash provided by financing activities | $6,100 | $1,277 | | Net change in cash | $1,367 | ($2,715) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant financial events including a 1-for-20 reverse stock split, substantial debt-for-equity exchanges totaling $9.5 million with Streeterville Capital, multiple capital raises of approximately $6.5 million, and related-party bridge financing from the CEO, all critical for balance sheet improvement and highlighting ongoing financing needs - The company executed a 1-for-20 reverse stock split on March 22, 2024, with all share and per-share amounts in the report adjusted to reflect this split[17] - In March 2024, the company exchanged $9.3 million in debt owed to Streeterville Capital for 9,275 shares of newly created Series A Preferred Stock and an additional $0.2 million for common stock, significantly reducing liabilities and improving equity[26][35] - The company raised capital through several equity transactions in the first half of 2024, including $3.3 million from its ATM offering, $2.6 million from a private offering of common stock and warrants, and $0.6 million from warrant inducements[36][38][39] - The company's CEO, Anthony Scott, provided short-term financing through two note purchase agreements totaling approximately $1.4 million, which were later converted into common stock and warrants in April 2024[28][29][53] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a slight revenue decline for the six-month period due to federal budget delays and customer loss, offset by a 28% reduction in operating expenses from cost-cutting, while liquidity remains a critical concern, funded by equity financing and a new $10 million Standby Equity Purchase Agreement Results of Operations Revenue for the first six months of 2024 decreased 7% to $2.6 million due to federal budget delays and customer loss, yet operating loss improved 35% to ($4.5) million and net loss improved 52% to ($3.8) million, primarily from a 28% reduction in operating expenses - Revenue for the six months ended June 30, 2024, decreased 7% year-over-year, primarily due to delays in federal government contract renewals and the loss of a large, early INTRUSION Shield customer[63] - Sales to U.S. government entities represented a significant concentration of revenue, accounting for 89.0% and 75.7% of total revenues for the three and six months ended June 30, 2024, respectively[64] - Total operating expenses decreased by 28% for the six-month period ended June 30, 2024, compared to the prior year, driven by reductions in staffing, contract labor, and discretionary spending on sales and marketing[66][67] Liquidity and Capital Resources The company's precarious liquidity, with $1.5 million cash and a $0.5 million working capital deficit, was funded by $6.5 million in equity raises during H1 2024, with a new $10 million SEPA and debt-to-equity conversions securing future funding - As of June 30, 2024, the company had $1.5 million in cash and a working capital deficit of $0.5 million, with management planning to fund operations through continued equity financing[73] - Principal sources of cash in the first half of 2024 were $3.3 million from ATM sales, $2.6 million from a private placement, and $0.6 million from the exercise of warrants[74] - Subsequent to the quarter end, on July 3, 2024, the company entered into a $10 million Standby Equity Purchase Agreement (SEPA) with Streeterville Capital, providing a new potential source of liquidity over a 24-month term[55][75] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company provided no quantitative or qualitative disclosures about market risk, marking the item as 'Not applicable' - The company provided no quantitative or qualitative disclosures about market risk, marking the item as 'Not applicable'[91] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period, June 30, 2024[93] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[93] PART II – OTHER INFORMATION Item 1. Legal Proceedings A stockholder derivative claim from June 2022 was settled and approved on April 3, 2024, involving corporate governance enhancements and a $0.3 million insurance-covered payment for attorneys' fees - A stockholder derivative claim from June 2022 was settled, with the court approving the settlement on April 3, 2024, which included a $0.3 million payment to plaintiff's counsel covered by the company's insurance[31][95] Item 1A. Risk Factors The company highlights significant investor risks, including high stock price volatility due to limited public float and low trading volume, emphasizing potential substantial dilution and downward pressure from future common stock sales, especially under the new $10 million SEPA with Streeterville - The company warns that its stock price is likely to be highly volatile due to factors including a limited public float, low trading volume, and a large portion of stock being closely held[98] - A key risk is the potential for substantial future sales of common stock, which could cause the market price to decline, with the SEPA with Streeterville specifically noted for potentially leading to significant sales and adverse price pressure over an extended period[100] - Issuances of additional shares under the SEPA may result in significant dilution to existing stockholders' economic and voting interests and could negatively impact the market price of the common stock[101][105] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities This section details several unregistered equity transactions, including the exchange of $0.2 million debt for common stock, $9.3 million debt for Series A Preferred Stock, subsequent Series A Preferred to common stock exchanges, and an April 2024 private placement raising approximately $2.6 million through common stock and warrant sales, all conducted under registration exemptions - In March 2024, the company issued common and preferred stock in exchange for an aggregate of $9.5 million in debt held by Streeterville[106][107] - In April and May 2024, the company exchanged a total of 555 shares of Series A Preferred Stock for 366,433 shares of common stock[107] - On April 22, 2024, the company sold 1,348,569 shares of common stock and warrants to purchase 2,697,138 shares in a private placement, raising net proceeds of approximately $2.6 million[108]