Intrusion(INTZ) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial information for Intrusion Inc. for the interim periods Item 1. Financial Statements Presents Intrusion Inc.'s unaudited condensed consolidated financial statements and detailed notes for interim periods ending June 30, 2025 Condensed Consolidated Balance Sheets Balance Sheet Data (in thousands) | Metric (in thousands) | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------- | :------------------------ | :------------------ | | Assets | | | | Total current assets | $10,488 | $5,534 | | Total noncurrent assets | $5,868 | $5,975 | | TOTAL ASSETS | $16,356 | $11,509 | | Liabilities | | | | Total current liabilities | $3,247 | $3,672 | | Total noncurrent liabilities | $1,476 | $1,586 | | Stockholders' Equity | | | | Total stockholders' equity | $11,633 | $6,251 | - Total assets increased by approximately $4.8 million (42.1%) from December 31, 2024, to June 30, 2025, primarily driven by an increase in current assets, notably short-term investments and contract assets[13] - Total stockholders' equity significantly increased by approximately $5.4 million (86.9%) from December 31, 2024, to June 30, 2025[13] Unaudited Condensed Consolidated Statements of Operations Statements of Operations Data (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,873 | $1,460 | $3,648 | $2,591 | | Cost of revenue | $442 | $350 | $874 | $576 | | Gross profit | $1,431 | $1,110 | $2,774 | $2,015 | | Operating loss | $(2,086) | $(2,033) | $(4,179) | $(4,505) | | Net loss | $(2,042) | $(2,067) | $(4,140) | $(3,783) | | Basic Net loss per share | $(0.10) | $(0.53) | $(0.21) | $(1.31) | | Diluted Net loss per share | $(0.10) | $(0.53) | $(0.21) | $(1.31) | - Revenue increased by 28% for the three months ended June 30, 2025, and by 41% for the six months ended June 30, 2025, compared to the same periods in 2024[16] - Net loss per share (basic and diluted) significantly improved from $(0.53) to $(0.10) for the three months ended June 30, 2025, and from $(1.31) to $(0.21) for the six months ended June 30, 2025, primarily due to a higher weighted average common shares outstanding[16] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) - Total stockholders' equity increased from $6,251 thousand at December 31, 2024, to $11,633 thousand at June 30, 2025[19] - Key activities impacting equity in H1 2025 included a registered direct offering (net proceeds of $7,026 thousand), issuance of common stock to reduce notes payable ($537 thousand), and exchange of Series A preferred stock for common stock[19] - The accumulated deficit increased from $(118,007) thousand at December 31, 2024, to $(122,147) thousand at June 30, 2025, reflecting the net losses incurred during the period[19] Unaudited Condensed Consolidated Statements of Cash Flows Cash Flow Data (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,250) | $(4,036) | | Net cash used in investing activities | $(5,150) | $(697) | | Net cash provided by financing activities | $8,238 | $6,100 | | Change in cash and cash equivalents | $(162) | $1,367 | - Net cash used in operating activities decreased by 19.5% in H1 2025 compared to H1 2024, indicating improved operational cash burn[21] - Net cash used in investing activities significantly increased in H1 2025, primarily due to purchases of U.S. treasury securities ($3.7 million) and increased capitalized software development and property/equipment purchases[21][105] - Net cash provided by financing activities increased by 35.0% in H1 2025, driven by proceeds from a registered direct offering ($7.0 million) and stock subscription receivable ($1.5 million)[21][106] Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business - Intrusion Inc. develops, sells, and supports cybersecurity products like TraceCop, Savant, and INTRUSION Shield, which fuse advanced threat intelligence with real-time mitigation to prevent cyberattacks[24] - The company markets its solutions through value-added resellers, managed service providers, and a direct sales force, serving U.S. federal and state/local government entities, and mid-market to large enterprises[24] 2. Basis of Presentation - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, and should be read with the 2024 Annual Report on Form 10-K[26] - A 1-for-20 reverse stock split was effected on March 22, 2024, and all share and per share amounts presented reflect this adjustment[28] - As of June 30, 2025, the Company held $3.7 million in short-term investments, consisting of highly liquid, investment-grade fixed income securities with maturities between 90 days and one year[29] 3. Right-of-use Asset and Leasing Liabilities - The Company records ROU assets and related lease liabilities under ASC 842, using an estimated incremental borrowing rate for present value calculations[30][31] Lease Payments (in thousands) | Lease Payments (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease payments | $100 | $32 | $200 | $37 | | Finance lease payments | $100 | $200 | $200 | $300 | - Total lease expense for the six months ended June 30, 2025, was $340 thousand, down from $530 thousand in the prior year, primarily due to reduced amortization and lease expenses[33] 4. Notes Payable - The Company fully retired the remaining $0.5 million Streeterville debt in March 2025 by issuing 552.3 thousand shares of common stock[40][101] - In March 2024, $9.3 million of Streeterville debt was exchanged for Series A preferred stock and $0.2 million for common stock, leading to a $1.0 million credit to interest expense in H1 2024 due to the reversal of interest accretion and write-off of debt issuance costs[39][41][95] - Notes payable to Anthony Scott (CEO) totaling $1.1 million were converted into common stock and warrants in April 2024[44][75] 5. Commitments and Contingencies - The Company is involved in routine litigation claims but does not anticipate any material adverse impact on its business[45][114] 6. Stockholders' Equity - The Company terminated its ATM agreement with B. Riley Securities on June 11, 2025, and entered into a new ATM offering agreement with H.C. Wainwright & Co., LLC to potentially sell up to $50.0 million of common stock[46][100] - All Series A preferred stock was exchanged for common stock or redeemed by January 3, 2025, with no shares outstanding as of June 30, 2025[51] - In January 2025, the Company completed a registered direct offering, selling 653 thousand common shares and 1,806 thousand prefunded warrants for aggregate gross proceeds of $7.5 million[52] 7. Stock-Based Compensation - The Company recognized stock-based compensation expense of $0.3 million and $0.5 million for the three and six months ended June 30, 2025, respectively, an increase from $0.1 million and $0.2 million for the same periods in 2024[57] - During the six months ended June 30, 2025, the Company granted 383.9 thousand restricted stock units (RSUs)[57] 8. Revenue Recognition - Revenue is recognized upon shipment for products (hardware, software subscriptions, consulting) or monthly over the contract term for INTRUSION Shield SaaS offerings[58][61][63] - For the three and six months ended June 30, 2025, U.S. government entities accounted for 95.5% and 93.6% of total revenues, respectively, an increase from 89.0% and 75.7% in the same periods of 2024[64] Contract Assets (in thousands) | Contract Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Balance at beginning of period | $8 | $304 | | Additions | $1,646 | $505 | | Reclassification to receivables | $(440) | $(801) | | Balance at end of period | $1,214 | $8 | Contract Liabilities (in thousands) | Contract Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Balance at beginning of period | $730 | $439 | | Additions | $3,509 | $3,914 | | Revenue recognized | $(2,264) | $(3,623) | | Balance at end of period | $1,975 | $730 | 9. Capitalized Software Development - The Company capitalizes internally developed software costs during the application development stage, amortizing them on a straight-line basis over an estimated useful life of generally three years[71][72] 10. Net Loss Per Share - Basic and diluted net loss per share are the same due to the Company being in a net loss position[73] - The aggregate number of common stock equivalents excluded from diluted loss per share was 3.8 million shares for the three and six months ended June 30, 2025, and 3.1 million and 1.7 million shares for the three and six months ended June 30, 2024, respectively[73] 11. Related Party Transactions - In H1 2024, the Company engaged in invoice financing arrangements with CEO Anthony Scott, totaling $1.1 million, which were later converted into common stock and warrants[74][75] - No related party transactions occurred for the three or six months ended June 30, 2025[77] 12. Subsequent Events - There were no subsequent events requiring disclosure[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations for the three and six months ended June 30, 2025, highlighting key drivers and outlook Forward-Looking Statements - The report contains forward-looking statements regarding financial position, business strategies, product marketing, and financing, which involve substantial risks and uncertainties[79] - Readers are cautioned not to unduly rely on these statements, as actual results may differ due to various risks outlined in the 'Risk Factors' section of this report and the Annual Report on Form 10-K[80][81] Overview - Intrusion Inc. offers cybersecurity products and services, including INTRUSION TraceCop, Savant, and INTRUSION Shield, leveraging a threat intelligence database of over 8.5 billion IP addresses and domain names[83] - INTRUSION Shield, launched in 2021, provides a Zero Trust, reputation-based security solution to block malicious connections and protect against Zero-Day and ransomware attacks[83] Results of Operations Results of Operations Summary (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (Amount) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :-------------- | :--------- | | Revenue | $1,873 | $1,460 | $413 | 28% | | Cost of revenue | $442 | $350 | $92 | 26% | | Gross profit | $1,431 | $1,110 | $321 | 29% | | Gross profit percentage | 76.4% | 76.0% | | | | Operating expenses | $3,517 | $3,143 | $374 | 12% | | Operating loss | $(2,086) | $(2,033) | $(53) | 3% | | Net loss | $(2,042) | $(2,067) | $25 | -1% | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (Amount) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :-------------- | :--------- | | Revenue | $3,648 | $2,591 | $1,057 | 41% | | Cost of revenue | $874 | $576 | $298 | 52% | | Gross profit | $2,774 | $2,015 | $759 | 38% | | Gross profit percentage | 76.0% | 77.8% | | | | Operating expenses | $6,953 | $6,520 | $433 | 7% | | Operating loss | $(4,179) | $(4,505) | $326 | -7% | | Net loss | $(4,140) | $(3,783) | $(357) | 9% | - Consulting revenue increased in 2025 due to a Department of Defense contract awarded in late 2024, offsetting the negative impact of federal budget delays in H1 2024[84] - INTRUSION Shield revenue grew to $0.5 million (Q2 2025) and $0.9 million (H1 2025), despite losing a major customer (78% of Shield revenues) in Q1 2024, with new customers, including a DoD contract, fully offsetting this loss[84] - Revenue concentration shifted further towards U.S. government entities, comprising 95.5% and 93.7% of total revenues for the three and six months ended June 30, 2025, respectively, up from 89.0% and 75.7% in 2024[85] - Operating expenses increased by $0.3 million for Q2 2025 (adjusted for one-time savings) due to higher share-based compensation, merit increases, and new hires, partially offset by lower legal fees[89] - Research and development expenses increased by $0.3 million (Q2 2025) and $0.5 million (H1 2025) due to increased depreciation from infrastructure hardware and capitalized software, reflecting continued investment in INTRUSION Shield features[92] - General and administrative expenses decreased primarily due to resolved prior-year litigation matters and one-time negotiated savings in 2024[93] - Net loss for the six months ended June 30, 2025, increased by 9% to $(4.1) million, primarily due to a $1.0 million net interest credit recorded in the 2024 period from debt conversion[97] Liquidity and Capital Resources - As of June 30, 2025, cash and cash equivalents were $4.7 million, a decrease of $0.2 million from December 31, 2024, while net working capital increased significantly to $7.2 million from $1.9 million[98] - Principal sources of cash in H1 2025 included $1.5 million from the SEPA (stock subscription receivable) and $7.0 million from a registered direct offering[98][106] - Net cash used in investing activities for H1 2025 was $5.2 million, including $3.7 million in short-term investments and $1.4 million in capitalized software and hardware purchases[105] Critical Accounting Policies and Use of Estimates - The Company's financial statements rely on estimates and assumptions, with no significant changes to critical accounting policies and estimates since the 2024 Annual Report on Form 10-K[107][108] Item 3. Quantitative and Qualitative Disclosures About Market Risk States that the Company has no material quantitative or qualitative disclosures about market risk to report for the period - No applicable disclosures about market risk are provided in this report[109] Item 4. Controls and Procedures Details the evaluation of the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[111] - There have been no material changes in internal control over financial reporting during the three months ended June 30, 2025[112] PART II – OTHER INFORMATION Provides other information including legal proceedings, risk factors, equity sales, and controls and procedures Item 1. Legal Proceedings Addresses the Company's involvement in legal proceedings, stating no material pending legal proceedings as of June 30, 2025 - As of June 30, 2025, the Company was not involved in any material pending legal proceedings[114] - Routine litigation claims are not expected to have a material adverse impact on the Company's business[114] Item 1A. Risk Factors As a smaller reporting company, Intrusion Inc. refers readers to comprehensive risk factors in its 2024 Annual Report on Form 10-K - Risk factors are omitted from this Form 10-Q as the Company is a smaller reporting company[115] - Readers should refer to the risk factors disclosed in the 2024 Annual Report on Form 10-K for potential material adverse effects on the business[115] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities Indicates no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report for the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the period[116] Item 3. Defaults Upon Senior Securities States that there are no defaults upon senior securities to report - No applicable defaults upon senior securities are reported[117] Item 4. Mine Safety Disclosures Indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[118] Item 5. Other Information Provides other information, including no material changes to Board nominee procedures or Rule 10b5-1 trading arrangements by directors or officers - No material changes to procedures for security holders to recommend Board nominees have occurred[120] - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[120] Item 6. Exhibits Lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[122] Signature Page Contains the signatures of the Registrant's authorized officers, Anthony Scott (President & CEO) and Kimberly Pinson (CFO), certifying the report - The report is signed by Anthony Scott, President & Chief Executive Officer, and Kimberly Pinson, Chief Financial Officer, on August 12, 2025[126]