INTRUSION INC. Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39608

INTRUSION INC.

(Exact name of registrant as specified in its charter)

Delaware	75-1911917
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 East Park Blvd, Suite 1200, Plano, Texas 75074

(Address of principal executive offices) (Zip Code)

(888) 637-7770

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

* * * * * * * * * *

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	INTZ	Nasdaq Capital Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large, accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, on November 11, 2025, was 20,102,939.

INTRUSION INC.

INDEX

PART I – FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets as of September 30, 2025 (unaudited), and December 31, 2024	3

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025, and 2024	4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2025, and 2024	5

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025, and 2024	7

Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

Item 4. Controls and Procedures	22

PART II – OTHER INFORMATION	23

Item 1. Legal Proceedings	23

Item 1A. Risk Factors	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities	23

Item 3. Defaults Upon Senior Securities	23

Item 4. Mine Safety Disclosures	23

Item 5. Other Information	23

Item 6. Exhibits	24

Signature Page	25

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INTRUSION INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)


	September 30, 2025			December 31, 2024
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,527		$	4,851
Short-term investments		2,000			–
Accounts receivable, net		2,378			169
Prepaid expenses and other assets		666			514
Total current assets		7,571			5,534
Noncurrent Assets:
Property and equipment:
Equipment		2,899			2,690
Capitalized software development		5,344			3,948
Leasehold improvements		18			18
Property and equipment, gross		8,261			6,656
Accumulated depreciation and amortization		(3,937	)		(2,809	)
Property and equipment, net		4,324			3,847
Finance leases, right-of-use assets, net		249			491
Operating leases, right-of-use assets, net		1,243			1,356
Other assets		285			281
Total noncurrent assets		6,101			5,975
TOTAL ASSETS	$	13,672		$	11,509

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade	$	541		$	1,508
Accrued expenses		550			291
Finance lease liabilities, current portion		113			405
Operating lease liabilities, current portion		54			209
Notes payable		–			529
Deferred revenue		1,177			730
Total current liabilities		2,435			3,672

Noncurrent Liabilities:
Finance lease liabilities, noncurrent portion		85			172
Operating lease liabilities, noncurrent portion		1,343			1,414
Total noncurrent liabilities		1,428			1,586

Commitments and Contingencies – (See Note 5)		–			–

Stockholders’ Equity:
Preferred stock, $0.01 par value: Authorized shares – 5,000; Issued shares – 0 in 2025 and 4 in 2024		–			3,827
Common stock, $0.01 par value: Authorized shares – 80,000; Issued shares – 20,103 in 2025 and 15,591 in 2024; Outstanding shares – 20,102 in 2025 and 15,590 in 2024		201			156
Common stock held in treasury, at cost – 1 share		(362	)		(362	)
Additional paid-in capital		134,254			122,552
Stock subscription receivable		–			(1,872	)
Accumulated deficit		(124,241	)		(118,007	)
Accumulated other comprehensive loss		(43	)		(43	)
Total stockholders’ equity		9,809			6,251
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,672		$	11,509

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTRUSION INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30, 2025			September 30, 2024			September 30, 2025			September 30, 2024
Revenue	$	1,966		$	1,504		$	5,614		$	4,095
Cost of revenue		461			344			1,335			920

Gross profit		1,505			1,160			4,279			3,175

Operating expenses:
Sales and marketing		1,273			1,207			3,664			3,542
Research and development		1,329			1,150			3,879			3,204
General and administrative		1,039			841			3,051			2,972

Operating loss		(2,136	)		(2,038	)		(6,315	)		(6,543	)

Interest expense		(17	)		(12	)		(67	)		(274	)
Interest accretion and amortization of debt issuance costs, net		–			–			–			990
Other (expense) income, net		59			–			148			(6	)

Net loss	$	(2,094	)	$	(2,050	)	$	(6,234	)	$	(5,833	)

Net loss per share:
Basic	$	(0.10	)	$	(0.35	)	$	(0.32	)	$	(1.49	)
Diluted	$	(0.10	)	$	(0.35	)	$	(0.32	)	$	(1.49	)

Weighted average common shares outstanding:
Basic		19,975			6,557			19,698			4,264
Diluted		19,975			6,557			19,698			4,264

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTRUSION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)


	Series A Preferred Stock					Common Stock			Treasury Stock				Accumulated Other Comprehensive			Additional Paid-In			Stock Subscription			Accumulated
	Dollars			Shares		Dollars		Shares	Dollars			Shares	Loss			Capital			Receivable			Deficit			Total
Balance, December 31, 2024	$	3,827		4		$	156	15,591	$	(362	)	1	$	(43	)	$	122,552		$	(1,872	)	$	(118,007	)	$	6,251
Stock-based compensation expense		–		–			–	–		–		–		–			222			–			–			222
Registered direct offering, net of fees		–		–			24	2,459		–		–		–			7,002			–			–			7,026
Issuance of common stock to reduce note payable		–		–			6	553		–		–		–			531			–			–			537
Exchange of Series A preferred stock for common stock		(3,946	)	(4	)		13	1,293		–		–		–			3,933			–			–			–
Redemption of preferred stock		(187	)	–			–	–		–		–		–			–			–						(187	)
Issuance of preferred stock for payment of preferred return		2		–			–	–		–		–		–			(2	)		–			–			–
Amortization of preferred stock exchange premium		304		–			–	–		–		–		–			(304	)		–			–			–
At-the-market (“ATM”) offering fees		–		–			–	–		–		–		–			(79	)		–			–			(79	)
Standby purchase agreement proceeds, net of fees		–		–			–	–		–		–		–			(143	)		1,872			–			1,729
Net loss		–		–			–	–		–		–		–			–			–			(2,098	)		(2,098	)
Balance, March 31, 2025	$	–		–		$	199	19,896	$	(362	)	1	$	(43	)	$	133,712		$	–		$	(120,105	)	$	13,401
Stock-based compensation expense		–		–			–	–		–		–		–			282			–			–			282
Issuance of common stock through employee stock purchase plan		–		–			–	5		–		–		–			10			–			–			10
At-the-market (“ATM”) offering fees		–		–			–	–		–		–		–			(18	)		–			–			(18	)
Net loss		–		–			–	–		–		–		–			–			–			(2,042	)		(2,042	)
Balance, June 30, 2025	$	–		–		$	199	19,901	$	(362	)	1	$	(43	)	$	133,986		$	–		$	(122,147	)	$	11,633
Stock-based compensation expense		–		–			–	–		–		–		–			300			–			–			300
At-the-market (“ATM”) offering fees		–		–			–	–		–		–		–			(30	)		–			–			(30	)
Restricted stock units vested		–		–			2	202		–		–		–			(2	)		–			–			–
Net loss		–		–			–	–		–		–		–			–			–			(2,094	)		(2,094	)
Balance, September 30, 2025	$	–		–		$	201	20,103	$	(362	)	1	$	(43	)	$	134,254		$	–		$	(124,241	)	$	9,809


												Accumulated
												Other			Additional
	Series A											Comprehensive			Paid-In
	Preferred Stock				Common Stock			Treasury Stock				Loss			Capital			Accumulated
	Dollars			Shares	Dollars		Shares	Dollars			Shares	Dollars			Dollars			Deficit			Total
Balance, December 31, 2023	$	–		–	$	18	1,848	$	(362	)	1	$	(43	)	$	101,049		$	(110,217	)	$	(9,555	)
Stock-based compensation expense		–		–		–	–		–		–		–			142			–			142
Issuance of preferred stock to reduce note payable		9,275		9		–	–		–		–		–			–			–			9,275
Public stock offering, net of fees		–		–		1	115		–		–		–			484			–			485
Issuance of common stock to reduce note payable		–		–		–	52		–		–		–			200			–			200
Net loss		–		–		–	–		–		–		–			–			(1,716	)		(1,716	)
Balance, March 31, 2024	$	9,275		9	$	19	2,015	$	(362	)	1	$	(43	)	$	101,875		$	(111,933	)	$	(1,169	)
Stock-based compensation expense		–		–		–	–		–		–		–			67			–			67
Public stock offering, net of fees		–		–		15	1,466		–		–		–			2,816			–			2,831
Issuance of common stock and warrants associated with warrant inducements		–		–		2	186		–		–		–			565			–			567
Issuance of common stock and warrants, net of fees		–		–		13	1,349		–		–		–			2,606			–			2,619
Exchange of Series A preferred stock for common stock		(609	)	–		4	366		–		–		–			605			–			–
Preferred shares issued in conjunction with preferred return		290		–		–	–		–		–		–			(290	)		–			–
Issuance of common stock in conjunction with obtaining minority interest in company		–		–		1	59		–		–		–			99			–			100
Net loss		–		–		–	–		–		–		–			–			(2,067	)		(2,067	)
Balance, June 30, 2024	$	8,956		9	$	54	5,441	$	(362	)	1	$	(43	)	$	108,343		$	(114,000	)	$	2,948
Stock-based compensation expense		–		–		–	–		–		–		–			55			–			55
Public stock offering, net of fees		–		–		14	1,380		–		–		–			1,469			–			1,483
Issuance of common stock associated with entry into Standby Equity Purchase Agreement		–		–		3	310		–		–		–			(1	)		–			2
Issuance of common stock for advance on Standby Equity Purchase Agreement, net of fees		–		–		2	150		–		–		–			105			–			107
Issuance of common stock to settle vendor payable		–		–		1	124		–		–		–			135			–			136
Exchange of Series A preferred stock for common stock		(143	)	–		1	111		–		–		–			142			–			–
Issuance of preferred stock for payment of preferred return		246		–		–	–		–		–		–			(247	)		–			(1	)
Redemption of preferred stock		(113	)	–		–	–		–		–		–			–			–			(113	)
Net loss		–		–		–	–		–		–		–			–			(2,050	)		(2,050	)
Balance, September 30, 2024	$	8,946		9	$	75	7,516	$	(362	)	1	$	(43	)	$	110,001		$	(116,050	)	$	2,567

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTRUSION INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2025			2024
Operating Activities:
Net loss	$	(6,234	)	$	(5,833	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,356			1,183
Bad debt expense		39			29
Gain on disposal of fixed assets		–			8
Stock-based compensation		804			264
Non-cash lease costs		206			302
Note 1 and 2 interest accretion up to the redemption common stock settlement amount and debt issuance costs		–			(990	)
Other amortization of debt issuance costs		–			83
Other non-cash interest		8			182
Changes in operating assets and liabilities:
Accounts receivable		(2,248	)		(589	)
Prepaid expenses and other assets		(160	)		115
Accounts payable and accrued expenses		(127	)		(555	)
Operating lease liabilities		(319	)		(173	)
Deferred revenue		447			(141	)
Net cash used in operating activities		(6,228	)		(6,115	)

Investing Activities:
Purchases of United States (“U.S.”) treasury securities		(3,749	)		–
Maturities of U.S. treasury securities		1,749			–
Purchases of property and equipment		(759	)		(66	)
Capitalized software development		(1,426	)		(985	)
Net cash used in investing activities		(4,185	)		(1,051	)

Financing Activities:
Proceeds from notes payable		–			1,838
Principal payments on notes payable		–			(1,443	)
Proceeds from public stock offering net of fees		(127	)		4,799
Proceeds from warrant inducements		–			567
Proceeds from sales of common stock and warrants, net of fees		–			2,619
Proceeds from sale of stock under standby purchase equity agreement		–			97
Proceeds from registered direct offering, net of fees		7,026			–
Proceeds from stock subscription receivable		1,542			–
Reduction of finance lease liabilities		(362	)		(399	)
Proceeds related to the issuance of common stock under stock purchase plan		10			–
Net cash provided by financing activities		8,089			8,078

Net (decrease) increase in cash and cash equivalents		(2,324	)		912
Cash and cash equivalents at beginning of period		4,851			139
Cash and cash equivalents at end of period	$	2,527		$	1,051

SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest	$	6		$	112

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized software included in accounts payable	$	26		$	88
Accounts payable on capitalized assets settled with vendor	$	–		$	116
Preferred stock issued to reduce notes payable	$	–		$	9,275
Common stock issued to reduce notes payable	$	537		$	200
Common stock issued to settle accounts payable	$	–		$	136
Redemption of preferred stock to reduce notes payable	$	–		$	100
Common stock used for minority investment in company	$	–		$	100
Modification of right-of-use finance lease	$	18		$	273

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

INTRUSION INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Description of Business

Intrusion Inc. (together with its consolidated subsidiaries, the “Company,” “Intrusion,” “Intrusion Inc.,” “we,” “us,” “our,” or similar terms) was organized in Texas in September 1983 and reincorporated in Delaware in October 1995. Our principal executive offices are located at 101 East Park Boulevard, Suite 1200, Plano, Texas 75074, and our telephone number is (888) 637-7770. Our website URL is www.intrusion.com.

The Company develops, sells, and supports products that protect any-sized company or government organization by fusing advanced threat intelligence with real-time mitigation to kill cyberattacks as they occur – including Zero-Days. The Company markets and distributes the Company’s solutions through value-added resellers, managed service providers and a direct sales force. The Company’s end-user customers include U.S. federal government entities, state and local government entities, and companies ranging in size from mid-market to large enterprises.

TraceCop (“TraceCop™”) and Savant (“Savant™”) are registered trademarks of Intrusion Inc. The Company has applied for trademark protection for the Company’s new INTRUSION Shield cybersecurity solution.

2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Item 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of the results of operations for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 27, 2025 (the “2024 Annual Report”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to unaudited condensed consolidated financial statements when the fair value is different from the carrying value of these financial instruments. The estimated fair value of short-term investments, 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.

As of September 30, 2025, we had cash and investments in U.S. treasury securities totaling $4.5 million. On October 1, 2025, we received $3.0 million in cash related to the Department of Defense contract extension. We generated a net loss of $6.2 million and $5.8 million for the nine months ended September 30, 2025, and 2024, respectively. If our operations do not generate positive cash flow in the upcoming year, or if we are not able to obtain additional debt or equity financing on terms and conditions acceptable to us, we may be unable to implement our business plan, fund our liquidity needs or even continue our operations.

Reverse Stock Split

The Company effected a 1-for-20 reverse stock split on March 22, 2024. Unless otherwise stated, all share and per share amounts for all periods presented have been adjusted to reflect the reverse stock split.

Short-term Investments

Short-term investments consist of highly liquid, investment-grade fixed income securities, such as corporate bonds, asset-backed securities, municipal securities, U.S. Treasury and agency securities, and money market funds. These investments have maturities of greater than 90 days and less than one year from the balance sheet date and are intended to be available to meet current operational needs. As of September 30, 2025, the Company had $2.0 million in short-term investments. There were no short-term investments at December 31, 2024.

3.	Right-of-use Asset and Leasing Liabilities

The Company has operating and finance leases where it records the right-of-use (“ROU”) assets, and a related lease liability as required under the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 842. The lease liabilities are determined by the net present value of total lease payments and amortized over the life of the lease. The Company’s leases are for the following types of assets:

	·	Computer hardware and copy machines- The Company’s finance lease right-of-use assets consist of computer hardware and copy machines. These leases have two and three year lives and are in various stages of completion.

	·	Office space - The Company’s operating lease right-of-use assets include its rental agreements for its offices in Plano, Texas, and a data service center in Allen, Texas. The Plano offices operating lease expires on April 30, 2035. The data service center operating lease liability has a life of one month as of September 30, 2025. The Company plans to extend the data service center agreement under its twelve-month autorenewal provision.

In accordance with ASC 842, the Company has elected practical expedients to combine lease and non-lease components, which consist principally of common area maintenance charges, for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

As the implicit rate is not readily determinable for the Company's lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments.

For the three and nine months ended September 30, 2025, the Company made operating lease payments of $0.1 million and $0.3 million, respectively, compared to $0.1 million and $0.2 million for the same periods in 2024. For the same periods, finance lease payments were $0.1 million and $0.4 million in 2025, and $0.1 million and $0.4 million in 2024, respectively.

Schedule of Items Appearing on the Unaudited Condensed Consolidated Statements of Operations (in thousands):

Schedule of lease cost
	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Operating expense:
Amortization expense – Finance ROU	$	29	$	172	$	223	$	501
Lease expense – Operating ROU	$	97	$	101	$	206	$	302
Other expense:
Interest expense – Finance ROU	$	17	$	–	$	54	$	–
Total lease expense	$	143	$	273	$	483	$	803

Future minimum lease obligations consisted of the following as of September 30, 2025 (in thousands):


	Operating			Finance
Year ending December 31,	ROU Leases			ROU Leases			Total
Remaining 2025	$	13		$	40		$	53
2026		214			200			414
2027		146			4			150
2028		223			3			226
2029		228			–			228
Thereafter		1,308			–			1,308
	$	2,132		$	247		$	2,379
Less interest*		(735	)		(49	)
	$	1,397		$	198

*	Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying unaudited condensed consolidated statements of operations.

4.	Notes Payable

Security Purchase Agreement

On March 10, 2022, the Company entered into an unsecured loan agreement (“SPA”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which the Company issued two separate promissory notes of $5.4 million each with an initial rate of 7%. Under this agreement, the Company received $4.6 million in net funds from the first tranche (Note 1) on March 10, 2022, and $4.7 million in net funds from the second tranche (Note 2) on June 29, 2022. Each note carried an 18-month maturity and had redemption provisions after six months in amounts up to $0.5 million per calendar month at the noteholder’s discretion.

On January 11, 2023, the Company amended the promissory notes issued pursuant to the unsecured loan agreement with Streeterville 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 which increased the outstanding indebtedness due at maturity with Streeterville and increased the associated debt issuance costs recorded on the unaudited condensed consolidated balance sheets by $0.4 million.

On August 2, 2023, the Company entered into a Forbearance Agreement with Streeterville which was subsequently amended on August 7, 2023. The Forbearance Agreement and amendment extended the maturity dates for each Note by 12 months to September 2024 and December 2024. In consideration of the extension of the maturity dates, the Company entered into a Security Agreement with Streeterville, dated August 2, 2023 (the “Security Agreement”), under which Streeterville was granted a first-position security interest in all assets of the Company.

In March 2024, the Company entered into an agreement with Streeterville to exchange $0.2 million in principal for 52.2 thousand shares of common stock. Also in March 2024, the Company exchanged $9.3 million in Streeterville debt for 9.3 thousand shares of newly created Series A preferred stock. The issuance of both common and preferred shares was made pursuant to the exemption from the registration requirements afforded by the Securities Act of 1933, as amended (the “Securities Act”). Following the exchanges as noted herein, the remaining balance on Note 1 was $0.5 million, Note 2 was paid in full, the interest accretion associated with the ability to stock-settle principal redemptions was reversed and the Company wrote off the balance of unamortized debt issuance costs.

The maturity date for Note 1 was September 10, 2024; however, the preferences for Series A preferred stock precluded repayment of Note 1 so long as any shares of Series A preferred stock were outstanding. The Series A preferred stock was fully redeemed on January 3, 2025. In March 2025, the Company entered into three separate agreements with Streeterville to exchange an aggregate $0.5 million in principal for 552.3 thousand shares of common stock, thereby retiring the remainder of Note 1 in full. The issuance of both common and preferred shares was made pursuant to the exemption from the registration requirements afforded by the Securities Act.

For the nine months ended September 30, 2025, and 2024, the Company recorded simple interest of $8 thousand and $274 thousand, respectively. In March 2024, as a result of exchanging $9.5 million principal in aggregate for equity, the Company reversed the interest accretion associated with the ability to stock-settle principal redemptions and wrote off the balance of unamortized debt issuance costs resulting in a credit of $1.0 million to interest expense in the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2024.

Scott Notes Payable

In 2024, the Company entered into two separate note purchase agreements with Anthony Scott, the Company’s President and Chief Executive Officer and member of the Company’s Board of Directors. On January 2, 2024, Mr. Scott purchased a note payable in the principal amount of $1.1 million in exchange for $1.0 million in cash. The note called for weekly payments of $40 thousand until maturity on June 15, 2024. Interest accrued on the balance of the note at 7% per annum compounding daily. During the period ended September 30, 2024, the Company made $0.2 million in principal payments on the first note payable.

On March 20, 2024, Mr. Scott purchased a second note payable in the principal amount of $343 thousand in exchange for $340 thousand in cash. The note was non-interest bearing and matured on April 19, 2024. On April 2, 2024, the Company reduced the principal balance due under the note by $101 thousand, which reflected the amount due from Mr. Scott for the exercise of common stock purchase warrants.

On April 19, 2024, Mr. Scott entered into a private placement subscription agreement to convert the aggregate outstanding balance of $1.1 million for both notes in exchange for common stock and common stock purchase warrants.

The Company recorded interest expense of $20 thousand for both notes in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2024. For the nine months ended September 30, 2024, $83 thousand in amortization of debt issuance cost was recorded.

5.	Commitments and Contingencies

The Company is periodically involved in various litigation claims asserted in the normal course of its business. The Company believes these actions are routine and incidental to the business. While the outcome of these actions cannot be predicted with certainty, the Company does not believe that any will have a material adverse impact on the Company’s business.

6.	Stockholders’ Equity

ATM Offering

On June 11, 2025, the Company terminated its At Market Sales Agreement with B. Riley Securities, Inc. (the “Riley ATM Agreement”). On June 12, 2025, the Company entered into a new At The Market Offering Agreement with H.C. Wainwright & Co., LLC to potentially sell up to $50.0 million of the Company’s common stock using a shelf registration statement on Form S-3/A (File No. 333-281565) which was filed on January 31, 2025 and became effective on February 10, 2025. For the period ended September 30, 2025, no sales of common stock were made under the ATM utilizing the shelf registration. For the period ended September 30, 2024, the Company received proceeds of approximately $4.8 million net of fees from the sale of common stock pursuant to the Riley ATM Agreement.

Standby Equity Purchase Agreement

On July 3, 2024, the Company entered into a $10 million Standby Equity Purchase Agreement (“SEPA”) with Streeterville pursuant to which the Company has the right to direct Streeterville during the 24-month term of the agreement to purchase common stock subject to certain limitations and conditions set forth in the SEPA. During the year ended December 31, 2024, 1.2 million shares of common stock were purchased pursuant to the SEPA resulting in aggregate net proceeds of $1.8 million of which $0.1 million was received in 2024. The remaining proceeds due were recorded as a stock subscription receivable in the consolidated balance sheet on December 31, 2024, and received in January 2025. During the nine months ended September 30, 2025, no purchases were made pursuant to the SEPA.

Series A Preferred Stock

On March 15, 2024, the Company filed the Amended and Restated Certificate of Incorporation (the “A&R Certificate”) to eliminate the Series 1, Series 2, and Series 3 preferred shares and filed a Certificate of Designations creating a new Series A preferred stock, $0.01 par value per share (the “Series A preferred stock”). Pursuant to the terms of the Series A Certificate, 20 thousand shares of Series A preferred stock are authorized, and each share of Series A preferred stock has a stated value of $1,100, accrues a rate of return on the stated value of 10% per year, is compounded annually and is payable quarterly in cash or additional shares of Series A preferred stock.

On March 15, 2024, the Company entered into an Exchange Agreement with Streeterville Capital that exchanged $9.3 million in debt for 9,275 shares of Series A preferred stock.

On April 3, 2024, and continuing through December 31, 2024, in nine separate exchange transactions, the Company exchanged an aggregate of 6,123 shares of Series A preferred stock for 2,637.7 thousand shares of common stock. All the exchanges were made pursuant to the exemption from the registration requirements afforded by Section 3(a)(9) of the Securities Act. Also in 2024, the Company redeemed 17 shares of Series A preferred stock in conjunction with the sale of common stock under the SEPA and redeemed 90 shares of Series A preferred stock in conjunction with entering into a separate financing agreement with Streeterville as more fully described in the 2024 Annual Report.

On January 2 and 3, 2025, in two separate exchange transactions, the Company exchanged an aggregate of 3,587 shares of Series A preferred stock for 1,293 thousand shares of common stock. Both exchanges were made pursuant to the exemption from the registration requirements afforded by Section 3(a)(9) of the Securities Act. Also in January 2025, the Company redeemed 170 shares of Series A preferred stock in conjunction with the receipt of proceeds from the sale of common stock under the SEPA. As of September 30, 2025, there were no remaining shares of Series A preferred stock outstanding.

Registered Direct Offering

On January 6, 2025, the Company sold to a single institutional investor 653 thousand shares of the Company’s common stock at a purchase price of $3.05 per share and 1,806 thousand prefunded warrants to purchase up to 1,806 thousand shares of common stock at a purchase price of $3.0499 for aggregate gross proceeds of $7.5 million. The prefunded warrants were exercisable immediately at an exercise price of $0.0001 per share subject to the purchaser not being deemed a beneficial owner of greater than 4.99%. All of the pre-funded warrants were exercised in January 2025.

Common Stock Warrants

On September 30, 2025, the Company had 3,198,085 warrants outstanding to purchase common stock at an average exercise price of $3.26 per share and average remaining term of 3.6 years.

7.	Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which requires that compensation related to all stock-based awards be recognized in the condensed consolidated financial statements. Stock-based compensation cost is valued at fair value at the date of grant, and the grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.

The Company had two stock-based compensation plans as of September 30, 2025, and December 31, 2024, the 2021 Omnibus Incentive Plan and the 2015 Stock Incentive Plan. All awards outstanding under the 2005 Stock Incentive Plan expired during the nine months ended 2025.

The Company grants stock from the 2021 Omnibus Incentive Plan. This plan provides a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

During the nine months ended September 30, 2025, the Company granted 545.7 thousand restricted stock units and 15 thousand stock option awards. During the nine months ended September 30, 2024, the Company granted 253.6 thousand restricted stock awards and 100 stock options.

The Company recognized compensation expense of $0.3 million and $0.8 million for the three and nine months ended September 30, 2025, respectively, compared to $0.1 million and $0.3 million for the three and nine months ended September 30, 2024, respectively.

8.	Revenue Recognition

The Company recognizes product revenue upon shipment or after meeting certain performance obligations. These products can include hardware, software subscriptions and consulting services. The Company also offers software on a subscription basis subject to software as a service (“SaaS”). Warranty costs have not been material.

The Company recognizes sales of the Company’s datasets in accordance with FASB ASC Topic 606 whereby revenue from contracts with customers are recognized once the criteria under the five steps below have been 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)	recognize revenue upon satisfaction of a performance obligation.

Consulting services include reporting and are typically done monthly, and revenue is matched accordingly.

Normal payment terms offered to customers, distributors and resellers are net 30 days domestically. The Company does not offer payment terms that extend beyond one year and rarely does it extend payment terms beyond its normal terms. If certain customers do not meet the Company’s credit standards, the Company typically requires payment in advance to limit its credit exposure.

With the Company’s newest product, INTRUSION Shield, the Company began offering software on a subscription basis. INTRUSION Shield is a hosted arrangement subject to SaaS guidance under ASC 606. SaaS arrangements are accounted for as subscription services, not arrangements that transfer a license of intellectual property.

SEC Form 10-Q filed by Intrusion Inc.