INTRUSION INC

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 United States (“U.S.”) federal government entities, state and local government entities, and companies ranging in size from mid-market to large enterprises.

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

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, 2025, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 25, 2026 (the “2025 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 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 Company’s similar product and service offerings are not viewed as individual segments, as the Company’s management analyzes the business as a whole and expenses are not allocated to each product offering. The Company’s CEO is the Chief Operating Decision Maker (“CODM”). The CODM utilizes both Operating Loss and Net Loss from the Consolidated Statement of Operations to assess performance of thesingle segment. There are no other significant segment expenses or other segment items that would require disclosure.

As of March 31, 2026, we had cash and cash equivalents totaling $1.4 million. On April 6, 2026, we received $3.0 million in cash related to the sale of a promissory note. We generated a net loss of $3.6 million and $2.1 million for the three months ended March 31, 2026, and 2025, respectively.

The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. The Company continues to incur losses from operations, negative cash flows from operations, as well as having a continued dependence on equity and debt financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of these financial statements. The Company plans to finance operations by raising additional funds through public or private financings, including the utilization of the ATM program. The Company can provide no assurances that additional funds will be raised or that the terms of those financings, if available at all, will be on favorable terms or will not result in dilution to stockholders. If the Company is not able to obtain additional debt or equity financing, the Company may be unable to implement the Company’s business plan, fund its liquidity needs, or even continue operations. The financial statements do not include any adjustments relating to recoverability and classifications of assets and liabilities that may be necessary if the Company is unable to continue as a going concern.

The Company has operating and finance leases where it records the 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:

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 months ended March 31, 2026 and 2025, the Company had $0.1 million and $0.1 million, respectively, in lease payments related to operating leases and had $41 thousand and $0.1 million, respectively, in lease payments related to financing leases.

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

Future minimum lease obligations consisted of the following as of March 31, 2026 (in thousands):

Security Purchase Agreement

On March 10, 2022, the Company issued a promissory note (“Note 1”) to Streeterville Capital, LLC with an initial principal balance of $5.4 million and a stated interest rate of 7%. In January 2023, the Company amended Note 1 to waive the noteholder’s redemption rights through March 31, 2023 in exchange for a 3.75% fee on the outstanding principal, which was recorded as additional debt issuance costs and increased the total indebtedness. In August 2023, the Company entered into a Forbearance Agreement, as amended, which extended the maturity date of Note 1 to September 10, 2024 and granted Streeterville a first-priority security interest in substantially all of the Company’s assets.

During 2024, the Company reduced the outstanding principal of Note 1 through debt-to-equity exchanges to $0.5 million and recorded the reversal of previously recognized interest accretion and the write-off of unamortized debt issuance costs. Although Note 1 matured on September 10, 2024, repayment was restricted while Series A preferred stock was outstanding, which was fully redeemed on January 3, 2025. In March 2025, the Company exchanged the remaining $0.5 million principal balance for shares of common stock, resulting in full extinguishment of Note 1. The Company recognized approximately $8 thousand of interest expense for the three months ended March 31, 2025.

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.

ATM Offering

On June 11, 2025, the Company terminated its At Market Sales Agreement with B. Riley Securities, Inc. 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. During the three months ended March 31, 2026 and March 31, 2025, no sales of common stock were made under the ATM utilizing the shelf registration.

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 three months ended March 31, 2026 and 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.

Through the remainder of 2024, the Company reduced the outstanding number of Series A preferred stock outstanding through redemptions and exchanges to common stock to 3,587 shares. In January 2025, the Company exchanged 3,587 shares of Series A preferred stock for 1,293 thousand shares of common stock. All of the exchanges of Series A Preferred to common 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 March 31, 2026 and 2025, there wereno 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 $.0001 per share subject to the Purchaser not being deemed a beneficial owner of greater than 4.99%. As of March 31, 2025, all the pre-funded warrants had been exercised.

Common Stock Warrants

On March 31, 2026, the Company had 3,198,085 warrants to purchase one share of common stock at an average exercise price of $3.26 per share and average remaining term of 3.1 years.

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 three stock-based compensation plans as of March 31, 2026 and December 31, 2025. The 2023 ESPP, 2021 Omnibus Incentive Plan and the 2015 Stock Incentive Plan. These plans provide 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. These plans are discussed in detail in the Company’s Annual Report for the year ended December 31, 2025, filed with the SEC.

The Company grants stock from the 2021 Omnibus Incentive Plan. Grants can no longer be made from the 2015 Stock Incentive Plan.

During the three months ended March 31, 2026 and 2025, the Company granted 29 thousand and 384 thousand restricted stock units (“RSUs”), respectively. No other grants were made during either period.

The Company recognized compensation expense of $0.1 million, for the three months ended March 31, 2026, compared to $0.2 million for the three months ended March 31, 2025.

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:

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,INTRUSIONShield, the Company began offering software on a subscription basis.INTRUSIONShield 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.

The Company utilizes 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.INTRUSIONShield services provided to its customers for a fixed monthly subscription fee include:

INTRUSIONShield contracts provide no other services, and the Company’s customers have no rebates or return rights, nor are any such rights anticipated to be offered as part of this service.

The Company satisfies its performance obligation when theINTRUSIONShield solution is available to detect and prevent unauthorized access to a client’s information networks. Revenue is recognized monthly over the term of the contract. The Company’s standard initial contract terms automatically renew unless notice is given 30 days before renewal. Upfront payment of fees is deferred and amortized into income over the period covered by the contract.

For the three months ended March 31, 2026, revenues to various U.S. government entities totaled $0.8 million from three government customers, representing 87.8% of total revenues. For the three months ended March 31, 2026, the Company’s top three customers comprised 50.8%,36.5%, and 5.4% of total revenues, respectively. In comparison, for the same period in 2025, revenues totaled $1.6 million from four government customers, representing 91.6% of total revenues and the Company’s top three customers comprised 48.8%,24.7%, and 17.9% of total revenues, respectively.

The Company’s accounts receivable represents unconditional contract billings for sales per contracts with customers and are classified as current assets. As of March 31, 2026 and December 31, 2025, the Company had accounts receivable balances of $0.1 million. At March 31, 2026 and December 31, 2025, the Company had an allowance for credit losses of $0.1 million.

Contract assets are recognized when the Company has transferred services to a customer earning the right to consideration.

Contract liabilities consist of cash payments in advance of the Company satisfying performance obligations and recognizing revenue. The Company currently classifies deferred revenue as a contract liability.

The following table presents changes in the Company’s contract liabilities during the three months ended March 31, 2026, and the year ended December 31, 2025 (in thousands):

Contract Liabilities

The Company capitalizes internally developed software using the Agile software development methodology which allows the Company to accurately track and record costs associated with new software development and enhancements.

Pursuant to ASC Topic 350-40 Internal Use Software Accounting Capitalization, certain development costs related to the Company’s products during the application development stage are capitalized as part of property and equipment. Costs incurred in the preliminary stages of development are expensed as incurred. The preliminary stage includes activities such as conceptual formulation of alternatives, evaluation of alternatives, determination of existence of needed technology, and the final selection of alternatives. Once the application development stage is reached, internal and external costs are capitalized until the software is complete and ready for its intended use. Capitalized internal use software is amortized on a straight-line basis over its estimated useful life, which is generally three years.

The Company reports two separate net loss per share numbers, basic and diluted. Basic net loss attributable to common stockholders per share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period. The common stock equivalents include all common stock issuable upon exercise of outstanding warrants, options and vesting of restricted stock awards. The aggregate number of common stock equivalents excluded from the diluted loss per share calculation for the three months ended March 31, 2026, and 2025 totaled 3.6 million and 2.4 million shares, respectively. Since the Company is in a net loss position for the three months ended March 31, 2026 and 2025, basic and dilutive net loss per share is the same.

The Company didnot have any related party transactions during the three months ended March 31, 2026 or 2025.

On April 6, 2026, the “Company entered into a Note Purchase Agreement with Streeterville Capital, LLC, pursuant to which the Company issued a secured promissory note with an original principal amount of $3.2 million for cash proceeds of $3.0 million, reflecting an original issue discount and transaction costs.

The note bears interest at 7% per annum, matures 24 months from issuance, and is secured by a first-priority lien on substantially all of the Company’s assets, including intellectual property. The agreement includes customary representations, warranties, and covenants, and the note provides for certain redemption rights beginning six months after issuance.

On May 7, 2026, the Company received a written notice (the “Bid Price Notice”) from the Nasdaq Stock Market LLC (“NASDAQ”) notifying the Company that it is not in compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) for continued listing on the NASDAQ Capital Market. The notification of noncompliance has no immediate effect on the listing or trading of the Company’s common stock on The NASDAQ Capital Market under the symbol “INTZ,” and the Company is currently monitoring the closing bid price of its common stock and evaluating its alternatives, if appropriate, to resolve the deficiency and regain compliance with this rule.

On May 13, 2026, the Company entered into a subcontractor agreement to provide cybersecurity and critical infrastructure protection support services for a state government agency. The agreement has an initial one year term beginning in May 2026 and represents aggregate contract value of approximately $3.9 million. Revenue related to this arrangement will be recognized over time as performance obligations are satisfied in according with ASC 606,Revenue from Contracts with Customers. No revenue related to the agreement was recognized during the three months ended March 31, 2026.