Intrusion (INTZ) 10-Q 14 Aug 23 2023 Q2 Quarterly report Financial data

Cover

Cover - shares	6 Months Ended
	Jun. 30, 2023	Aug. 11, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2023
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Entity File Number	001-39608
Entity Registrant Name	INTRUSION INC.
Entity Central Index Key	0000736012
Entity Tax Identification Number	75-1911917
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	101 East Park Blvd
Entity Address, Address Line Two	Suite 1200
Entity Address, City or Town	Plano
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75074
City Area Code	(972)
Local Phone Number	234-6400
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	INTZ
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		23,134,011

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Current Assets:
Cash and cash equivalents	$ 300	$ 3,015
Accounts receivable, net	211	530
Prepaid expenses and other assets	427	1,877
Total current assets	938	5,422
Property and equipment:
Equipment	2,886	2,865
Capitalized software development	2,196	1,380
Furniture and fixtures	43	43
Leasehold improvements	78	78
Property and equipment, gross	5,203	4,366
Accumulated depreciation and amortization	(2,674)	(2,208)
Property and equipment, net	2,529	2,158
Finance leases, right-of-use assets, net	715	1,048
Operating leases, right-of-use assets, net	348	504
Other assets	147	143
Total noncurrent assets	3,739	3,853
TOTAL ASSETS	4,677	9,275
Current Liabilities:
Accounts payable, trade	1,798	1,273
Accrued expenses	212	446
Finance lease liabilities, current portion	618	667
Operating lease liabilities, current portion	184	294
Notes payable	10,894	10,114
Deferred revenue	1,121	455
Total current liabilities	14,827	13,249
Noncurrent Liabilities:
Finance lease liabilities, noncurrent portion	4	10
Operating lease liabilities, noncurrent portion	167	231
Total noncurrent liabilities	171	241
Commitments and Contingencies – (See Note 5)
Stockholders’ Deficit:
Preferred stock, $0.01 par value: Authorized shares – 5,000 Issued shares – 0 in 2023 and 2022	0	0
Common stock, $0.01 par value: Authorized shares – 80,000; Issued shares – 22,442 in 2023 and 21,198 in 2022; Outstanding shares – 22,432 in 2023 and 21,188 in 2022	224	212
Common stock held in treasury, at cost – 10 shares	(362)	(362)
Additional paid-in capital	94,049	92,304
Accumulated deficit	(104,189)	(96,326)
Accumulated other comprehensive loss	(43)	(43)
Total stockholders’ deficit	(10,321)	(4,215)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$ 4,677	$ 9,275

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - $ / shares shares in Thousands	Jun. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	5,000	5,000
Preferred Stock, Shares Issued	0	0
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized	80,000	80,000
Common Stock, Shares, Issued	22,442	21,198
Common Stock, Shares, Outstanding	22,432	21,188
Common stock held in treasury, at cost, shares (in shares)	10	10

UNAUDITED CONDENSED CONSOLIDATE

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Statement [Abstract]
Revenue	$ 1,468	$ 2,058	$ 2,777	$ 3,893
Cost of revenue	330	916	643	1,819
Gross profit	1,138	1,142	2,134	2,074
Operating expenses:
Sales and marketing	1,423	1,568	3,161	2,774
Research and development	1,451	1,486	3,247	3,136
General and administrative	1,185	2,049	2,691	4,109
Operating loss	(2,921)	(3,961)	(6,965)	(7,945)
Interest and other income	0	1	41	2
Interest expense	(208)	(525)	(939)	(596)
Gain on lease termination	0	420	0	420
Net loss	$ (3,129)	$ (4,065)	$ (7,863)	$ (8,119)
Net loss per share:
Basic	$ (0.15)	$ (0.21)	$ (0.37)	$ (0.42)
Diluted	$ (0.15)	$ (0.21)	$ (0.37)	$ (0.42)
Weighted average common shares outstanding:
Basic	21,383	19,372	21,225	19,238
Diluted	21,383	19,372	21,225	19,238

UNAUDITED CONDENSED CONSOLIDA_2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Treasury Stock, Common [Member]	AOCI Attributable to Parent [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Beginning balance, value at Dec. 31, 2021	$ 191	$ (362)	$ (43)	$ 84,230	$ (80,097)	$ 3,919
Beginning Balance, shares at Dec. 31, 2021	19,135	10
Stock-based compensation expense				427		427
Exercise of stock options	$ 1			60		61
Exercise of stock options, shares	91
Public stock offering, net of fees	$ 3			946		949
Public stock offering, net of fees, shares	248
Net loss					(4,054)	(4,054)
Ending balance, value at Mar. 31, 2022	$ 195	$ (362)	(43)	85,663	(84,151)	1,302
Ending Balance, shares at Mar. 31, 2022	19,474	10
Beginning balance, value at Dec. 31, 2021	$ 191	$ (362)	(43)	84,230	(80,097)	3,919
Beginning Balance, shares at Dec. 31, 2021	19,135	10
Net loss						(8,119)
Ending balance, value at Jun. 30, 2022	$ 197	$ (362)	(43)	86,570	(88,216)	(1,854)
Ending Balance, shares at Jun. 30, 2022	19,745	10
Beginning balance, value at Mar. 31, 2022	$ 195	$ (362)	(43)	85,663	(84,151)	1,302
Beginning Balance, shares at Mar. 31, 2022	19,474	10
Stock-based compensation expense				450		450
Exercise of stock options				4		4
Exercise of stock options, shares	6
Public stock offering, net of fees	$ 1			254		255
Public stock offering, net of fees, shares	84
Net loss					(4,065)	(4,065)
Partial extinguishment of operating lease with common stock				200		200
Partial extinguishment of operating lease with common stock, shares	75
Issuance of restricted stock, net of forfeitures	$ 1			(1)
Restricted stock, net of current forfeitures, shares	106
Ending balance, value at Jun. 30, 2022	$ 197	$ (362)	(43)	86,570	(88,216)	(1,854)
Ending Balance, shares at Jun. 30, 2022	19,745	10
Beginning balance, value at Dec. 31, 2022	$ 212	$ (362)	(43)	92,304	(96,326)	(4,215)
Beginning Balance, shares at Dec. 31, 2022	21,198	10
Stock-based compensation expense				94		94
Exercise of stock options				7		7
Exercise of stock options, shares	58
Public stock offering, net of fees				21		21
Public stock offering, net of fees, shares	2
Withholdings related to stock-based compensation awards				(5)		(5)
Net loss					(4,734)	(4,734)
Ending balance, value at Mar. 31, 2023	$ 212	$ (362)	(43)	92,421	(101,060)	(8,832)
Ending Balance, shares at Mar. 31, 2023	21,258	10
Beginning balance, value at Dec. 31, 2022	$ 212	$ (362)	(43)	92,304	(96,326)	(4,215)
Beginning Balance, shares at Dec. 31, 2022	21,198	10
Net loss						(7,863)
Ending balance, value at Jun. 30, 2023	$ 224	$ (362)	(43)	94,049	(104,189)	(10,321)
Ending Balance, shares at Jun. 30, 2023	22,442	10
Beginning balance, value at Mar. 31, 2023	$ 212	$ (362)	(43)	92,421	(101,060)	(8,832)
Beginning Balance, shares at Mar. 31, 2023	21,258	10
Stock-based compensation expense				331		331
Public stock offering, net of fees	$ 10			1,299		1,309
Public stock offering, net of fees, shares	970
Net loss					(3,129)	(3,129)
Issuance of restricted stock, net of forfeitures	$ 2			(2)
Issuance of restricted stock, net of forfeitures, shares	214
Ending balance, value at Jun. 30, 2023	$ 224	$ (362)	$ (43)	$ 94,049	$ (104,189)	$ (10,321)
Ending Balance, shares at Jun. 30, 2023	22,442	10

UNAUDITED CONDENSED CONSOLIDA_3

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Operating Activities:
Net loss	$ (7,863)	$ (8,119)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	798	616
Bad debt expense	48	0
Stock-based compensation	425	876
Non-cash lease costs	156	150
Amortization of debt issuance costs	555	133
Non-cash interest and interest accretion up to the redemption common stock settlement amount	225	306
Gain on lease termination	0	(420)
Changes in operating assets and liabilities:
Accounts receivable	271	(255)
Prepaid expenses and other assets	1,446	(425)
Accounts payable and accrued expenses	172	141
Operating lease liabilities	(174)	(882)
Deferred revenue	666	754
Net cash used in operating activities	(3,275)	(7,125)
Investing Activities:
Capitalization of software development	(692)	(350)
Purchases of property and equipment	(25)	(126)
Net cash used in investing activities	(717)	(476)
Financing Activities:
Proceeds from notes payable	0	10,000
Payment on notes payable issuance costs	0	(710)
Proceeds from stock options exercised	7	66
Proceeds from public stock offering net of fees	1,330	1,204
Withholdings related to stock-based compensation awards	(5)	0
Reduction of finance lease liability	(55)	(41)
Net cash provided by financing activities	1,277	10,519
Net (decrease) increase in cash and cash equivalents	(2,715)	2,918
Cash and cash equivalents at beginning of period	3,015	4,100
Cash and cash equivalents at end of period	300	7,018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest	159	0
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for lease termination	0	200
Equipment purchases and capitalized software included in accounts payable	$ 119	$ 0

Description of Business

Description of Business	6 Months Ended
	Jun. 30, 2023
Accounting Policies [Abstract]
Description of Business	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 (972) 234-6400. 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™”) Savant “Savant™ INTRUSION Shield

Basis of Presentation

Basis of Presentation	6 Months Ended
	Jun. 30, 2023
Accounting Policies [Abstract]
Basis of Presentation	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 results of operations for a full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2023. 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 the 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. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2023, the Company had cash and cash equivalents of $ 0.3 13.9 9.3 6.4 The audit opinion that accompanied the Company’s financial statements as of and for the year ended December 31, 2022, was qualified in that the Company’s auditors expressed substantial doubt about the Company’s ability to continue as a going concern.

Right-of-use Asset and Leasing

Right-of-use Asset and Leasing Liabilities	6 Months Ended
	Jun. 30, 2023
Right-of-use Asset And Leasing Liabilities
Right-of-use Asset and Leasing Liabilities	3. Right-of-use Asset and Leasing Liabilities The Company has operating and finance leases where it records the right-of-use assets and a related lease liability as required under ASC 842. The lease liabilities are determined by the net present value of total lease payments and amortized over the life of the lease. All obligations under the Company’s lease agreements are designed to terminate with the last scheduled payment. 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 a three-year life 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, TX, and a data service center in Allen, TX. The Plano offices operating lease expires this year. The data service center operating lease liability has a life of two years and four months as of June 30, 2023. 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. This discount rate for the lease approximates the federal reserve’s prime rate. For the three and six months ended June 30, 2023, the Company had $ 0.1 0.2 41 55 Schedule of Items Appearing on the Condensed Consolidated Statement of Operations (in thousands): Lease cost table Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Operating expense: Amortization expense – Finance ROU $ 167 $ 166 $ 333 $ 332 Lease expense – Operating ROU $ 79 $ 91 $ 156 $ 186 Other expense: Interest expense – Finance ROU $ 5 $ 15 $ 11 $ 22 Future minimum lease obligations consisted of the following as of June 30, 2023 (in thousands): Future minimum lease obligations Operating Finance Period ending December 31, ROU Leases ROU Leases Total 2023 127 615 742 2024 123 8 131 2025 115 3 118 $ 365 $ 626 $ 991 Less Interest* (14 ) (4 ) $ 351 $ 622 * Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying Condensed Consolidated Statement of Operations.

Notes Payable

Notes Payable	6 Months Ended
	Jun. 30, 2023
Debt Disclosure [Abstract]
Notes Payable	4. Notes Payable On March 10, 2022, Intrusion Inc. entered into a security purchase agreement (the “SPA”) with Streeterville Capital, LLC (“Streeterville”) whereby the Company issued two separate promissory notes of $5.4 million each, with an initial interest rate of 7%, subject to some increases in the case of among other things, an event of default. On March 10, 2022, the Company received $ 4.6 4.7 0.4 5,000,000 50,000 During the three and six months ended and after June 30, 2023, no redemptions have been made to date. The Company has the option, in its sole discretion, to satisfy any redemption demands in cash or shares of its common stock that will be issued in an amount equal to the dollar amount of the redemption demand divided by the number that represents 85% of the average of the two lowest daily volume weighted average prices of common stock over a fifteen-day trailing period. This option to settle in shares at a 15% discount is deemed a beneficial conversion feature (“BCF”). Any remaining indebtedness at maturity is payable in cash. The loan agreement and accompanying notes are subject to standard and customary events of default, including, without limitation, the Company’s continued listing on the Nasdaq or New York Stock Exchange. While the notes remain outstanding, the Company will be subject to certain conditions and restrictions, including, without limitation the following: the noteholder’s right to consent to any future variable rate transactions (excluding at-the market “ATMs”, equity offerings, or private placements without market adjustable features) and any debt (excluding bank loans, lines of credit, mortgagees, leases, or asset backed loans); the noteholder’s right to participate in any debt or equity financings, excluding (ATMs, loans, lines of credit, mortgagees, leases, or asset backed loans); a prohibition on the Company’s ability to extend or enter into any agreement restricting our ability to issue common stock under the notes; as well as a prohibition on our ability to permit any other lender to participate alongside the noteholder via any debt financing structures. The Company evaluated both the Note 1 and Note 2 in accordance with ASC 480 “ Distinguishing Liabilities from Equity The lender does not benefit if the fair value of the Company’s common stock increases and does not bear the risk that the fair value of the Company’s common stock might decrease. In accordance with ASC 480, the promissory notes have been recorded as a liability and the Company is recording interest expense over the term of the promissory note, using the interest method from ASC 835-30, to accrete the carrying amount of the promissory note up to the redemption common stock settlement amount. The Company has recorded debt issue costs totaling $ 1.8 0.4 For the three and six months ended June 30, 2023, the Company recorded $ 0.2 0.8 14.8

Commitments and Contingencies

Commitments and Contingencies	6 Months Ended
	Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	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. Class Action Litigation On April 16, 2021, a class action lawsuit was filed in the United States District Court, Eastern District of Texas, Sherman Division, captioned Celeste v. Intrusion Inc. et al., Case No. 4:21-cv-00307 (E.D. Tex.) against the Company, the Company’s 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 the Company’s 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. The Celeste lawsuit claimed compensatory damages and legal fees. On May 14, 2021, a related class action lawsuit was filed in the United States District Court, Eastern District of Texas, Sherman Division, captioned Neely v. Intrusion Inc., et al., Case No. 4:12-cv-00374 (E.D. Tex.) against the Company, the Company’s now-former chief financial officer, and now-former chief executive officer. The Neely lawsuit alleged the same violations under the federal securities laws as those alleged in the Celeste lawsuit. The Neely lawsuit also sought compensatory damages and legal fees. On November 23, 2021, the Court consolidated the Celeste and Neely actions, and appointed a lead plaintiff and lead plaintiff’s counsel. 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. James Gero, a current director and chair of the compensation committee. The parties to the consolidated action held a mediation on April 5, 2022, at the conclusion of which the parties executed a settlement term sheet setting forth the material terms associated with the resolution of the action, subject to the preparation of formal documents and a plan of distribution approved by the Court. The settlement agreement was subject to certain terms and conditions and received final approval by the Court on December 16, 2022. At that time, a final judgment was entered dismissing the case, with the Court retaining jurisdiction over the action for purposes of enforcing the terms of the class settlement agreement. The $3.3 million settlement was paid by the Company’s insurance provider under its insurance policy as the Company’s retention had previously been exhausted. The lead plaintiff in the class action filed a motion for distribution of settlement funds on February 21, 2023. The 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 having been fully and finally adjudicated. Securities Investigation On August 8, 2021, the Company received a notification from the Securities and Exchange Commission, Division of Enforcement, that it was investigating captioned In the Matter Stockholder Derivative Claim On June 3, 2022, a verified stockholder derivative complaint was filed in U.S. District Court, District of Delaware by plaintiff Nathan Prawitt (the “Plaintiff Stockholder”) on behalf of Intrusion against certain of the Company’s current and former officers and directors (the “Defendants”). Plaintiff alleges that Defendants through various actions breached their fiduciary duties, wasted corporate assets, and unjustly enriched Defendants by (a) incurring costs and expenses in connection with the ongoing SEC investigation, (b) incurring costs and expenses to defend the Company with respect to the consolidated class action, (c) settling class-wide liability with respect to the consolidated class action, as well as ancillary claims regarding sales of the Company’s common stock by certain of the Defendants. The Plaintiff is seeking remedial actions including improvements in the Company’s corporate governance and internal control policies and reimbursement of legal costs. While the Company is not a named defendant, but a nominal plaintiff in the stockholder derivative claim, the Company will be providing the financial and other assistance for each of the Defendants that the Company is obligated to provide under the Company’s Articles of Incorporation, the Company’s Bylaws, as well as individual indemnifications agreements that are in effect between, the Company and each of the Defendants. In addition to these legal proceedings, the Company is subject to various other claims that may arise in the ordinary course of business. The Company does not believe that any claims exist where the outcome of such matters would have a material adverse effect on the Company’s condensed consolidated financial position, operating results, or cash flows. However, there can be no assurance such legal proceedings will not have a material impact on the Company’s future results.

Common Stock

Common Stock	6 Months Ended
	Jun. 30, 2023
Equity [Abstract]
Common Stock	6. Common Stock ATM Offering In August of 2021, the Company engaged B. Riley Securities, Inc. to act as sales agent under the Company’s at-the-market program, which allows us to potentially sell up to $50.0 million of its common stock using a shelf registration statement on Form S-3 filed on August 5, 2021. On March 31, 2023, the date we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the Company became subject to the offering limits in General Instruction I.B.6 of Form S-3. As a result, the Company filed a prospectus supplement to the prospectus relating to the registration of offerings under the program that reduced the amount the Company may sell to aggregate proceeds of up to $15 million. For the six months ended June 30, 2023, the Company has received proceeds of approximately $1.3 million net of fees from the sale of common stock pursuant to the program. As of June 30, 2023, the Company has received proceeds of approximately $ 8.9 2.8 Registered Direct Offering On September 12, 2022, the Company entered in a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers to issue and sell to the purchasers an aggregate of 1,378,677 shares of the Company’s common stock (the “Shares”) each of which was coupled with a warrant to purchase one share of common stock (the “Warrants”) at an aggregate offering price of $4.29 per share and warrant, such offering is hereinafter referred to as its “registered direct offering”. Each warrant has an exercise price of $5.22 per share of common stock, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions and is exercisable from the date of its issuance through September 14, 2027. The Company delivered 939,284 Shares and Warrants on or about September 14, 2022. After September 30, 2022, the company issued an additional 273,309 Shares and related Warrants as a result of delayed closings. On November 10, 2022, the Company, reached an agreement with the sole remaining delayed basis investor in the registered direct offering to reduce the purchaser’s subscription by $0.7 million and, accordingly, reduce the Company’s obligation to issue securities. Following the final closing, the Company had received from its registered direct offering total aggregate proceeds of $5.2 million in exchange for the issuance of an aggregate of 1,212,593 shares of common stock and warrants to purchase 1,212,593 shares of common stock.

Stock-Based Compensation

Stock-Based Compensation	6 Months Ended
	Jun. 30, 2023
Share-Based Payment Arrangement [Abstract]
Stock-Based Compensation	7. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation The Company has three stock-based compensation plans as of June 30, 2023, and 2022. These plans include the 2021 Omnibus Incentive Plan, the 2015 Stock Incentive Plan and the 2005 Stock Incentive Plan. These plans are discussed in detail in our Annual Report Form 10-K for the year ended December 31, 2022, filed with the SEC. The Company grants stock from both the 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. During the six months ended June 30, 2023, the Company granted 213.7 131.6 0.1 0.2 0.1 0.3 0.3 During the six months ended June 30, 2023, the Company granted 626.4 167.5 0.2 0.2 0.4 0.6 0.6 The following table summarizes the activities for the Company’s stock options for the six months ended June 30, 2023: Schedule of stock option activities June 30, 2023 Number of Weighted Average (In thousands) Exercise Price Outstanding at beginning of year 668 $ 5.22 Granted 626 1.25 Exercised (72 ) 0.48 Forfeited (167 ) 4.37 Expired (42 ) 8.19 Outstanding on June 30, 2023 1,013 $ 3.12 Options exercisable on June 30, 2023 368 $ 4.61 Valuation Assumptions The fair values of employee option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: Valuation assumptions for stock-based compensation For Three Months Ended June 30, 2023 For Three Months Ended June 30, 2022 For Six Months Ended June 30, 2023 For Six Months Ended Weighted average grant date fair value $ 1.09 $ – $ 1.08 $ 3.34 Weighted average assumptions used: Expected dividend yield 0.0% 0.0% 0.0% 0.0% Risk-free interest rate 3.53% 0.0% 3.68% 0.88% Expected volatility 103.2% 0.0% 114.1% 133.0% Expected life (in years) 6.4 – 6.4 6.6 Expected volatility is based on historical volatility and in part on implied volatility. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for United States (“U.S.”) Treasury instruments with maturities matching the relevant expected term of the award.

Revenue Recognition

Revenue Recognition	6 Months Ended
	Jun. 30, 2023
Revenue from Contract with Customer [Abstract]
Revenue Recognition	8. Revenue Recognition The Company generally 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 and sales returns have not been material. The Company recognizes sales of its data sets 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 each separate performance obligations; and v) recognition of revenue upon satisfaction of a performance obligation. Consulting services generally include reporting and are typically done monthly, and revenue is matched accordingly. Product sales may include maintenance and customer support allocated revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy using the relative selling price method. All product offering and service offering market values are readily determined based on current and prior stand-alone sales. The Company defers and recognizes maintenance, updates, and support revenue over the term of the contract period, which is generally one year. 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. Shipping and handling costs are billed to the customer and included in revenue. Shipping and handling expenses are included in the cost of revenue. The Company has elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. With the Company’s newest product, INTRUSION Shield, INTRUSION Shield 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. INTRUSION Shield · Access to Intrusion’s proprietary software and database to detect and prevent unauthorized access to its 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 · Tech support, post contract customer support (PCS) includes daily program releases or corrections provided by Intrusion without additional charge. INTRUSION Shield Contracts provide for no other services, and our 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 the INTRUSION Shield The Company’s accounts receivable represents unconditional contract billings for sales per contracts with customers and are classified as current assets. As of June 30, 2023, and December 31, 2022, the Company had accounts receivable balances of $ 0.2 0.5 42 no We had no Contract liabilities consist of cash payments in advance of the Company satisfying performance obligations and recognizing revenue. The Company currently classifies contract liabilities as deferred revenue. The following table presents changes in the Company’s contract liability during the six months ended June 30, 2023, and the year ended December 31, 2022 (in thousands): Schedule of contract liability June 30, 2023 December 31, 2022 Balance at beginning of period $ 455 $ 560 Additions 2,047 1,877 Revenue recognized (1,381 ) (1,982 ) Balance at end of period $ 1,121 $ 455

Capitalized Software Developmen

Capitalized Software Development	6 Months Ended
	Jun. 30, 2023
Extractive Industries [Abstract]
Capitalized Software Development	9. Capitalized Software Development 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 such activities 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.

Net Loss Per Share

Net Loss Per Share	6 Months Ended
	Jun. 30, 2023
Earnings Per Share [Abstract]
Net Loss Per Share	10. Net Loss Per Share 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 June 30, 2023, and 2022 totaled 2,497 611 2,278 629

Correction of Immaterial Error

Correction of Immaterial Error	6 Months Ended
	Jun. 30, 2023
Correction Of Immaterial Error
Correction of Immaterial Error	11. Correction of Immaterial Error During the year ending December 31, 2022, management identified and corrected certain immaterial errors in the Company’s historical financial statements associated with the cost of revenues provided by a subcontractor. The errors understated the cost of revenue and overstated the sales and marketing operating expenses by equal amounts in the Condensed Consolidated Statements of Operations. The error had no impact on operating losses, net losses, and net loss per share nor any other financial statement amount. Further these errors had no impact on the consolidated balance sheets, statements of changes in stockholders’ equity (deficit), and statement of cash flows. These corrections do not affect any of the metrics used to calculate and evaluate management’s compensation and had no impact on bonuses, commissions, stock-based compensation, or any other employee renumeration. Historical amounts have been corrected and are presented on a comparable basis. The below tables present (in thousands) the effect of the correction for the following periods: Schedule of effect of the correction Three Months Ended June 30, 2022 As Reported Adjustments As Corrected Revenue $ 2,058 $ – $ 2,058 Cost of revenue 667 249 916 Gross profit 1,391 (249 ) 1,142 Operating expenses Sales and marketing 1,817 (249 ) 1,568 Research and development 1,486 – 1,486 General and administrative 2,049 – 2,049 Operating loss $ (3,961 ) $ – $ (3,961 ) Six Months Ended June 30, 2022 As Reported Adjustments As Corrected Revenue $ 3,893 $ – $ 3,893 Cost of revenue 1,321 498 1,819 Gross profit 2,572 (498 ) 2,074 Operating expenses Sales and marketing 3,272 (498 ) 2,774 Research and development 3,136 – 3,136 General and administrative 4,109 – 4,109 Operating loss $ (7,945 ) $ – $ (7,945 )

Subsequent Event

Subsequent Event	6 Months Ended
	Jun. 30, 2023
Subsequent Events [Abstract]
Subsequent Event	12. Subsequent Event 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 extend the maturity dates for each Note by 12 months. In addition, Streeterville waived their right to redeem any portion of either Note for 180 days from the date on which the Company closes on a fully marketed public offering for aggregate proceeds, net of fees, of not less than $5,000,000, so long as the Qualified IPO occurs on or before October 1, 2023 (the “Standstill”). If a Qualified IPO does not occur by October 1, 2023, the Standstill shall not take effect. Upon the expiration of the Standstill, redemption obligations under the notes would resume, in addition to weekly cash payments to Streeterville in the amount of $50,000 due in the aggregate under the notes via ACH withdrawal. In consideration of the standstill and 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. On August 11, 2023, the Company filed a preliminary registration statement on Form S-1 under the Securities Act of 1933 to raise up to $8.5 million in gross proceeds, or $7.5 million net of fees, through issuance of common stock or a pre-funded warrant to purchase common stock and a warrant to purchase common stock.

Right-of-use Asset and Leasin_2

Right-of-use Asset and Leasing Liabilities (Tables)	6 Months Ended
	Jun. 30, 2023
Right-of-use Asset And Leasing Liabilities
Lease cost table	Lease cost table Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Operating expense: Amortization expense – Finance ROU $ 167 $ 166 $ 333 $ 332 Lease expense – Operating ROU $ 79 $ 91 $ 156 $ 186 Other expense: Interest expense – Finance ROU $ 5 $ 15 $ 11 $ 22
Future minimum lease obligations	Future minimum lease obligations Operating Finance Period ending December 31, ROU Leases ROU Leases Total 2023 127 615 742 2024 123 8 131 2025 115 3 118 $ 365 $ 626 $ 991 Less Interest* (14 ) (4 ) $ 351 $ 622 * Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying Condensed Consolidated Statement of Operations.

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	6 Months Ended
	Jun. 30, 2023
Share-Based Payment Arrangement [Abstract]
Schedule of stock option activities	Schedule of stock option activities June 30, 2023 Number of Weighted Average (In thousands) Exercise Price Outstanding at beginning of year 668 $ 5.22 Granted 626 1.25 Exercised (72 ) 0.48 Forfeited (167 ) 4.37 Expired (42 ) 8.19 Outstanding on June 30, 2023 1,013 $ 3.12 Options exercisable on June 30, 2023 368 $ 4.61
Valuation assumptions for stock-based compensation	Valuation assumptions for stock-based compensation For Three Months Ended June 30, 2023 For Three Months Ended June 30, 2022 For Six Months Ended June 30, 2023 For Six Months Ended Weighted average grant date fair value $ 1.09 $ – $ 1.08 $ 3.34 Weighted average assumptions used: Expected dividend yield 0.0% 0.0% 0.0% 0.0% Risk-free interest rate 3.53% 0.0% 3.68% 0.88% Expected volatility 103.2% 0.0% 114.1% 133.0% Expected life (in years) 6.4 – 6.4 6.6

Revenue Recognition (Tables)

Revenue Recognition (Tables)	6 Months Ended
	Jun. 30, 2023
Revenue from Contract with Customer [Abstract]
Schedule of contract liability	Schedule of contract liability June 30, 2023 December 31, 2022 Balance at beginning of period $ 455 $ 560 Additions 2,047 1,877 Revenue recognized (1,381 ) (1,982 ) Balance at end of period $ 1,121 $ 455

Correction of Immaterial Error

Correction of Immaterial Error (Tables)	6 Months Ended
	Jun. 30, 2023
Correction Of Immaterial Error
Schedule of effect of the correction	Schedule of effect of the correction Three Months Ended June 30, 2022 As Reported Adjustments As Corrected Revenue $ 2,058 $ – $ 2,058 Cost of revenue 667 249 916 Gross profit 1,391 (249 ) 1,142 Operating expenses Sales and marketing 1,817 (249 ) 1,568 Research and development 1,486 – 1,486 General and administrative 2,049 – 2,049 Operating loss $ (3,961 ) $ – $ (3,961 ) Six Months Ended June 30, 2022 As Reported Adjustments As Corrected Revenue $ 3,893 $ – $ 3,893 Cost of revenue 1,321 498 1,819 Gross profit 2,572 (498 ) 2,074 Operating expenses Sales and marketing 3,272 (498 ) 2,774 Research and development 3,136 – 3,136 General and administrative 4,109 – 4,109 Operating loss $ (7,945 ) $ – $ (7,945 )

Basis of Presentation (Details

Basis of Presentation (Details Narrative) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Jun. 30, 2023
Debt Instrument [Line Items]
Cash and cash equivalents		$ 300
Working capital		$ 13,900
Common Stock And Warrants [Member]
Debt Instrument [Line Items]
Proceeds from Issuance or Sale of Equity	$ 6,400
Two Streeterville Notes [Member]
Debt Instrument [Line Items]
Proceeds from Notes Payable	$ 9,300

Right-of-use Asset and Leasin_3

Right-of-use Asset and Leasing Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Operating expense:
Amortization expense – Finance ROU	$ 167	$ 166	$ 333	$ 332
Lease expense – Operating ROU	79	91	156	186
Other expense:
Interest expense – Finance ROU	$ 5	$ 15	$ 11	$ 22

Right-of-use Asset and Leasin_4

Right-of-use Asset and Leasing Liabilities (Details - Minimum lease obligation) $ in Thousands	Jun. 30, 2023 USD ($)
Operating and Finance total lease minimum obligation - Remaining 2023	$ 742
Operating and Finance total lease minimum obligation - 2024	131
Operating and Finance total lease minimum obligation - 2025	118
Operating and Finance total lease minimum obligation liability,	991
Operating ROU Leases [Member]
Remaining 2023	127
Operating ROU Leases, 2024	123
Operating ROU Leases, 2025	115
Operating ROU Leases Undiscounted Obligation	365
Operating ROU Leases, Less Interest	(14)	[1]
Operating ROU Leases	351
Finance ROU Leases [Member]
Remaining 2023	615
Finance ROU Leases, 2024	8
Finance ROU Leases, 2025	3
Finance ROU Leases Undiscounted Obligation	626
Finance ROU Leases, Less Interest	(4)	[1]
Finance ROU Leases	$ 622
[1]Interest is imputed for operating ROU leases and classified as lease expense and is included in operating expenses in the accompanying Condensed Consolidated Statement of Operations.

Right-of-use Asset and Leasin_5

Right-of-use Asset and Leasing Liabilities (Details Narrative) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023
Right-of-use Asset And Leasing Liabilities
Operating Lease, Payments	$ 100	$ 200
Financing Lease	$ 41	$ 55

Notes Payable (Details Narrativ

Notes Payable (Details Narrative) - USD ($)			3 Months Ended	6 Months Ended
	Jun. 29, 2022	Mar. 10, 2022	Jun. 30, 2023	Jun. 30, 2023
Securities Financing Transaction [Line Items]
Proceeds from issuance of public offering				$ 5,000,000
Debt interest expense			$ 200,000	800,000
Streeterville Capital [Member]
Securities Financing Transaction [Line Items]
Proceeds from issuance of notes	$ 4,700,000	$ 4,600,000
Debt issuance costs			$ 400,000	400,000
Cash payments				$ 50,000,000
Debt Issuance Costs, Gross		$ 1,800,000
Effective interest rate			14.80%	14.80%

Common Stock (Details Narrative

Common Stock (Details Narrative) - ATM Offering [Member] shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2023 USD ($) shares
Securities Financing Transaction [Line Items]
Proceeds from issuance of common stock | $	$ 8,900
Issuance of common stock | shares	2,800

Stock-Based Compensation (Detai

Stock-Based Compensation (Details - Stock option activities) shares in Thousands	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Share-Based Payment Arrangement [Abstract]
Number of Options Outstanding, beginning | shares	668
Weighted Average Exercise Price Outstanding at beginning | $ / shares	$ 5.22
Number of Options, Granted | shares	626
Weighted Average Exercise Price Granted | $ / shares	$ 1.25
Number of Options, Exercised | shares	(72)
Weighted Average Exercise Price Exercised | $ / shares	$ 0.48
Number of Options, Forfeited | shares	(167)
Weighted Average Exercise Price Forfeited | $ / shares	$ 4.37
Number of Options, Expired | shares	(42)
Weighted Average Exercise Price Expired | $ / shares	$ 8.19
Number of Options Outstanding, ending | shares	1,013
Weighted Average Exercise Price Outstanding at Ending balance | $ / shares	$ 3.12
Number of Options, Exercisable | shares	368
Weighted Average Exercise Price, Exercisable | $ / shares	$ 4.61

Accounting for Stock-Based Comp

Accounting for Stock-Based Compensation (Details - Valuation Assumptions) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Share-Based Payment Arrangement [Abstract]
Weighted average grant date fair value	$ 1.09	$ 0	$ 1.08	$ 3.34
Expected dividend yield	0%	0%	0%	0%
Risk-free interest rate	3.53%	0%	3.68%	0.88%
Expected volatility	103.20%	0%	114.10%	133%
Expected life (in years) (Year)	6 years 4 months 24 days		6 years 4 months 24 days	6 years 7 months 6 days

Stock-Based Compensation (Det_2

Stock-Based Compensation (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock-based compensation expense			$ 425	$ 876
Restricted Stock Awards [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock options granted			213,700	131,600
Stock-based compensation expense	$ 100	$ 100	$ 200	$ 300
Unrecognized compensation cost not yet recognized, amount	300		$ 300
Stock Option Awards [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock options granted			626,400	167,500
Stock-based compensation expense	200	$ 400	$ 200	$ 600
Unrecognized compensation cost not yet recognized, amount	$ 600		$ 600

Revenue Recognition (Details)

Revenue Recognition (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Revenue from Contract with Customer [Abstract]
Contract liability, Beginning	$ 455	$ 560
Additions	2,047	1,877
Contract liabilities revenue recognized	(1,381)	(1,982)
Contract liability, Ending	$ 1,121	$ 455

Revenue Recognition (Details Na

Revenue Recognition (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Revenue from Contract with Customer [Abstract]
Accounts Receivable	$ 200	$ 500
Allowance of doubtful accounts	42	0
Contract assets	$ 0	$ 0

Net Loss Per Share (Details Nar

Net Loss Per Share (Details Narrative) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Earnings Per Share [Abstract]
Antidilutive shares	2,497	611	2,278	629

Correction of Immaterial Erro_2

Correction of Immaterial Error (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Gross profit	$ 1,138	$ 1,142	$ 2,134	$ 2,074
Operating expenses
Sales and marketing	1,423	1,568	3,161	2,774
Research and development	1,451	1,486	3,247	3,136
General and administrative	1,185	2,049	2,691	4,109
Operating loss	$ (2,921)	(3,961)	$ (6,965)	(7,945)
Previously Reported [Member]
Revenue		2,058		3,893
Cost of revenue		667		1,321
Gross profit		1,391		2,572
Operating expenses
Sales and marketing		1,817		3,272
Research and development		1,486		3,136
General and administrative		2,049		4,109
Operating loss		(3,961)		(7,945)
Revision of Prior Period, Adjustment [Member]
Revenue		0		0
Cost of revenue		249		498
Gross profit		(249)		(498)
Operating expenses
Sales and marketing		(249)		(498)
Research and development		0		0
General and administrative		0		0
Operating loss		0		0
As Corrected [Member]
Revenue		2,058		3,893
Cost of revenue		916		1,819
Gross profit		1,142		2,074
Operating expenses
Sales and marketing		1,568		2,774
Research and development		1,486		3,136
General and administrative		2,049		4,109
Operating loss		$ (3,961)		$ (7,945)