Intrusion Inc. Announces Second Quarter Results

RICHARDSON, Texas, Aug. 8 /PRNewswire-FirstCall/ -- Intrusion Inc. (NASDAQ: INTZ) , ("Intrusion") today announced financial results for the three months ended June 30, 2006.

Revenue for the second quarter 2006 was $1.2 million compared to $0.9 million for the first quarter 2006 and $1.7 million for the second quarter 2005. Second quarter revenue increased 41% sequentially from the first quarter of 2006.

Intrusion's operating loss was $1.1 million in the second quarter 2006 compared to $1.5 million in the first quarter 2006 and $1.0 million for the second quarter 2005.

Gross profit margin was 62 percent of revenue in the second quarter of 2006 compared to 55 percent of revenue in the first quarter of 2006 and 57 percent of revenue in the second quarter of 2005.

Intrusion's second quarter 2006 operating expenses were $1.8 million, compared to $2.0 million for the first quarter 2006 and $1.9 million for the second quarter 2005. Operating expenses in the first and second quarters of 2006 include $0.2 million in stock based compensation expenses due to new accounting treatment for stock options under FAS123R.

As of June 30, 2006, Intrusion reported cash, cash equivalents and short- term investments of $0.3 million, working capital of $0.4 million and no debt.

"The $2.0 million order for TraceCop(TM) and SecureNet(TM) from the U.S. Government was clearly the highlight of the second quarter," stated G. Ward Paxton, Chairman, President and CEO of Intrusion. "Also, we believe the sequential 41% growth of revenues and the attainment of 62% gross profit margin in the second quarter represents significant progress. Our sales of Compliance Commander(TM) increased from $0.03 million in the first quarter 2006 to $0.1 million in the second quarter," Paxton concluded.

Intrusion's sales of TraceCop in the second quarter 2006 were $0.8 million, up from $0.3 million in the first quarter. Intrusion sold Compliance Commander to 6 new customers for a total of $0.1 million in the second quarter. This brings total sales of Compliance Commander to $0.5 million with a total of 22 customers. Intrusion has engaged with a total of 138 potential Compliance Commander Customers representing potential sales of $3.7 million since the launch of the product. Intrusion's sales in the second quarter were spread over three product lines: TraceCop 63 percent, SecureNet 29 percent and Compliance Commander 8 percent. Sales to the U.S. Government totaled 63 percent of total sales in the second quarter.

Intrusion's management will host its regularly scheduled quarterly conference call to discuss the Company's financial and operational progress at 4:00 P.M., CDT today. Interested investors can access the call at 1-800-399-2043 (if outside the United States, 1-706-634-5518). For those unable to participate in the live conference call, a replay will be accessible beginning today at 7:00 P.M., CDT until August 15, 2006 by calling 1-800-642-1687 (if outside the United States, 1-706-645-9291). At the replay prompt, enter conference identification number 3784325. Additionally, a live and archived audio webcast of the conference call will be available at http://www.intrusion.com/ .

About Intrusion Inc.

Intrusion Inc. is a global provider of regulated information compliance, entity identification systems, data privacy protection products, and network intrusion prevention and detection solutions. Intrusion's product families include the Compliance Commander(TM) for regulated information compliance, data privacy protection and identity theft prevention, TraceCop(TM) identification and location system, Intrusion SpySnare(TM) for real-time inline blocking of spyware and unwanted P2P applications, and Intrusion SecureNet(TM) for network intrusion prevention and detection. Intrusion's products help protect critical information assets by quickly detecting, protecting, analyzing and reporting attacks or misuse of classified, private and regulated information for government and enterprise networks. For more information, please visit http://www.intrusion.com/ .

This release, other than historical information, may include forward- looking statements regarding future events or the future financial performance of the Company. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the difficulties in forecasting future sales caused by current economic and market conditions, the effect of military actions on government and corporate spending on information security products, spending patterns of, and appropriations to, U.S. government departments, the impact of our cost reduction programs and our refocused product line, the difficulties and uncertainties in successfully developing and introducing new products in emerging markets, market acceptance of our products, the impact of our sustained losses on our ability to successfully operate and grow our business, our stock price and our ongoing Nasdaq eligibility, our ability to generate sufficient cash flow or obtain additional financing on acceptable terms in order to fund ongoing liquidity needs, the highly competitive market for our products, the effects of sales and implementation cycles for our products on our quarterly results, difficulties in accurately estimating market growth, the consolidation of the information security industry, our ability to expand revenues through indirect sales channels, the impact of changing economic conditions, business conditions in the information security industry, our ability to manage acquisitions effectively, our ability to manage discontinued operations effectively, the impact of market peers and their products as well as risks concerning future technology and others identified in our Annual Report on Form 10-KSB, as amended, and other Securities and Exchange Commission filings. These filings can be obtained by contacting Intrusion Investor Relations.

This release may include various non-GAAP financial measures (as defined by SEC Regulation G). The Company's management believes these measures provide useful information to investors about the Company's financial condition and results of operations for the period presented by eliminating the effects of one-time and other transactions that can distort underlying operational results in order to provide greater comparability of the Company's quarterly financial performance on a year-to-year basis. The most directly comparable GAAP financial measures and reconciliation of the differences between the GAAP financial measures can be found in the text of this release and the Company's Unaudited Condensed Consolidated Statements of Operations attached to this release.

                              INTRUSION INC.
             UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                 (In thousands except par value amounts)

                                                       June 30,     Dec. 31,
                                                         2006         2005
  ASSETS

  Current Assets:
   Cash and cash equivalents                             $319       $2,844
   Short-term investments                                 ---          500
   Accounts receivable, net of allowance for
    doubtful accounts of $89 in 2006 and $102 in 2005     838          443
   Inventories, net                                       324          373
   Prepaid expenses                                       144          191
  Total current assets                                  1,625        4,351

   Property and equipment, net                            200          256
   Other assets                                            41           41
  TOTAL ASSETS                                         $1,866       $4,648

  LIABILITIES AND STOCKHOLDERS' EQUITY

  Current Liabilities:
   Accounts payable and accrued expenses                 $948       $1,142
   Deferred revenue                                       283          527
  Total current liabilities                             1,231        1,669

  Stockholders' Equity:
    Preferred stock, $.01 par value:
       Authorized shares - 5,000
       Series 1 shares issued and outstanding -
        260
       Liquidation preference of $1,316                   918          918
       Series 2 shares issued and outstanding -
        460 in 2006 and 500 in 2005                       724          787
       Liquidation preference of $1,155
       Series 3 shares issued and outstanding -
        469 in 2006 and 565 in 2005                       667          805
       Liquidation preference of $1,026
    Common stock, $.01 par value:
       Authorized shares - 80,000
       Issued shares - 7,056 in 2006 and 6,919
        in 2005                                            71           69
       Outstanding shares - 7,046 in 2006 and
        6,909 in 2005
    Common stock held in treasury, at cost - 10
     shares                                              (362)        (362)
    Additional paid-in capital                         53,469       52,994
    Accumulated deficit                               (54,673)     (52,053)
    Accumulated other comprehensive loss                 (179)        (179)
    Total stockholders' equity                            635        2,979
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $1,866       $4,648



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

                                     Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                       2006       2005      2006      2005

  Revenue                            $1,204     $1,709    $2,055    $2,894
  Cost of revenue                       459        740       846     1,267

  Gross profit                          745        969     1,209     1,627

  Operating expenses:
     Sales and marketing                848        873     1,665     1,632
     Research and development           615        703     1,407     1,405
     General and administrative         385        304       733       532
     Severance and related costs        ---         55       ---        55

  Operating loss                     (1,103)      (966)   (2,596)   (1,997)

  Interest income, net                   11         29        41        33
  Other income (expense), net           (53)         2       (65)        2

  Loss before income taxes           (1,145)      (935)   (2,620)   (1,962)
  Income tax provision                  ---        ---       ---       ---
  Net loss                           (1,145)      (935)   (2,620)   (1,962)
  Preferred stock dividends accrued     (43)       (56)      (88)      (85)
  Beneficial conversion feature on
   preferred stock                      ---        ---       ---      (919)
  Net loss attributable to common
   stockholders                     $(1,188)     $(991)  $(2,708)  $(2,966)

  Net loss per share attributable
   to common                         $(0.17)    $(0.16)   $(0.39)   $(0.49)
  stockholders (basic and diluted)
  Weighted average shares
   outstanding
  -   Basic and Diluted               7,046      6,182     7,014     6,110


   Financial Contact
   Michael L. Paxton, VP, CFO
   972.301.3658, mpaxton@intrusion.com

   Media Contact
   Jay Barbour, VP Marketing
   972.664.8107, jbarbour@intrusion.com