Intrusion(INTZ) - 2020 Q4 - Annual Report

Part I Business Overview Intrusion Inc. is a cybersecurity firm offering AI-based solutions like Shield and TraceCop, primarily serving U.S. government clients - The company's cornerstone solution is INTRUSION Shield, a real-time AI-based Security-as-a-Service that inspects all network traffic to neutralize malicious connections, including Zero-Day attacks[21] - INTRUSION TraceCop is a proprietary big data tool containing a vast repository of IP reputation information, historical domain data, and threat intelligence collected over more than two decades, which informs the Shield solution[24] Revenue Concentration from U.S. Government | Year | Revenue from U.S. Government Customers | Number of Government Customers >10% of Revenue | | :--- | :--- | :--- | | 2020 | 86.3% | 3 | | 2019 | 87.4% | 3 | Employee Distribution as of December 31, 2020 | Department | Number of Full-Time Employees | | :--- | :--- | | Sales, Marketing & Technical Support | 23 | | Research, Development, Analysis & Engineering | 32 | | Administration & Finance | 8 | | Total | 63 | Risk Factors The company faces substantial risks including financial losses, new product adoption challenges, reliance on government contracts, and intense market competition Financial Performance and Deficit | Metric | As of/For the Year Ended Dec 31, 2020 | | :--- | :--- | | Net Loss | $6.5 million | | Accumulated Deficit | $61.3 million | - The company identifies significant risks in marketing, promoting, and selling its new INTRUSION Shield solution, which will require substantial financial and management resources[47] - The COVID-19 pandemic has adversely affected operations, causing decreased demand from government customers who have had to reallocate resources, negatively impacting revenue levels[50] - There is a high concentration of revenue from U.S. government entities and the TraceCop family of solutions. TraceCop revenues declined significantly from $13.4 million in 2019 to $6.2 million in 2020[53][54] - The company faces intense competition from established firms like Niksun, NetScout, FireEye, and Darktrace, which may have greater financial, technical, and marketing resources[29][61] Properties The company's headquarters are in Plano, Texas, with a lawsuit initiated regarding a previously vacated Richardson, Texas facility - The company's headquarters are in Plano, Texas. A lawsuit has been filed against the landlord of the previously occupied Richardson, Texas facility for breach of contract and constructive eviction[70] Legal Proceedings The company filed a lawsuit against its former landlord, Purple Plaza LLC, seeking over $1 million in damages and lease termination - The company initiated legal proceedings against its former landlord, Purple Plaza LLC, seeking damages over $1,000,000 and termination of lease obligations[73] Part II Market for Registrant's Common Equity and Related Stockholder Matters The company's common stock trades on Nasdaq under "INTZ," with details on equity compensation plans provided Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Shares to be Issued Upon Exercise (thousands) | Weighted-Average Exercise Price | Shares Remaining for Future Issuance (thousands) | | :--- | :--- | :--- | :--- | | Approved by security holders | 1,035 | $2.87 | 46 | | Not approved by security holders | – | – | – | | Total | 1,035 | $2.87 | 46 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In 2020, the company faced a significant financial downturn with revenue decline and net loss, despite improved liquidity from a stock offering Results of Operations In 2020, total revenue and gross profit significantly declined, leading to an operating loss due to increased expenses and a lease write-off Comparison of Operations (in millions) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $6.6 | $13.6 | -51.5% | | Gross Profit | $3.9 | $8.3 | -52.9% | | Sales and Marketing Expense | $3.8 | $1.3 | +192.3% | | Research and Development Expense | $3.8 | $1.3 | +192.3% | | General and Administrative Expense | $2.8 | $1.2 | +133.3% | | Operating Income (Loss) | ($6.5) | $4.5 | -244.4% | | Net Income (Loss) | ($6.5) | $4.5 | -244.4% | - The increase in sales and marketing expense was primarily for building and training a sales department to sell the new commercial product in 2021 and a dedicated $1.2 million marketing budget[102] - The increase in general and administrative expenses was mainly due to a $1.1 million non-cash write-off for an abandoned operating lease asset[104] Liquidity and Capital Resources Liquidity significantly improved in 2020 due to a stock offering, despite increased cash usage in operations Key Liquidity Metrics (in millions) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $16.7 | $3.3 | | Working capital | $16.2 | $3.1 | Cash Flow Summary (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from (used in) operations | ($5.2) | $4.3 | | Net cash used in investing | ($0.3) | ($0.3) | | Net cash from (used in) financing | $18.9 | ($2.3) | - Financing activities in 2020 were dominated by $18.2 million in proceeds from a stock offering and $629 thousand from a PPP loan[111] Financial Statements This section presents the audited consolidated financial statements for 2020 and 2019, detailing financial position, operations, and cash flows Consolidated Balance Sheets Total assets and stockholders' equity significantly increased in 2020, driven by higher cash and a public stock offering Selected Balance Sheet Data (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,704 | $3,334 | | Total current assets | $18,307 | $5,052 | | Total Assets | $19,882 | $6,835 | | Total current liabilities | $2,142 | $1,943 | | Total Liabilities | $4,221 | $3,279 | | Total Stockholders' Equity | $15,661 | $3,556 | Consolidated Statements of Operations Net product revenue sharply declined in 2020, resulting in a net loss compared to net income in 2019 Statement of Operations Highlights (in thousands, except per share data) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net product revenue | $6,619 | $13,643 | | Gross profit | $3,910 | $8,301 | | Operating income (loss) | ($6,523) | $4,507 | | Net income (loss) | ($6,518) | $4,465 | | Net income (loss) per share, diluted | ($0.45) | $0.28 | Consolidated Statements of Cash Flows Cash flow from operations was negative in 2020, but a public stock offering significantly boosted overall cash Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($5,177) | $4,290 | | Net cash used in investing activities | ($320) | ($260) | | Net cash provided by (used in) financing activities | $18,867 | ($2,348) | | Net increase in cash and cash equivalents | $13,370 | $1,682 | | Cash and cash equivalents at end of year | $16,704 | $3,334 | Notes to Consolidated Financial Statements Notes detail revenue concentration, a PPP loan, preferred stock conversion, a public offering, and a lease abandonment charge - Sales to U.S. Government entities, through direct and indirect channels, accounted for 86.3% of total revenues in 2020 and 87.4% in 2019[228] - The company received a $629,000 loan under the Paycheck Protection Program (PPP) on April 30, 2020, and has applied for full forgiveness[207] - In October 2020, the company completed a secondary public offering, raising net proceeds of approximately $18.2 million to fund growth initiatives, including the commercialization of the Intrusion Shield solution[223] - All outstanding preferred stock was voluntarily converted into 1,004,249 shares of common stock in August 2020[225] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[120] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[123] Part III Part III information regarding directors, executive compensation, and related matters is incorporated by reference from the upcoming Proxy Statement Directors, Executive Compensation, Security Ownership, and Related Matters Information for Items 10-14 is incorporated by reference from the definitive Proxy Statement for the 2021 annual meeting - Information for Part III (Items 10-14) is omitted from the Form 10-K and will be included in the definitive Proxy Statement to be filed within 120 days of the fiscal year-end[129] Part IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements and a detailed schedule of all exhibits filed with the Form 10-K - This section provides a list of the consolidated financial statements and a schedule of all exhibits filed with the Form 10-K[137][139]