Intrusion(INTZ) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Intrusion Inc. reported a slight revenue increase to $1.85 million but a widened net loss of $3.9 million in Q1 2021 due to increased operating expenses, with U.S. government sales dominating revenue Unaudited Condensed Consolidated Balance Sheets Total assets decreased to $16.8 million by March 31, 2021, from $19.9 million at year-end 2020, primarily due to reduced cash, while liabilities slightly increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $13,072 | $16,704 | | Total current assets | $15,077 | $18,307 | | Total Assets | $16,822 | $19,882 | | Total current liabilities | $2,746 | $2,142 | | Total Liabilities | $4,699 | $4,221 | | Total Stockholders' Equity | $12,123 | $15,661 | Unaudited Condensed Consolidated Statements of Operations Q1 2021 revenue slightly rose to $1.85 million, but operating loss significantly expanded to $3.9 million due to surging sales, marketing, and R&D expenses, leading to a wider net loss Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Revenue | $1,852 | $1,795 | | Gross Profit | $1,227 | $1,048 | | Sales and marketing | $2,689 | $510 | | Research and development | $1,469 | $753 | | Operating loss | $(3,904) | $(471) | | Net loss attributable to common stockholders | $(3,903) | $(498) | | Net loss per share (Basic & Diluted) | $(0.22) | $(0.04) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities surged to $3.6 million in Q1 2021, primarily driven by the increased net loss, resulting in a total cash decrease of $3.6 million Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,588) | $(142) | | Net cash used in investing activities | $(195) | $(40) | | Net cash provided by financing activities | $151 | $65 | | Net decrease in cash and cash equivalents | $(3,632) | $(117) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail the company's cybersecurity business, SaaS revenue recognition for Shield, high customer concentration with the U.S. Government, and the full forgiveness of its PPP loan - The company's new product, Shield, is offered on a subscription basis and accounted for as a service obligation (SaaS) under ASC 606, with revenue recognized monthly over the contract term[34][35] - The company has a high concentration of revenue from the U.S. Government, which accounted for 73.9% of total revenues in Q1 2021, up from 71.4% in Q1 2020. Three government customers represented 68.1% of total revenues[39] - The company received a $629 thousand PPP loan in April 2020. As of March 31, 2021, the balance was $635 thousand including interest. The entire loan and accrued interest were forgiven in full by the SBA on April 7, 2021[47] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2021's slight revenue increase to TraceCop sales and the significant rise in operating expenses to investments in the new Shield product, while affirming sufficient liquidity for the next year Results of Operations Q1 2021 revenues slightly increased to $1.9 million, gross profit margin improved to 66.3%, but operating expenses, particularly sales, marketing, and R&D, surged due to new product investment Operating Expense Comparison (in millions) | Expense Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Sales and marketing | $2.7 | $0.5 | | Research and development | $1.5 | $0.8 | | General and administrative | $1.0 | $0.3 | - The increase in sales and marketing expenses was due to building and training a sales force and focused marketing for the new commercial product, Shield[56] - Gross profit margin improved from 58.4% to 66.3% year-over-year, primarily due to a favorable TraceCop/Savant product mix[55] Liquidity and Capital Resources As of March 31, 2021, the company held $13.1 million in cash and $12.3 million in working capital, with management confident in funding operations for the next twelve months despite cash usage - The company's cash and cash equivalents decreased from $16.7 million at the end of 2020 to $13.1 million as of March 31, 2021[60][66] - Net cash used in operations for Q1 2021 was $3.6 million, primarily due to the net loss of $3.9 million[62] - Management believes that existing cash resources will be sufficient to fund operations and expected capital expenditures for the next twelve months[67] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2021, due to issues with documenting board actions, which the audit committee is addressing - Management concluded that as of March 31, 2021, the company's disclosure controls and procedures were not effective[70] - The ineffectiveness was related to issues with memorializing the formal actions of the board of directors through appropriate written records[70] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is engaged in a lawsuit against its former landlord for over $1 million and is vigorously defending against a securities class action lawsuit alleging misleading statements - On February 16, 2021, Intrusion sued its former landlord, Purple Plaza LLC, for breach of contract, seeking damages over $1 million[74] - On April 16, 2021, a class action lawsuit was filed against the company, its CEO, and CFO, alleging violations of the Securities Exchange Act. The company plans to defend itself vigorously[75] Item 1A. Risk Factors Key risks include a history of net losses, heavy reliance on TraceCop and a few customers, potential delays in INTRUSION Shield revenue, and significant control by executive officers and affiliates - The company reported a net loss of $3.9 million for Q1 2021 and has an accumulated deficit of $65.2 million, underscoring the need to increase revenue to achieve profitability[78] - A significant risk is the company's dependence on a single cybersecurity solution, TraceCop, which generates almost all existing revenues[79] - Executive officers and directors beneficially own approximately 9.2% of voting power, with other related affiliates controlling another 39.1%, resulting in significant stockholder concentration[81] Item 6. Exhibits This section lists filed exhibits, including CEO and CFO certifications required by Sarbanes-Oxley and XBRL data files - The exhibits filed with the report include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[82]