INTRUSION INC. — Q1 2024 Form 10-Q
Business and period: Intrusion develops cybersecurity products and services, including INTRUSION Shield, and sells to government and commercial customers. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023. Unless noted, amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $1.131 million | $1.309 million |
| Gross profit / gross margin | $0.905 million / 80.0% | $0.996 million / 76.1% |
| Operating expenses | $3.377 million | $5.040 million |
| Operating loss | $2.472 million | $4.044 million |
| Net loss | $1.716 million | $4.734 million |
| Net loss per share | $0.94 | $4.49 |
| Cash used in operating activities | $1.114 million | $2.312 million |
| Cash used in investing activities | $0.427 million | $0.301 million |
| Cash provided by financing activities | $1.524 million | $0.009 million |
Revenue fell 13.6%. Consulting revenue declined to $0.7 million from $1.0 million; INTRUSION Shield revenue rose to $0.4 million from $0.3 million. Gross margin improved, which management attributed to a higher Shield share of revenue. Operating expenses decreased 33%, mainly from staffing and contractor reductions, lower sales and marketing costs, and lower litigation defense costs. Net loss narrowed, in part because debt-related interest accretion and issuance costs produced a $0.990 million credit in Q1 2024; this was a significant noncash item, not an operating profit.
Liquidity, debt, and capital
At March 31, cash was $0.122 million, working capital deficit was $4.7 million, and total current liabilities were $5.419 million. Notes payable were $1.724 million; total liabilities also included lease obligations. Q1 financing included $1.340 million of note proceeds, partly offset by $0.200 million of note principal payments, and $0.485 million of net ATM proceeds. Cash declined by $0.017 million during the quarter.
Intrusion exchanged $9.3 million of Streeterville debt for Series A preferred stock and $0.2 million for common stock during Q1. The preferred stock is nonconvertible, accrues a 10% annual return, and restricts repayment of indebtedness while any preferred shares remain outstanding. A remaining Streeterville note of approximately $0.5 million was due in September 2024, creating a conflict with that restriction; the company said it was discussing a modification with Streeterville. The company also received $1.3 million of Q1 note financing from CEO Anthony Scott. Subsequent to quarter-end, the remaining Scott notes were converted into common stock and warrants.
After March 31, the company reported $5.7 million in net proceeds from equity sales and warrant exercises; cash was $2.4 million as of May 10. It said it planned to fund operations through further ATM sales and other equity financing. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements. Financing may be insufficient, and additional equity issuance may dilute shareholders.
Changes, outlook, and risks
- Management said federal budget approval delays affected government renewals and task orders, contributing to lower consulting revenue. It expected consulting revenue to increase beginning in Q2 2024.
- Management reported seven new INTRUSION Shield customer logos and a contract for the Philippine national elections, with new customers expected to contribute more meaningfully in the second half of 2024. It also disclosed that a large commercial Shield customer, representing 30% of Q1 revenue, would not renew. Management expected other sales to offset the loss, but provided no numerical revenue guidance.
- Government entities accounted for 58.6% of Q1 revenue, compared with 48.4% a year earlier. The filing notes government appropriations, spending patterns, and cancellation rights as risks.
- Cost reductions lowered expenses but included R&D staffing cuts that may affect the number and frequency of product releases. Management said development spending could rise as the customer base and revenue grow.
- The company completed a 1-for-20 reverse stock split in March. Subsequent equity and warrant transactions increased financing and may materially affect share count; the filing reports 4,904,195 common shares outstanding on May 10.
- Following an April equity offering and warrant exercises, the company said it regained compliance with Nasdaq’s minimum bid-price and stockholders’ equity requirements on May 1, 2024.
- A stockholder derivative claim settlement was approved by the court on April 3, 2024. The insurer paid the $0.3 million settlement amount; the settlement also requires specified corporate governance measures to remain in place for at least three years.
Most important facts for investors to verify
- Current cash runway, operating cash burn, and the company’s ability to obtain additional financing; the going-concern doubt remains central despite post-quarter proceeds.
- Status and terms of the remaining Streeterville note, its September 2024 maturity, and the preferred-stock restriction on debt repayment.
- Preferred-stock return obligations and the effects of subsequent stock, warrant, and debt-conversion transactions on fully diluted ownership.
- Whether Shield sales and new contracts offset the nonrenewing customer, and whether the expected recovery in consulting revenue materializes.
- Revenue concentration in government and large customers, and the operational effects of reduced R&D staffing.