Intrusion Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed March 9, 2021. Intrusion develops cybersecurity and network-intelligence products, including TraceCop, Savant and its new Shield offering. The company sells mainly to U.S. government customers.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $6.619 million | $13.643 million |
| Gross profit / margin | $3.910 million / 59.1% | $8.301 million / 60.8% |
| Operating income (loss) | ($6.523 million) | $4.507 million |
| Net income (loss) | ($6.518 million) | $4.465 million |
| Net income (loss) attributable to common stockholders | ($6.597 million); basic and diluted EPS ($0.45) | $4.326 million; basic EPS $0.32, diluted EPS $0.28 |
| Cash from (used in) operations | ($5.177 million) | $4.290 million |
| Cash and cash equivalents at year-end | $16.704 million | $3.334 million |
| Working capital at year-end | $16.2 million | $3.1 million |
Revenue fell 51.5%, with management citing missed TraceCop sales projections and lower customer demand amid COVID-19 disruptions. Gross margin contracted 1.7 percentage points, attributed to higher labor costs on certain projects. Operating expenses rose sharply: sales and marketing to $3.821 million, R&D to $3.797 million, and general and administrative to $2.815 million. G&A included a $1.092 million non-cash charge for abandoning an operating lease. The effective income tax rate was 0%; deferred tax assets were fully reserved.
Operating cash use was $5.177 million, versus $4.290 million generated in 2019. Investing cash use was $320,000. Financing generated $18.867 million, primarily from the October stock offering ($18.171 million net proceeds), plus a $629,000 PPP loan. The company reported $629,000 of PPP principal outstanding at year-end ($421,000 current and $212,000 noncurrent), and expected full forgiveness after applying for it; forgiveness was not yet reported as completed. Year-end operating lease liabilities were approximately $2.354 million net of imputed interest, and finance lease liabilities were $21,000. No material off-balance-sheet arrangements were reported.
Material changes and business developments
- TraceCop revenue was $6.2 million in 2020, versus $13.4 million in 2019, according to the risk-factor disclosure. The business remained highly reliant on a limited set of products and customers.
- U.S. government sales represented 86.3% of revenue, versus 87.4% in 2019. Three government customers accounted for approximately 76.5% of 2020 revenue. Indirect channels contributed 49.3% of revenue, down from 70.3% in 2019.
- Intrusion completed an October 2020 public offering and raised approximately $18.171 million net. Its stock began trading on Nasdaq under INTZ on October 9, 2020. All preferred shares converted into common shares in August, issuing approximately 1.004 million shares and diluting common holders by 7.28% at conversion.
- Common shares outstanding increased to 17.418 million at year-end from 13.542 million. Management and directors, together with related affiliates, held substantial voting influence, according to the filing.
Outlook, risks and unusual items
Management planned to use offering proceeds to commercialize Shield for the enterprise market and develop follow-on solutions. It expected sales and marketing expenses to increase if revenue grew in 2021 and anticipated that available resources would fund operations and expected capital expenditures through March 31, 2022, based on its current forecast. The filing provides no quantified revenue, earnings or margin guidance.
- Management warned that continued losses or failure to obtain financing could impair execution of the business plan or threaten continued operations. The filing also says approximately $16.204 million of year-end cash was uninsured above FDIC limits and was held primarily with two major U.S. financial institutions.
- COVID-19 reduced demand from government customers and may continue to disrupt customer budgets and company operations. Government dependence, customer concentration, cancelable orders, indirect-channel reliance, competition and the uncertain market acceptance of Shield are prominent risks.
- On February 16, 2021, Intrusion sued its former Richardson, Texas landlord, alleging breach of contract and constructive eviction; it seeks more than $1 million and a ruling ending remaining lease obligations. The landlord filed a general denial. The outcome and any financial recovery or lease relief are uncertain.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal-control effectiveness. The financial statement audit opinion was unqualified, and the auditor reported no critical audit matters.
Investor verification priorities
- Track Shield commercial launch, customer adoption, revenue contribution and associated sales, marketing and development costs.
- Assess the trajectory of TraceCop sales and whether customer and government concentration is declining.
- Reconcile cash burn and management’s runway forecast against subsequent results, including the status of PPP loan forgiveness.
- Monitor the landlord litigation, remaining lease obligations and any impact on cash or reported expenses.
- Review dilution from outstanding options and any future equity financing; verify the timing and terms of any financing or acquisition plans.