INTRUSION INC. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. This filing reports annual results, not standalone fourth-quarter results. Intrusion is a cybersecurity company whose products include the established TraceCop and Savant offerings and INTRUSION Shield, its first commercial product launched in 2021.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $7.277 million | $6.619 million |
| Gross profit / gross margin | $4.652 million / 63.9% | $3.910 million / 59.1% |
| Operating expenses | $24.155 million | $10.433 million |
| Operating loss | $19.503 million | $6.523 million |
| Net loss | $18.802 million | $6.518 million |
| Net loss per share, basic and diluted | $1.05 | $0.45 |
| Cash used in operating activities | $16.557 million | $5.177 million |
| Cash and cash equivalents at year-end | $4.100 million | $16.704 million |
| Working capital at year-end | $2.1 million | $16.2 million |
- Revenue increased 9.9%, but the net loss widened substantially as spending rose ahead of anticipated Shield sales. Sales and marketing increased to $11.931 million from $3.821 million; research and development to $6.328 million from $3.797 million; and general and administrative to $5.896 million from $2.815 million.
- Gross margin improved, which management attributed partly to Shield’s lower direct labor costs. Shield generated approximately $0.6 million of FY2021 revenue; TraceCop generated $6.3 million, or approximately 86.9% of revenue.
- Net cash used in investing activities was $1.148 million; net cash provided by financing activities was $5.101 million. FY2021 financing included approximately $5.6 million net proceeds from the at-the-market stock program. The $0.635 million gain on debt extinguishment reflected forgiveness of the PPP loan.
- At December 31, 2021, lease liabilities totaled $3.502 million, including $1.317 million of finance lease liabilities and $2.185 million of operating lease liabilities. The PPP loan had been forgiven; no other year-end borrowings are identified in the provided balance sheet.
Business changes, outlook and material risks
- U.S. government customers accounted for approximately 71.3% of FY2021 revenue, down from 86.3% in FY2020. Commercial revenue rose to $2.1 million from $0.9 million. Three government customers and one commercial customer each exceeded 10% of FY2021 revenue. Indirect channels generated 37.5% of revenue, versus 49.3% in 2020.
- Management said the Shield launch and related spending did not produce the sales anticipated, strained capital resources and raised significant doubt about the Company’s ability to continue as a going concern. The Company reduced headcount by approximately 20% in July 2021 and undertook other cost reductions.
- Management planned a hardware-less, cloud-based Shield offering for rollout in the second half of 2022 and intended to expand commercial and government sales. The filing gives no quantitative revenue or earnings guidance. Management estimated available cash resources would fund operations and expected capital expenditures through March 18, 2023, based on its 2022 forecast and assuming access to financing; it cautioned that additional funding may be necessary and is not assured.
- After year-end, the Company entered a March 2022 agreement for two potential unsecured notes, each with $5.35 million principal in exchange for $5.0 million before certain expenses. It received approximately $4.6 million net from the first note; issuance of the second was conditional, including stockholder approval. Notes bear 7% interest, mature after 18 months, and permit monthly redemptions after six months. Depending on the terms and share price, repayment in shares could be dilutive. The agreement also contains financing restrictions and default provisions.
- Key exposures include dependence on government customers and TraceCop, uncertain Shield market acceptance and channel-partner performance, continued operating cash burn, financing availability and potential dilution, COVID-19-related customer budget effects, and supply-chain constraints.
- Legal matters include consolidated securities class-action litigation, an ongoing SEC investigation for which the Company received a subpoena, and a dispute with its former Richardson landlord. The landlord’s counterclaim seeks approximately $229,000 in alleged past-due rent and future rent exceeding $2 million; the Company seeks damages exceeding $1 million and termination of its lease obligations. Management said it intended to defend the securities claims but could not estimate any potential loss.
Most important facts for investors to verify
- Whether actual post-filing Shield sales, customer retention and cloud-product rollout are sufficient to improve revenue and reduce operating cash burn.
- Available liquidity, subsequent ATM share issuance, the conditions and availability of the second Streeterville note, and the resulting financing costs and dilution risk.
- Government and individual-customer concentration, and whether commercial revenue growth can reduce that dependence.
- Developments and potential financial effects of the securities litigation, SEC investigation and Richardson lease dispute.
- The note’s redemption conversion-price terms: the filing describes different calculation periods in different passages, so the executed note should be checked. The filing also reports differing public-float figures in separate sections; verify the applicable figure and its implications for ATM capacity.