Intrusion Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing is unaudited. Intrusion develops cybersecurity products and sells through direct sales and resellers, including to government and commercial customers.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior balance-sheet date |
|---|---|---|
| Revenue | $1.835 million | $1.852 million |
| Gross profit / margin | $1.181 million / 64.4% | $1.227 million / 66.3% |
| Operating loss | $3.984 million | $3.904 million |
| Net loss | $4.054 million | $3.903 million |
| Basic and diluted loss per share | $0.21 | $0.22 |
| Operating cash flow | $(3.471) million | $(3.588) million |
| Investing cash flow | $(0.160) million | $(0.195) million |
| Financing cash flow | $5.610 million | $0.151 million |
| Cash and cash equivalents | $6.079 million | $4.100 million at Dec. 31, 2021 |
| Working capital | $1.3 million | $2.1 million at Dec. 31, 2021 |
| Notes payable | $4.642 million carrying amount | None reported at Dec. 31, 2021 |
Amounts are presented in millions unless otherwise stated. The filing reports no operating margin or separate EBITDA measure. Cash increased principally from the first Streeterville note and at-the-market stock sales, while operations continued to consume cash.
Material changes and drivers
- Revenue declined about 1%. Legacy-product revenue was $1.6 million, down from $1.8 million; INTRUSION Shield generated $0.2 million, compared with negligible revenue in Q1 2021.
- Sales and marketing expense fell to $1.455 million from $2.689 million, reflecting cost reductions, including staff reductions and lower trade-event attendance, after Shield sales developed more slowly than expected.
- Research and development expense rose to $1.650 million from $1.469 million, driven by labor and product development and testing costs.
- General and administrative expense rose to $2.060 million from $0.973 million. Management cited $0.4 million of higher legal costs for non-recurring projects and $0.2 million of higher stock compensation.
- Interest expense increased to $71,000 from $2,000, principally due to the March 2022 Streeterville financing and debt-issuance-cost amortization.
- Government entities accounted for 72.2% of revenue, and three government customers accounted for approximately 69.1%. One commercial customer contributed approximately 12.2%.
- Stockholders’ equity declined to $1.302 million from $3.919 million at year-end, primarily reflecting the quarterly loss, partly offset by equity issuance and stock compensation.
Liquidity, outlook and risks
- Management stated that its 2022 forecast indicated sufficient cash resources to fund operations and expected capital expenditures through May 13, 2023. Separately, the risk-factor discussion says cash and lower-than-expected Shield revenue create significant concerns about meeting short-term liquidity needs and warns the company may not continue as a going concern if it cannot generate cash or obtain financing. These statements reflect meaningful financing and execution uncertainty; no revenue or earnings guidance was provided.
- Streeterville provided a first unsecured note with $5.35 million principal in exchange for $5.0 million before expenses; net proceeds were approximately $4.6 million. The 7% notes mature 18 months after issuance and include possible monthly redemptions, potentially settled in cash or shares at a price tied to recent trading prices. A second similar tranche is conditional, including on stockholder approval and no specified trigger event. The agreement includes covenants, default provisions and potential increased interest or balance following certain events.
- The company also received approximately $0.9 million net from its at-the-market offering during Q1. In March, it revised the offering limit to $10 million under Form S-3 limitations, excluding approximately $6.9 million of previously issued shares described in the filing.
- Customer concentration and reliance on government purchasing expose revenue to order timing, budget and appropriation changes, and possible government cancellation. Management reported no known proposed cancellations or renegotiations.
- INTRUSION Shield adoption and revenue have been slower than anticipated. Continued losses and negative operating cash flow mean the company must increase revenue, manage costs, or secure additional financing.
- Two securities class actions were consolidated; after an April 5, 2022 mediation, the parties signed a settlement term sheet. Final settlement terms remained subject to documentation and court approval. The SEC is conducting an investigation, and the company says it is cooperating but cannot predict the outcome.
- In a separate lease dispute, Intrusion seeks more than $1 million and termination of remaining lease obligations; the landlord counterclaimed for approximately $229,000 of past-due rent and more than $2 million of future rent. A trial was scheduled for June 7, 2022. The filing does not quantify a probable loss for these matters.
Most important facts for investors to verify
- Whether the company’s cash forecast and stated runway remain achievable given continuing operating cash burn and the filing’s separate liquidity warning.
- Whether the conditional second Streeterville tranche was obtained, stockholder approval was secured, and the note’s redemption and share-issuance terms create additional dilution or repayment pressure.
- Whether INTRUSION Shield revenue and customer adoption improve, and whether legacy revenue and concentrated government sales remain stable.
- The court-approved outcome and financial impact, if any, of the securities class-action settlement; the SEC investigation’s status; and the outcome of the lease litigation.
- Whether cost reductions and financing are sufficient to support operations without further equity or debt raises.