INTRUSION INC. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing was signed April 1, 2024. This is an annual report, not a standalone Q4 report. Unless otherwise noted, amounts below are in U.S. dollars. Share and per-share data reflect the 1-for-20 reverse stock split effective March 22, 2024.
Business context
Intrusion is a cybersecurity company offering threat-intelligence data and security products, including its subscription-based INTRUSION Shield platform and TraceCop and Savant solutions. The company reported 49 employees at year-end. Management focused in 2023 on developing reseller and channel sales and expanding Shield adoption; it said market traction has taken longer than expected.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $5.611 million | $7.529 million | Down 25.5% |
| Gross profit / gross margin | $4.354 million / 77.6% | $4.175 million / 55.5% | Profit up 4.3%; margin improved |
| Operating expenses | $16.400 million | $20.458 million | Down 19.8% |
| Operating loss | $(12.046) million | $(16.283) million | Loss narrowed |
| Net loss | $(13.891) million | $(16.229) million | Loss narrowed 14.4% |
| Operating cash flow | $(7.767) million | $(13.190) million | Cash use decreased |
| Investing cash flow | $(1.448) million | $(1.479) million | |
| Financing cash flow | $6.339 million | $13.584 million | |
| Cash at year-end | $0.139 million | $3.015 million | |
| Working capital | Deficit of $13.1 million | ||
| Stockholders’ deficit | $9.555 million | $4.215 million | Deficit increased |
TraceCop generated $3.7 million, approximately 66.4% of FY2023 revenue, versus $6.1 million in FY2022. Shield represented 28.4% of revenue, up from 15.6%. Government sales were $2.6 million, or 46.2% of revenue, compared with $5.0 million, or 65.8%, in FY2022. Four customers accounted for 86% of FY2023 revenue; one customer represented 79% of Shield revenue.
At December 31, 2023, current liabilities were $14.261 million, including $10.823 million of notes payable. Financing provided $6.339 million in FY2023, principally from $4.7 million of ATM stock sales and a $2.3 million private placement, partly offset by debt and lease payments. Management and the auditor stated that recurring losses, negative operating cash flows, and the working-capital shortfall raise substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements.
Changes, outlook and notable items
- Revenue fell primarily because a consulting contract that contributed about $2.6 million annually was not renewed. Shield revenue increased by $0.4 million, partially offsetting the decline.
- Gross margin improved mainly because the lost consulting contract had a 14% gross margin and Shield made up a larger share of revenue. Operating expenses declined with lower legal costs, contractor labor and employee costs; year-end headcount fell to 49 from 67.
- FY2022 included $2.0 million of Employee Retention Credit income and a $0.4 million lease-termination gain; neither recurred in FY2023. FY2023 interest expense was $1.9 million.
- Q4 2023 revenue was down 7% sequentially, which management attributed largely to federal budget delays and a continuing resolution. A long-standing Department of Defense contract was not funded for FY2024, affecting Q4 consulting revenue and Q1 2024 revenue.
- Management said it expected consulting revenue to increase in 2024. A previously announced $5 million multi-year Shield award was delayed for reasons outside the company’s control; management expected the project to resume in Q2 2024. Separately, the largest Shield customer will not renew, with revenue impact beginning in Q2 2024. These are expectations, not guaranteed results. The filing gives no quantified company-wide revenue or earnings guidance.
- After year-end, the company exchanged $9.3 million of Streeterville debt for Series A preferred stock in March 2024, and exchanged additional debt for common stock. The filing states $0.5 million remained on the First Note after the exchanges; its maturity was September 2024. The preferred shares have a $1,100 stated value and a 10% annual return, payable quarterly in cash or additional preferred shares. The debt exchanges reduce leverage but do not provide operating cash.
- Nasdaq had granted an extension through April 23, 2024, to regain listing compliance. The company’s plan included financing actions, debt exchanges and a reverse split; the filing cautions that compliance was not assured. The company also disclosed a January 2024 $1.1 million related-party loan from its CEO, secured by receivables and repayable through weekly principal payments.
- The securities class action was fully adjudicated after a $3.3 million settlement paid by insurance; the SEC matter concluded with no penalties assessed. A derivative-action settlement included $0.3 million in legal fees paid by insurance and was awaiting court approval, with a hearing scheduled for April 3, 2024.
Risks and contingencies
Key risks include the need for additional financing and potential dilution; very limited cash and substantial doubt about going concern; dependence on TraceCop and a small number of customers; government budget delays, cancellations and customer concentration; slower-than-expected Shield adoption and customer nonrenewal; competition, rapid technology change and cybersecurity or product failures; and possible Nasdaq delisting. Debt agreements also impose financing restrictions and may allow accelerated repayment and increased interest following default. The company reported no material unresolved staff comments. The auditor issued an unqualified opinion on the financial statements, highlighted going-concern uncertainty, and reported no critical audit matters. Management said financial reporting controls were effective; the auditor did not attest to that assessment.
Investor verification checklist
- Confirm current cash, monthly cash burn, working capital, and the timing and terms of any financing needed to sustain operations.
- Verify the status of Nasdaq listing compliance and any subsequent financing, warrant exercises, reverse-split effects, or share dilution.
- Review the remaining Streeterville obligations and the Series A preferred stock’s return, payment terms, and impact on future cash needs.
- Track whether the delayed $5 million Shield award proceeds, the largest Shield customer’s nonrenewal affects revenue as expected, and Shield sales diversify beyond concentrated customers.
- Check whether the unfunded government contract resumes and whether government budget delays continue to affect revenue.
- Review subsequent filings for Q1 2024 performance, the derivative settlement’s court approval, and any changes to management’s outlook.