Intrusion Inc. — Q1 2021 Form 10-Q Summary
Period: Three months ended March 31, 2021; unaudited condensed consolidated results, compared with Q1 2020 unless otherwise noted. Intrusion develops and sells cybersecurity products, including TraceCop, Savant, and its newer subscription-based INTRUSION Shield.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1.852 million | $1.795 million |
| Gross profit / margin | $1.227 million / 66.3% | $1.048 million / 58.4% |
| Operating expenses | $5.131 million | $1.519 million |
| Operating loss | $3.904 million | $0.471 million |
| Net loss | $3.903 million | $0.465 million |
| Net loss per share, basic and diluted | $0.22 | $0.04 |
| Cash used in operating activities | $3.588 million | $0.142 million |
- Revenue increased about 3%. TraceCop revenue was approximately $1.8 million versus $1.7 million; Savant and Shield together contributed approximately $0.1 million in 2021.
- Gross margin improved, which management attributed mainly to TraceCop/Savant product mix. The increase in operating expenses, particularly sales and marketing, more than offset the higher gross profit.
- Sales and marketing expense rose to $2.689 million from $0.510 million, mainly to build and train a sales force and market Shield. Research and development rose to $1.469 million from $0.753 million; general and administrative expense rose to $0.973 million from $0.256 million.
Balance sheet, cash flow, and liquidity
- Cash and cash equivalents were $13.072 million at March 31, 2021, down from $16.704 million at December 31, 2020. Working capital was $12.3 million.
- Total assets were $16.822 million and stockholders’ equity was $12.123 million at quarter-end. Accumulated deficit was $65.198 million.
- Capital expenditures were $0.195 million. Financing activities provided $0.151 million, primarily from stock-option exercises, net of finance-lease payments.
- PPP loan balance was reported as $635,000, including accrued interest, at March 31; $428,000 was current and $207,000 noncurrent on the balance sheet. The company received notice on April 7, 2021 that the loan and accrued interest were forgiven in full.
- Operating lease liabilities totaled $2.344 million, with $11,000 of finance lease liabilities. No material capital-expenditure commitments were reported.
- Management said it expected cash resources to fund operations and anticipated capital expenditures for the next twelve months, based on projected revenue growth and proceeds from a secondary offering.
Changes, outlook, and risks
- Loss widened substantially year over year despite modest revenue growth. Management stated that sales and marketing costs could increase through the rest of 2021 if anticipated revenue growth is achieved; it expected general and administrative expense to remain relatively constant, subject to possible increases with growth.
- No specific revenue or earnings guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Customer and product concentration is significant: U.S. government sales were 73.9% of revenue, three government customers represented about 68.1%, and one commercial customer represented 19.8%. TraceCop accounted for most revenue. Government spending changes, order timing, or cancellations could affect results.
- COVID-related budget and operating pressures had reduced customer demand, according to the filing. Risks also include continued losses, dependence on a limited customer and product base, competition, and uncertainty about Shield’s market acceptance and revenue-recognition timing.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2021, including weaknesses in recording, organizing, and preserving written records of formal board actions. The audit committee was assessing improvements. Management reported no material change in internal control over financial reporting during the quarter.
- Legal matters include the company’s suit against its former Richardson landlord, seeking more than $1 million and declaratory relief, and a purported securities class action filed April 16, 2021 against the company and its CEO and CFO. The company said it considers the class-action claims without merit and intends to defend itself.
Most important facts for investors to verify
- Whether Shield sales expand meaningfully beyond the approximately $0.1 million reported for the quarter, and how subscription adoption translates into recognized revenue.
- Whether revenue growth can cover the substantially higher operating-cost base and reduce operating cash burn.
- Cash runway assumptions, including the timing and amount of offering proceeds and the effects of continuing operating losses.
- The continuing concentration in government customers, a single commercial customer, and TraceCop, and any changes in customer orders or contract terms.
- Progress and remediation relating to ineffective disclosure controls, as well as developments in both legal proceedings.
- The post-quarter PPP forgiveness and its accounting presentation; the filing reports the loan as outstanding at March 31 and forgiveness notice dated April 7.