Intrusion Inc Q1 FY2021 Earnings Call

Good afternoon and welcome to Intrusion’s First Quarter 2021 Results Financial Conference Call. As a reminder, today’s conference call is being recorded for replay purposes. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead.

Good afternoon and welcome to Intrusion’s First Quarter 2021 Earnings Conference Call. I am Joel Achramowicz, Managing Director of Shelton Group, Intrusion’s Investor Relations Firm. Joining us are Jack Blount, Intrusion’s President and CEO; and Franklin Byrd, Intrusion’s CFO. Now, before we begin the call, I want to remind you that today’s conference call may contain forward-looking statements regarding future events including but not limited to expectations for Intrusion’s future business, financial performance and goals, customer and industry adoption of Shield technology, successfully bringing to market Intrusion’s design pipeline and executing on its business plan. These forward-looking statements are based on estimates, judgments, current trends and market conditions and involve risks and uncertainties that they cause actual results to differ materially from those contained in the forward-looking statements. We encourage you to review the Company’s SEC filings, including the 2020 Form 10-K filed with the SEC on March 9, 2021, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in Intrusion. All forward-looking statements are made as of the day of this call today, Tuesday, May 4, 2021 and except as required by law, we do not intend to update this information. This conference call will be available for audio replay for at least 90 days in the Investor Relations section of Intrusion’s website at www.intrusion.com. Now we’ll start the call off with a review of the financial results by Franklin and then Jack will review Intrusion’s recent operating developments, progress with Shield and the Company’s key objectives going forward. Then we’ll be happy to take the questions. With that I’d like to turn the call over now to Intrusion’s CFO, Franklin Byrd. Franklin, please go ahead.

Well, thanks, Joel, and thanks to everyone who has joined us today. So for the first quarter 2021 revenue was $1.9 million compared to $1.6 million in the fourth quarter of 2020, and $1.8 million in the first quarter of 2020. Revenue for the first quarter continues to reflect the impact of extended government shutdowns related to the pandemic, but we’re hoping to see positive signs of recovery as Washington begins to reopen and a more normal ordering patterns return throughout the course of the year. Gross margin in the first quarter was 66% compared with 58% last year, and 58% in the first quarter of 2020. First quarter operating expenses were $5.1 million compared to $4.8 million last quarter, which included a $1.1 million non-cash write-off related to a prior office lease arrangement. This compares to operating expenses of $1.5 million in the same quarter a year ago. As mentioned in the last quarter, the increase of operating expenses is due to the additional hiring we’ve had to expand our sales and leadership team combined with increased marketing focus on the development and launch of Shield. To drill down a little further on the additional employees, since the first quarter of last year, 2020, the company has hired 38 additional employees across the board for the development and launch of Shield. The breakdown of these new employees were as follows; 26 in sales and marketing; 8 in research and development; and 4 in general and administrative areas. In addition to the hired employees, we’ve also increased our use of contract consultants for both research and development and our legacy consulting business. As I previously stated, we have continued to step up our marketing efforts in 2021 focusing on the launch of Shield. Additionally, we’ve experienced general expense increases which you would normally expect from employee headcount increases. Net loss for the first quarter of 2021 was $3.9 million or $0.22 per share on 17.6 million weighted average shares compared to a net loss of the same $3.9 million or $0.23 per share in the prior quarter and the net loss of $0.5 million or $0.04 per share in the first quarter of 2020. Cash and cash equivalents as of March 31, 2021 were $13.1 million compared to $16.7 million in the prior quarter and working capital was $12.4 million and total outstanding debt at the end of the quarter was $635,000, including the current portion. In terms of guidance, we will continue our current policy of not providing quarterly guidance at this time, due to the fact that we are still in the early stages of ramping orders on Shield. As we stated previously, it’s very difficult at this stage to accurately predict the exact nature and timing of the revenue ramp but we’ll continue to reevaluate this in the quarters ahead. With that, I’m pleased to pass the call over to Jack to review recent business developments with Shield and several other activities across the company. Jack?

Thank you, Franklin. So I’m going to start off by certainly commenting on, I think the excellent progress that we made in the first quarter because I’m certainly very pleased by it and think it’s a good indication of the direction we’re headed. We’ve had an unprecedented interest in a very short period of time in the Shield product, its unique functionality and its plug-and-play technology that makes it so easy to implement and evaluate. We have struck a number of contracts, most of those being 3-year contracts with some significant companies, two of those for example Kimberly-Clark, which we did a press release on and LCI, which we did a press release on. Kimberly-Clark’s a Fortune 500 business, LCI I believe is a Fortune 2000 business, both of them are international businesses with international locations, and they have signed international agreements for 3 years to be able to use the Shield product in all of their international locations. So that’s very significant in the first quarter of a new launch of a new networking technology sub security product. We’re very pleased to have both companies on board. We are working very closely with both companies and very excited by the progress that we’re seeing there. Having well-known brands like this certainly increases the opportunities with other companies to make additional new sales. In total, we have licensed over 50,000 seats to date with these companies. That’s an extraordinary success in a very short period of time. Our pipeline continues to grow with prospects from the SMB market, from the mid-market and certainly from large enterprise and even government agencies. I was in D.C. all last week, for example, and was very encouraged to see the streets full of cars, hotels full of patrons and business coming back to normal in the federal government. As you know I reported last year when I was up there, I found it a very impressive place. So I was very encouraged to see business coming back to normal in the capital. We have been performing multiple demonstrations on the Shield technology, which is very easy to demonstrate to a customer through a web session online every day of the week. We continue to have very positive feedback from those and very positive outlook for the year. Revenues, of course, will grow slowly given the SaaS model of our technology; it takes a while for that to ramp up. From an update from the sales channel, we have 35 resellers now actively selling our product for us and I’m proud to say some of those already are international resellers. We have three Canadian resellers, one Mexican reseller, one United Kingdom reseller, one Australian reseller, and actually one Lebanese reseller. So seven international resellers signed up in the last four weeks alone and we’re very excited about that because I believe the international market is very ripe for new cybersecurity technology. If you look at the international market, for example, some people may be surprised, but the four leading countries I think that you see are Mexico, Brazil, and I just drew a blank on the other two. But anyway, not necessarily normal where you think of them coming from, Brazil and Mexico being the two largest outside of the U.S. for cybercrime, aggressive attacks and hits on a daily basis, so we’re excited to have international resellers signing up as well. We’ve expanded our leadership team by adding two key individuals to the team very recently. We originally had not planned to hire a Chief Sales Officer until 2021, because we originally thought it would take until 2022 to become international. We got that done by the end of the first quarter and with that change, we went ahead and made the move to hire an international Chief Sales Officer with tremendous international experience, established known resellers in businesses that he is used to working with. In addition, he brought on a new VP of Direct Sales, Jeremy Merrick, so Darryl Athans and Jeremy Merrick are our two new executives in sales. We’re very excited to have them both on the team. We had them here in Dallas recently for training and they’re out actively selling to customers today. On the traditional government business, we are seeing early signs of growth, although there are still delays due to things that are going on in the government. For example, while I know we all hear daily on the news about the President talking about massive spending increases, sadly, we do not have an approved budget for the government, and it’s not looking like the budget is going to get approved until 2022. Without an approved budget, then the government must rely on continuing resolutions, which we’ve seen before in the past. The challenge with continuing resolutions is starting up new business. So ongoing projects can continue to be funded, but new projects are very hard to get approved and funded during continuing resolutions, so that may still cause some delay as we move into 2021. However, we expect to see near normal growth continue closer to the end of the year. In summary, Shield is in an early stage of ramping and we’re very excited about how it looks. Our pipeline is extremely large for the early stage of the company. It is significantly larger than I would say it needs to be, to accomplish the goals in sales that we expect for 2021. So I believe we have a great pipeline in front of us that we’re executing against, clearly will be driven to accomplish, implement new sales, which bring on new revenues. Our target for international is also an exciting change that we do not think we would have at this time. Again, Brazil, India and Mexico being the three largest countries for the international market that are prime for our ready growth. We have established resellers that we’re talking with that we’ll be bringing on in Brazil and India very shortly. We’ve already brought on a Mexican reseller and have others in the pipeline as well. So we’re continuing to build market visibility for Shield, its unique capability of real-time killing all dangerous traffic incoming and outgoing to your network. Fundamentally, I’d say the two questions I get asked most frequently when I’m doing a sales pitch is, why is Shield producing such dramatically higher cure rate than any other cybersecurity product on the market? And the answer I give to that is, Shield has the advantage of using the TraceCop database that we’ve had for 25 years, that’s the largest and the most unique in the world to train our AI. Therefore, our AI can be dramatically enhanced and more significant. On average we’re showing about 20 times the volume of traffic that we are identifying as dangerous to your company compared to other cybersecurity products. So not only do we not generate any alerts that waste hundreds of hours of man-hours by IT teams tracing them down, we are killing thousands more things than other products even identify and generate alerts on. So the community is starting to readily adapt to the Shields nature of understanding the broad breadth of the cybersecurity brush that sweeping across the world, that’s impacting business, with an attack reportedly every 39 seconds on business. With that, I would like to turn it over and open it up to your questions. And as always, we will do our best to answer all your questions. Operator, if you could open up the call up.

Our first question comes from Zach Cummins of B. Riley Securities.

I just wanted to start off by asking if you could just give us a general sense of the contribution of the legacy business versus maybe the amount of Shield revenue that you’re able to get in this quarter. You saw a nice tick up in the gross margin line versus maybe what we saw over Q4 and Q1 of last year.

Zach, this is Franklin. Yes, so in Q1, virtually the majority of all of our revenue came from the legacy products. We had, as we expected and have always communicated, our Shield sales in Q1 was very minimal because we just launched in Q1. So you see for Q1 revenues is largely and predominantly the legacy business.

Understood. And then, I understand I guess I don’t want you to provide guidance just given how early you are in the stage of this. But is there any way you can give us a sense of the number of Shield seats that you have right now that are paying versus what you just signed up in the backlog?

Well, we don’t have the exact number of those that are paying today versus our signed under contract. So the 50,000 seats is under contract for Shield but they only pay revenue online in a quarter. So initially, if you have 20,000 seats, you do not turn around 20,000 seats in one quarter because you have to have IT people alerted; they have to know what’s going on. Again Kimberly-Clark, for example, actually has locations in 110 different countries and they’re planning to roll out worldwide. So we have not seen their implementation schedule for how they’re going to get to 110 countries, but we know that they’re working on it. So the revenues will come in as they bring on a territory or region, then we’ll see more and more seats. So the 50,000 seats is what’s licensed, but it’s not what’s being paid for data.

Understood. And then you kind of touched on this, but with that 50,000 seat backlog, what sort of the pace that we should anticipate for that rollout for these to go live? I know it can vary customer-by-customer, but I’m just curious how you’re thinking about it internally as you build out your plan and your model moving forward.

We don’t have enough historical data to predict how quickly customers will be able to implement this. We have made every effort to ensure that our product is as easy to install and implement as possible. Recently, one of our customers expressed concern about their IT team lacking the bandwidth to learn and implement a new product. When I arrived at their meeting in New Orleans, I was able to install the Shield product and have it operational in just three minutes. While we believe we are doing everything we can, the speed at which customers roll out the product is entirely dependent on their own circumstances. They are not required to share their rollout plans with us; we simply monitor when they come online, which is when billing begins. I expect that they will incrementally add seats each month, but I cannot predict the pace. There’s potential for rapid activation, as they could bring everything online in a matter of days if they chose to do so. However, typically, companies deploy by location, activating one area at a time. They might roll out a whole location at once, which could mean adding anywhere from 300 to 1,000 seats. Unfortunately, we don’t have the data to definitively determine this, as our customers control the rollout process. I wish I could provide a clearer answer, but without more information, I would just be guessing.

Understood. And then I guess, just final question for me. In terms of Kimberly-Clark, I mean how that contract is structured? I mean just depending on the number of seats. Are their requirements where they have to fill those seats over a certain time frame? I’m just curious if it just gives them the option to make a certain number of seats go live or are there some sort of contractual obligation that requires them to roll this out and actually begin to pay for it?

Certainly there is the intent and the desire that Kimberly-Clark will be rolled out fully within 12 months from the very first discussions I have with them. I have not seen a schedule and there is not technically anything in our contract that requires them to implement it in a certain time frame. So I know they have some seats implemented already. In fact, they have some seats implemented at the time of the press release. I know they’re rolling out more aggressively, but I haven’t seen their schedule. So I certainly anticipate that they will have all of their seats online within 12 months. I would expect probably more like 6 months, but again, I don’t have the history to prove that. I mean clearly, they didn’t buy this to sit on the shelf. They buy this because they’re extremely concerned about cybercrime and it’s only helping you if you get it implemented. So they have every desire to implement it. It’s not a matter of, I don’t want to spend the money, because it’s very inexpensive versus what they are paying for other products and the risk they have if they get hit. So I know they plan to be very aggressive with rolling it out, and I think most customers will be.

Understood. And then I guess just the final question from me would be, around kind of all the hiring that you’ve done over the past couple of quarters. Do you feel like you really have the team in place right now for the expected demand for Shield or how should we think about the ramp with operating expenses over the next couple of quarters?

No, we have mentioned a few times that we believe we have filled the critical positions in the company, including the sales force, technical support, and quality assurance teams, which are essential for shipping the production product. Therefore, we feel that our headcount is mostly stable at this moment. We may hire two or three people per month or per quarter, but we do not have any aggressive hiring plans until we assess the implementation ramp and determine where additional staff might be necessary. As we've stated previously, we believe we are adequately staffed at our current headcount to manage through the second quarter. We plan to have a Board Meeting around the end of the second quarter to discuss our sales and revenue achievements and decide whether it's time to resume hiring or maintain our current stability for another quarter. This will be evaluated each quarter.

Our next question comes from Scott Buck of H.C. Wainwright.

First one from me, kind of piggybacking on Zach’s question. Outside of personnel is there any other investment you need to make to feel like you have the infrastructure in place to properly roll this out?

No, we have no major infrastructure enhancements planned. Our data center is stable in place and at adequate capacity, so we don’t have any anticipated expense that will drive anything new right now.

Can I get one? Can you remind us the difference in economics between selling directly through your sales force and using the reseller channel?

Well, the reseller channel makes 30% off of our product, which is basically how most of these evaluate internal cost of direct sales versus channel sales. So while one may sound more expensive and more profitable than the other one, both of them basically cost you about 30% to close sales, whether you are doing it through a direct sales force or whether you’re doing it through a channel sales force. So that’s pretty much an industry average number, that’s how we get to it and that’s how they compare.

Our next question comes from Ross Taylor of ARS Investment Partners.

Jack, on the last call you talked about a number of large and potentially very large prospects, you said you were in the demo stage or trialing stage. Could you update us on where those potential customers stand?

Well, certainly LCI and Kimberly-Clark were two of those. Again, both of those are very large companies. As I said, I think LCI is in the Fortune 2000 category. I know Kimberly-Clark is in the Fortune 500, I think they are Fortune 330 or something. So those are certainly two of the companies that had early access to the product, got early evaluations that I was alluding to during that call. Kimberly-Clark being certainly, I mean, we talked about a lot, but to win a Fortune 500 company at this early stage of a new technology is almost beyond my excitement. The work that they put in to evaluate technology, the impact it has on their company, again looking at rolling it out in 110 different countries. I mean, this is a major, major enterprise decision and they don’t make those lightly. So we feel like this is as good of a rubber stamp as you can get that says certified, ready for production. So we’re very proud of that. There are others in the works and it was not just two; these moved the fastest. Fortune 500, Fortune 100 companies, government agencies generally take 9 to 12 months to make a decision on a new networking technology; I mean, pretty much anybody in the industry will tell you that. I’ve been selling enterprise solutions for 42 years, so I can tell you, it’s always. In fact, in the earlier days that we used to say it was 12 to 18 months, now we say 9 to 12 months. So some of these big companies will take longer, both to make the decision to put it in evaluation mode, and how long they want to evaluate it. But we are in discussions with other Fortune 100, Fortune 500 and government entities that are very large and very significant, that we’re very excited about and that I will continue with my team to work closely on.

With regard to the government agencies, are they seeing this as something that they would be putting into place in replacement of services you currently sell them or would this be additional and for different uses than the work you’ve currently been or the historical work you’ve done with them?

No, it’s completely new work. I was in D.C. all last week specifically to collaborate with government agencies. It was my first opportunity to meet with them, demonstrate Shield, and discuss its new functionalities. Having been a CIO in the federal government, I understand their needs and how to approach selling to them. This will be additional work; it won't replace any of our current services but will expand to large agencies and their employees for better protection. Last week, I received an incredibly warm reception in D.C., and the demos were well-received, just like they have been with other companies I've demonstrated to. We have follow-up meetings scheduled with each agency in the coming weeks and months. I am extremely excited about how quickly and positively they embraced Shield technology. They appreciate the idea of eliminating threats rather than just sending alerts after an incident. They have their own military analogies for preferring protection over damage reports, which they see as highly valuable.

You mentioned that securing Kimberly-Clark was viewed as a proof-of-concept. It seems the market is experiencing a lot of uncertainty, as indicated by recent stock price movements, which suggest that many investors lack confidence in this product, despite the confidence you and your team have. Can you explain why this proof-of-concept is so significant? The market activity seems to imply that people do not find it meaningful.

Well, I wouldn’t agree with that, Steve. I think everybody knows they need better cybersecurity. I think everybody feels vulnerable; every article I read, every conference I go to, I never hear anybody say they don’t need anything. Now not having the confidence in INTRUSIONShield, given the fact that it’s such a new product out of a new company in the sense that we’re turning around, because we’ve never had a commercial product, I certainly understand their hesitancy on that front and I think it’s normal. But again, traditionally, if you buy like a firewall, you’re going to spend weeks to months configuring it, then you’re going to put it on your network, and then you’re going to spend months evaluating did it really help me and how is it better and how do I know it’s better. So these are traditionally solutions that take long periods of time to evaluate. Shield, on the other hand, installs in 2 to 3 minutes and starts protecting the network immediately. Most of the time when I do a demo, we kill from 10 to 20 to 30 malware attacks during a 15- or 20- or 30-minute demo to the customer. So they real-time can see the benefit of this product. Again, if they typically run a month-long evaluation, they’re going to find that we killed over a million connections on their network that they didn’t even know were going on. Those weren’t useful, they weren’t helping their employees, they weren’t constructive; they could only have bad intentions that none of their other products were even generating alerts on. So the value of Shield is so dramatic that I believe the market is going to adapt it very quickly. And I think that’s why I’m so excited about a company of the stature and size and speed generally, lack of speed of a Fortune 100 company to move forward and step up and say, we want this protection in all of our locations around the world. I think that really proves what I’m excited about and when I think every customer sees when I demo the product.

Can you give us a little bit more color about your database and what makes it so unique? I know that there have been indications and some people on the market have indicated that they believe it’s just off-the-shelf data or efforts indicated to us that it’s actually almost, what I would call forensic data not being a technical specialist. But can you go into more of your database and why no one else has that capability?

Sure. You need to credit this back to Ward Paxton, PhD, who founded the company 37 years ago. He introduced several innovative products across different markets, including fiber optics and firewalls. He is an exceptionally talented individual. When the Internet emerged, he foresaw that tracking Internet traffic would provide essential insights into global activities. So, 25 years ago, he initiated a database to monitor international traffic connections in real-time, gathering vital forensic details like communication patterns, data types, IP addresses, and URLs. Initially, there wasn’t a clear plan for this data, but Ward believed that such information would eventually hold significant value. Over the years, as they began securing government contracts for forensic work, it became evident that the only way to address the challenges presented by the government was through research using the TraceCop database they had developed, which was unique at the time. For the past 20 to 25 years, we have conducted forensic investigations for the Department of Defense regarding cyber incidents that they couldn’t resolve independently. They rely on us as consultants to analyze and find solutions, utilizing the TraceCop database extensively. Much of our findings depend on historical relationships and connections. While it may seem that events from 15 years ago on the Internet are irrelevant, our research indicates that approximately 70% of the time we identify something harmful or malicious, it is because of historical data within the TraceCop database. Websites frequently change their IP addresses and URLs and try to appear innocent, but having that historical information allows us to identify repeat offenders accurately. The value of our database comes from its vast scale, encompassing petabytes of data, and its 25 years of connectivity history on the Internet. I believe no other database in the world compares to it. When I was in the government as a CIO, I sought a database with over 10 years of history, and no vendor could provide one. That highlights its uniqueness. Understanding how AI operates is crucial to grasping why our database is so valuable, yet many people lack a clear understanding of AI. If you provide AI with a limited amount of data, it may yield no useful insights or inaccurate conclusions. AI requires vast amounts of data to learn effectively. For instance, I worked on a project addressing diabetic blindness a few years ago. Doctors worldwide involved in the initiative had no idea what caused it, but we gathered data from hospitals globally and created a comprehensive dataset. After applying various AI algorithms, the findings revealed the cause of diabetic blindness, solving a problem that decades of research couldn't crack. America now reports a 98% cure rate for diabetic blindness due to having extensive historical data. Consider Tesla cars; if you talk to any Tesla owner, they can explain how their vehicle decides when to change lanes or make turns. We have driverless taxis operating in Phoenix right now, and these vehicles make millions of decisions every second based on analyzing historical driving data. This is what makes the TraceCop database so remarkable. Worldwide, estimates suggest there are around 500,000 known active malware sites on the Internet today. When we applied our AI to the TraceCop database, we anticipated similar numbers, but the AI revealed a staggering 3.4 billion active malware sites—one-third of all internet connections—and provided the IP addresses for each. Therefore, we are defending against not just 500,000 but 3.4 billion malicious actors every second. This level of insight is unattainable elsewhere, as no one else has our database. This comprehensive documentation of identified dangerous IP addresses is what sets Shield apart and makes the TraceCop database so proprietary and valuable to this company.

Yes, I think it does. I want to leave you with one final thought, which is more of a request than a question. Based on our calculations, once you reach full capacity with every 50,000 seats, it could generate approximately $4 to $5 in value per share. You don’t need to announce every big contract you secure, but I would appreciate it if you could inform us about key milestones in these early stages to demonstrate to the market that you're gaining traction. For example, when you exceed 50,000 seats, then 100,000, and also when you reach 150,000 to 200,000 seats. I’ve learned that I don’t need to understand the specifics of a product to recognize its potential; if knowledgeable individuals are choosing to buy and use it, then it likely works well. Right now, the key to proving this concept is showing the market that informed users are opting for this product. As I mentioned, the potential leverage we see in our model is significant, and I would greatly appreciate that kind of information.

Thank you for that comment. I agree with it completely. We will absolutely keep the market appraised of our seat count as it grows. As I’ve said, we won’t be able to do every product, I mean, every release to every customer, because a lot of them won’t allow it, but again, we had two large ones which were huge. We certainly can give you a seat count even if we can’t give you customer names, and I think to let the market know every time we add another 50,000 seats is a very reasonable thing and we will be delighted to do that. I’m going to be excited as you are to watch that number grow because again that proves the value that I bring into the market to help stop the horrendous cybercrime problem the world is facing.

Our next question comes from Howard Brous of Wellington Shields.

Jack, in several past calls, you talked about how Shield prevented SolarWinds, can you describe how that’s possible? On how you refine that up? Please go ahead.

So you have to understand how Shield works a little bit. So unlike most cybersecurity products, we don’t use signatures. So let’s back up a little bit. SolarWinds was once called a zero-day attack. What that really means is, it’s a new attack with an unknown signature, so therefore no cybersecurity product can identify it and stop it; therefore, it’s going to breach networks until somebody identifies it and starts knowing how to look for it. That’s what a zero-day attack means. So when the SolarWinds attack was being launched, it was an unknown thing, so therefore it appeared as harmless to everybody’s network security and therefore it got on a lot of networks. The way we work is we identify even zero-day attacks by using artificial intelligence and this TraceCop database to understand patterns related to traffic that suggest its malware even without knowing what it is. So how do we identify and kill SolarWinds? Because our AI identified the patterns of these attacks and said, this looks like evil stuff to us, we’re going to kill it and not let it happen. But we write that in our database. So at the time we were doing this last August, September, we didn’t know that was SolarWinds because SolarWinds hadn’t been identified yet. But we were seeing things we thought were evil that we were killing. Well, once SolarWinds became public, they identified the signatures, they published them on the Internet and everybody could go start looking from their network and trying to clean it off their network. We went back and looked in our database and said, yes, we were killing those attacks back in June, September, August before anybody knew what they were. So we didn’t know that we were killing SolarWinds, but we knew we were killing a new unknown attack. That’s how we identify and kill even zero-day attacks before anybody knows what they are and we can prove we did it because it’s recorded in our database, with the time and date and the number of times, the occurrences that it was attacking. Does that make sense?

It makes a lot of sense. We're continuing to see positive developments. For years, Intrusion with TraceCop Savant has been the sole source supplier to the Department of Defense. You’ve mentioned on this call and others that the legacy business is improving. I want to discuss the Department of Defense and the opportunity we have there, specifically regarding the number of seats and your current status in testing.

Well, yes, I was busy with organizations in the DoD, I was visiting with organizations in USDA, I was visiting with organizations in treasury, I was visiting with a number of organizations in the United States government last week. I was very busy. Again it was good to see the government back to work, trust me. The reception I had was fabulous. So it was incredibly positive. A lot of questions, a lot of doubt and uncertainty because what we do is radically different to what other products do. But I believe that they are more aware than ever that they are exposed and vulnerable and that the products they have aren’t working. SolarWinds and the Exchange breach, just to name two of them that the public is aware of, proved to the federal government that they are not secure. Both of those attacks breached multiple government agencies and hundreds of thousands of employees. So they’re very upset about it. President Biden just announced that he is working on a new bill to dramatically change the requirements on the federal government for their cybersecurity defenses because he believes what they’ve been doing is inadequate. We met with people who are aware of that bill that we want to make them aware of what Shield is, how it would make the government state and we are trying to constantly to get more exposure in the federal government to understand how Shield works and how we can help them solve their problem. So the government is very, very serious and aware of the cybercrime threat and that they are not doing enough to stop it and that current cybersecurity products are not protecting them. So we believe that creates a tremendous opportunity for Shield to come in as a unique patented AI technology that can add a new level of safety to their network. The USDA has 110,000 seats to know when you asked about seats. Since I used to be their CIO, I can answer that question. They have hundreds of thousands of seats; it’s a pretty big implementation.

You mentioned the public's awareness of SolarWinds and Microsoft Exchange. Are there other incidents the public isn't aware of that you can discuss?

Well, there are certainly others that I could comment on if I had to list them firmly and there are major breaches announced every day. I get reports, and it’s different countries get hit with different breaches at different times. I get reports from around the world right now. I have a lady in India that’s working on that part of the world and gives me reports every day. So there are breaches every day. We’re going to add a section to our website very soon, where we kind of are the centralized site for learning about more breaches readily and we’re going to be promoting that very heavily. I can tell you that I talked with government agencies because I do have top secret security clearance when I was in D.C. last week about other breaches that have occurred that I can’t tell you about on this call. So there are more than just the SolarWinds and Exchange that have hit government agencies in the past few months alone. Again, the government is very seriously concerned. When the President starts talking about a bill specifically for cybercrime, I think it tells you how alarmed the federal government is right now.

Our next question comes from Russell Cleveland of RENN Capital.

My question is around the Beta testing; it seemed like that our plug-in service, it doesn’t take months of testing. So can you tell me more about the Beta testing and again, the characteristics of the companies? You mentioned earlier that there were companies similar to Kimberly-Clark and that kind of size and of course the government is very exciting. But tell me about the test they have to do here and the timing on all this. Any thoughts there?

Certainly. To clarify, terminology can differ. For me and the industry, Beta refers to a pre-release product. Our Beta testing was conducted before Shield's launch into general production. We now have evaluation systems, which are not technically Beta systems, but it seems you are referring to evaluation systems. We distribute evaluations weekly to various customers of different sizes. The product is outstanding. One of my proudest achievements stems from my 40 years as an IT professional, facing the challenges of installing new security products, which is often a daunting task. During the design of Shield, I emphasized the need for it to be a groundbreaking plug-and-play product because IT professionals are already swamped and have little time to assess new technology. We hold a patent for our plug-and-play process, even with such complex software. Typically, there are numerous parameters that must be configured for a network appliance to become active. However, Shield connects, recognizes its network, and begins protecting within two minutes of being turned on. This allows for swift implementations and evaluations. One notable example is when I visited a company in New Orleans, where the CEO and I were friends, but the IT staff didn’t think they needed Shield, as they believed their cybersecurity was sufficient, and they didn't have the time to evaluate it. Concerned about ransomware and breaches impacting similar companies, the CEO invited me to persuade the IT department. During a meeting, we installed Shield in just three minutes, and during the session, we witnessed Shield eliminate threats on their network that they were unaware of. They decided to purchase the product that same day, and it is now in production at their company. They had a loaner unit for evaluation, and as I was leaving, I jokingly said I could take it back if they didn’t want to proceed. The CIO responded firmly, stating they would never part with that appliance and would sign the contract immediately. This illustration shows just how quickly the process can unfold; typically, it takes about 30 days for companies to integrate the product and evaluate it, in contrast to the typical 6 to 9 months associated with traditional products. Most clients reach out to me after receiving their first 30-day report. Shield generates a report revealing how many connections were terminated to secure the network, with this number usually exceeding a million connections in a month. At that stage, no CFO hesitates to move forward. They quickly ascertain that it hasn't disrupted any employee activities, as it operates silently in the background while blocking a million malicious threats, affirming that those threats existed for a reason and were there to cause harm. This is very persuasive. Hopefully, prospects can swiftly transition to become customers based on how quickly Shield demonstrates its value. Does that answer your question?

Yes. So the challenge here is not so much here of time because it’s proven very quickly, it is just legal and Board approvals and corporate bureaucracy, not testing and getting the product into the market.

You’re right. I would say we spend more time upfront with the CFO or the CIO around administrative and legal things than we do around actually evaluating the product. The product proves itself almost automatically.

Our next question comes from Jay Bruno, a private investor.

My history with your company goes back to around 1995 or possibly '96. I discovered the company while conducting research, particularly technical research, and became fascinated with the technology. I invested significantly from my clients’ portfolios into ODSI and maintained strong relationships with Ward and Joe Head, along with someone in Investor Relations whose name I believe was Gordon. I remember something Ward shared with me 25 years ago about building a database, and now, seeing the results of that is remarkable. I'm observing after-market trading and it’s wonderful how the markets operate; they focus on numbers rather than the future. I'm a new investor in IMTZ and I just wanted to emphasize that the insights I gained 25 years ago now have a solid 25-year track record, especially with TraceCop, which I believe was originally called ProtoCop. I was there for the early days.

I wasn’t here that long, so I can’t attest to that; only you can. Joe Head and I mentioned was Ward, Founder. Joe Head is still here, Senior Vice President in the company; he is my most valued ally and resource in the company. His knowledge on cybercrime and forensics activity is some of the top in the world. And Joe is just a pleasure to work with. I’ve enjoyed ever since the first time I met him here, and certainly, he is the person that can talk to and attest to why he and Ward started the TraceCop database and how valuable he’s watched it grow to be over the past 25 years. So thank you so much for that very kind comment. That was very kind of you.

One other thing, I just want people listening to understand, I believe this company is one of the, if not the pioneer in cybersecurity; you were looking at hackers back before they were hackers. Back before there was a cybersecurity law and I believe this company had something to do with that law being going into effect. And I’m sure Joe has a lot of stories.

Joe does. This company has been a pioneer in cybersecurity forensics work for 25 years. There’s no doubt about it. I heard first hand from a couple of very senior, in fact one of the guys, he’s retiring next month, Joe, so he knows Joe back when Joe first called on in 25 years ago and he was commenting one of the amazing things that Intrusion has done for them over the years. So they believe that we are a pioneer and they certainly believe and we’re excited in the new INTRUSIONShield product as a revolutionary game changer and that’s the way I feel about it. I’m very, very proud to be here working on this product and I really believe we can help businesses around the world.

We have no further questions at this time. So I will hand the call back over to Jack.

Well, thank you very much for coordinating; this was a very good set of questions. We appreciate those very much. We always like talking to our investors and I just like to make a couple of last comments. This company is the closest thing to a family I’ve seen out of any business I’ve ever worked at. I really enjoy working here and I want to put a shout out to all the employees of Intrusion for their hard work, their dedication and their excitement and their zealousness about stopping cybercrime. I think they’re doing a great job for America and I’m really, really proud to be here working with them. We are doing some upcoming things that you may want to be aware of. There is an Annual Shareholders’ Meeting on May 18th, there is a Needham TMT Conference on May 19th that I’ll be participating in and a very exciting Black Hat Security Conference from July 31st through August 5th is going to be live and in-person this year and we are a senior sponsor in that event, and we are very excited about the exposure we’re going to get, the exposure the market is going to get to what Shield really has to offer and that set of highly technical audience. So I know you’re going to want to participate in that if you can. Thank you so much. Have a wonderful evening. Goodbye.

Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.