Ladies and gentlemen, thank you for standing by, and welcome to the Intrusion Inc. First Quarter 2020 Financial Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Michael Paxton, Interim Chief Executive Officer. Please go ahead, sir. Michael Paxton;Interim Chief Executive Officer: Thank you, and welcome to this afternoon's conference call to review our first quarter 2020 financial results. Also participating on the call today is Joe Head, Senior Vice President and Co-Founder of the company. I'll go over the financial results. Joe will give a business update and review current projects. We'll be glad to answer any questions after our prepared remarks. We distributed the earnings release at approximately 3:05 Central today. A replay of today's call will be available at approximately 6:30 p.m. tonight for a 1-week period. The replay conference call number is (855) 859-2056, conference ID number 7278964. In addition, a live and archived audio webcast of the call is available at our website, intrusion.com. Please be reminded that during this call, including the question-and-answer session, we may make forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. Forward-looking statements involve a number of risks and uncertainties. Such statements include, without limitations, statements regarding expectations of future revenue, product orders from new and existing customers and profitability, and are qualified by the inherent difficulties in forecasting future sales caused by current economic conditions and spending patterns of and appropriations to U.S. government departments. Forward-looking statements also include the effects of sales and implementation cycles for our products on our quarterly results and difficulties in accurately estimating market growth, the unpredictability of government and corporate spending on information security products and, of course, the effects of the…

Thanks, Mike. In the previous quarter's call on February 24, we were still in the preshutdown frame of mind, with the government open but funneling uncommitted money toward the wall. Our sympathies and prayers are with our cluster of shareholders in New York. Our government customers are in a mixed state still. Many are still working from home, some are working partial schedules and some others are back at work. The common missing element is procurement departments are not back to normal. The good news is that we've had very few renewals during this period of time, and those appear to be renewing with little impact even with partial manpower at work. As you know, I hired a salesman to push Savant, STA, in the DoD space, and he got onboard in late Q3 last year, and he's turned out to be a really good hire. He's a great cybersecurity guy. He knows his networking security very well. And we've looked -- anyway, he's been on the ground for a while and developed relationships with a bunch of new DoD customers that we've not worked with in the past. Today, I'm happy to report that by his efforts, we developed relationships with 6 new customers: 3 are in the process of putting a new contract in place with us and the other 3 are still awaiting the restart of their respective parts of the government. And I'll talk to the details of the 3 that are procurement in a minute. But 2 of those that haven't really started through the process yet add up to $2 million to $3 million. So we've got 1 that's fairly large between 2 of those new ones. Our sales team has remained active during the plague. And we've been having conversations with potential customers…

[Operator Instructions] Your first question comes from the line of [ Howard Brous ].

I'd like to clear up a couple of things that were discussed on the last quarter conference call, and allow me to start with a question that [ Ross Taylor ] had asked you on the call. Basically, what he had asked you, have you hired an investment banker? And of course, he said, if the answer is yes, that's fine. If it's no, we understand it. And no comment meant that you did. Well, it's my understanding that based on your answer, I mean, obviously, we think the same thing you guys think. It seems that -- I think the answer is better if you -- forgive my using my words, that you've hired an investment bank to maximize shareholder value. Is that a fair comment? Let me clear that up.

We'll fill in more of the details on what we see the outlook. So we'll talk more about that in the future. It may not take exact shape of what you're expecting on the answer, but I think you'll like it. So we'll talk more about that next Friday. Michael Paxton;Interim Chief Executive Officer: We're going to try to get the business update next Friday. It could -- right now, we're looking at next Friday. It could get delayed a couple of days. I mean that's kind of the day before Memorial weekend. So -- but anyway, we'll update the time of the business update on our website.

I appreciate that. Let me go to a couple of things. And my understanding of -- on a historical basis, money in procurement, basically the contract happens. We had talked a quarter or so ago about any dollars in procurement. What is in procurement today, if you can comment, please?

Sure. The ones that are actually in procurement, and we understand funded are those I mentioned today: $375,000, $100,000, $412,000. We've got a renewal for $1.2 million a year that will go for more than a year, and we have -- that's all that's actually in procurement with funds committed. I expect the other $2.4 million contract that they -- I don't think they've moved it toward procurement because they can't find a procurement person at work yet. So I'd say it's those 4. So it's basically, you have, yes, $2.4 million plus those numbers, it's about $3 million...

Right. Can I sort of jump -- right. And that's for this year, basically.

Yes. For this -- that's in that we think we can get in this quarter. Then the $2.4 million, I'm thinking, will enter next -- I think it will be next quarter, enter.

Fair enough. One of the things I'd like to sort of address is what's the -- when I look at TraceCop, what's the TAM on that?

That's what we're trying to understand from a commercial standpoint. We think it's bigger if we leverage the commercial appetite for understanding flow and who's talking to who, and you'll hear more about that on the next call. But that's -- addressing the TAM and how we get to it is a key piece because we see that as a -- an underutilized asset that we have. It's an amazing resource that has applicability in the commercial space. No, I think there's more in the government as well.

So at the same time, can we address Savant and STA also in terms of the TAM?

Yes. Yes. We'll be communicating more and more often in terms of what is the -- what are the TAMs and how do we see those -- how do we see ourselves addressing those various markets.

How would you look at this quarter and going into next quarter? When we talked in the fourth quarter, we assumed first quarter is going to be similar, give or take a few pennies. And it was. How do you -- I'm not looking for a specific dollar amount guidance, but are we going to be able to hit some stride with Q2 and some contracts so that we could look for a better second quarter than first quarter? Michael Paxton;Interim Chief Executive Officer: It's not there yet. I mean we're trying to get some of these orders placed where it can be better, but right now, it's on par with the first quarter. Yes, we'll see where we're going to get to.

Yes, we'll see it net up a little bit. To make sure I communicated my numbers right with you, [ Howard ]. So the 3 orders in procurement are $887,000. And then we have a $2.4 million order as well that's in procurement. And in addition, another $2.4 million but that first $2.4 million, I mentioned, is actually for 2 years. So it's only the normal $100,000 amount. So I think all that put together, your net up is just basically $200,000 -- $220,000 a quarter in billings when we add the new -- brand-new customers in the mix. So we go from -- draw a negative to being better, when I get the $2.4 million renewed or some additional new business and we've got several in that category, but just unknown when they're going to engage and get their stuff together. One of the other things I didn't mention in the remarks that I think it's worth saying is that with the government shutdown this long, they can't buy labor with the unspent money for the year and buying data work. And most of our new things that our new sales guy has started up is actually different government cyber teams buying licenses to our data, which they can buy with money that will expire September 30 if they don't spend it. So it's too early for optimism because we've all been enjoying a sucky year. But I believe from a spending money in the summer before it goes away that we might have a decent upside. So I'm pretty confident that the third quarter is going to be pretty great. Second quarter is a matter of will it be enough to stem some losses in Q2. Mike, could -- you know the government better than me. Michael Paxton;Interim Chief Executive Officer: Yes, it's -- I mean, it's all a matter of, hey, are these guys going to get their stuff back turned on again, these are government customers and how quick we can get certain things going. And we've yet to see and pick up the pace. So there's a lot kind of up in the air right now.

Yes. But I always drive up -- see them weekly and they're not even going to the office. It's kind of... Michael Paxton;Interim Chief Executive Officer: All these guys aren't even back in the office yet.

Well, supposedly, the government will open up. Just in putting a bow on with the last quarter conference call, you talked about 4 orders representing $6 million to $8 million of potential orders that were not pie in the sky. You mentioned the first 2 were proceeding with contracts on their first few items. Was that delayed because of the government shutdown? Are those 2 orders or 4 orders, excuse me, still expected to be signed and go into procurement?

Yes. Everything I talked about before is still there. And I guess, to be truthful, the 6 I talk about is actually 7, and the seventh one has been idle. They're shut down and not even going to work. So I was expecting that originally for a June order of a couple of million. And so that's where the delta is. I've got about $2 million to $3 million in that next batch of 3. And then that other one was about $2 million as well. So yes, sorry, I left one out of my list, I apologize.

No, that's -- please, it's quite all right.

Your next question comes from the line of [ Ross Taylor ].

Could you address a couple of things? First, you talked last call about a Pentagon project where you were selected -- you worked with, rather, with a lead cyber thought expert in the Pentagon and developed something that sounds like it's pretty unique. Can you give us a heads up on where that project stands at this point in time? Has it moved forward into implementation? Or where do we stand with that?

That might be the subject of next Friday's call, but yes, that's the ticket. So that's what I've been working a lot on lately. Michael Paxton;Interim Chief Executive Officer: Yes. Let me just -- on the next call, I mean, it's really a kind of combination of we wanted to do a little update in regards to business, and we also wanted to just do a post shareholder meeting call and tell you -- tell everyone the results at the shareholders' meeting, which is also next Friday.

So we'll give you a good update on that. And I think -- but nothing has changed on that, [ Ross ], and in fact, that's going quite well.

Okay. And then you have your new marketing guy. You've talked about of the intros, the leads that he has. When you look at his potential book of business right now, how -- what kind of dollar tag gets attached to the things he's looking at -- working at, put you in touch with at this point?

He's talked to about 50, of which we shifted down to about 6 that are in procurement now. And then he has another basically 3 organizations that are fairly large. They've got people everywhere that do basically cyber investigations of various kinds. And so he's been very productive. We had an hour call yesterday with a whole -- with another company that has a team of guys that work in the field that do analysis that are very interested in using Savant. And until he talked to them, they didn't even know that we had that. They know our company and they knew TraceCop, but they didn't know it. And so I would think right now, he's basically trying to get traction on a slippery surface since the government's mostly missing. But I look at him being certainly, $15 million, $20 million worth of increased book over the flying 12 months once there's a government again. And then that's -- and then we'll talk more about that at the next call as well, but he's doing well. And then we think the commercial sector -- the other thing that I think is probably true is that the measure of pent-up angst against the Chinese that is going to spill over in that we're sort of tired of them stealing intellectual property. And I think we're going to have some upside in the commercial world as well as the DoD contractor world that says enough is enough, let's stop this.

So it definitely makes a great deal of sense that, I mean, it's time we actually start to protect it like it has value. So basically, this new guy alone...

Right. But it doesn't really change -- say again.

This new guy alone can double your revenue base this year.

I'd say so. And that's -- and we'll certainly be doing more because we've been talking about partnerships as well. So I think how do you get more people than you can hire in terms of partnering well and we'll certainly be -- that will be a place for you to judge our progress over the next year.

Okay. So kind of in summary, you're going to give us feedback on next possible, hopefully, next Friday, about where we stand with the Pentagon and other initiatives. You'll also address probably the commercial opportunities at that point in time.

Correct.

And then you have -- this new salesman alone can double your revenue base over the next 12 months. And it's introducing you guys. And I would assume that once that you start to break the ice, things should -- as more people get to know what you have, that should make you very attractive to a commercial partner who will respect you this time. Michael Paxton;Interim Chief Executive Officer: Correct. Correct.

Yes. I think you're all pleased with what you hear there. So we'll give you a lot more detail and clarity on there. So...

Okay. And then I wanted to ask one more question because when we -- when I last chatted with you, the stock was trading at $5.75, and it looked like you have initiatives that made it undervalued at that point in time. Today, it's trading substantially lower than that. Has anything happened since the last time we chatted on a quarterly call that would make this company worth less than you thought it was at that time? Michael Paxton;Interim Chief Executive Officer: No. I wouldn't think so.

No, not at all. In fact, I'm more excited than I have been in years. So...

I have to tell you, so am I.

Yes. I mean, that was -- honestly, that was the -- whenever you're on this side of the equation, trying to write your notes for a call, when you've kind of had a sucky quarter from a financial standpoint because of the shutdown, you feel bad about being very optimistic because it seems out of place. But the truth is, I'm... Michael Paxton;Interim Chief Executive Officer: Plus, there's still a lot of unknowns with this going back to work thing. But we feel good about the future.

Very fired up about our product and prospects and where we are in the market. And to me, the biggest thing is how do you make sure that you don't fail to capitalize on your opportunity this round.

It's true. So I was talking to someone the other day who spoke to a senior Homeland Security cyber expert -- or defense expert and when asked about the current situation, he said that it was DHS' hope, and this can't be -- that basically, the bad actors simply respect the fact that the world is in a bad place and treat us fairly. We all know and he know -- if this was actually said and it's not apocryphal, we know that's a naive assessment of how the world is working and that our bad actors are, if anything, stepping up their activities. It would seem that what I'm hearing from you is once we get back to operating -- and the government will get back to operating, it's only a matter of when. The opportunities that you guys see in front of you are probably substantially greater today than when we spoke a few weeks ago.

Yes. Absolutely. Michael Paxton;Interim Chief Executive Officer: Sure, thanks. Yes.

Yes. I mean, it's really exciting. I know the market -- it's a little cerebral for most investors, but it seems like you guys are setting up in a really great place and that you -- whether you find someone to acquire you or you find someone to partner with you and provide the capital to exploit the technology, it seems like we're in a really exciting place going forward. So I'd like to thank you, guys.

I'm pleased with how that's gelled up. We've actually taken the -- this time during the pause has been very, very good for taking the next step. So we'll -- and you'll feel that. You'll get more of that next talk.

And don't be afraid to be upbeat when you actually are upbeat. Michael Paxton;Interim Chief Executive Officer: Yes, agreed, agreed.

Lessons of life. They last for a while. So -- but yes, I think I'm really excited about what we've come up with. The -- and I've actually been writing patents for the last week. So I'm drafting 14 right now.

14.

Yes.

Wow. This sounds like you've literally, while this quarter, I mean, I know that people will look at it and see it as a disappointing quarter, but the simple fact is, one is, you -- I was pointing to some of that. You basically, right now with the government, your contracts are no bid, correct? Michael Paxton;Interim Chief Executive Officer: Correct.

So there was no one in the world who has the capability of doing what you're doing. Michael Paxton;Interim Chief Executive Officer: Correct.

Yes. Everything we have...

And you've spent the last few months developing things 14 -- at least things that need 14 new patents. Michael Paxton;Interim Chief Executive Officer: Correct. Well, we may be adding to our development...

We are drafting all those, and some will be viewed as not patentable. So I'm writing 14, I'd expect to get -- I don't know how many at this point yet. I'm just drafting them out and then we got to do the research. But I'm planning on getting it. I'm going to do my best to get provisionals filed before our talk next Friday, so I can talk about them. Michael Paxton;Interim Chief Executive Officer: And these are things that have been in the works...

For a while. Michael Paxton;Interim Chief Executive Officer: Since before last quarter, yes.

Been pondering it for a while, but there's nothing like no distractions to let you get a lot done in that. It's a good way to look at it.

Yes, I can appreciate that. But no, it sounds like things have really -- this has been -- you guys have been powerful -- powerfully growing the underlying value of this business. And I think that for me as one of your largest holders, I think that's a really exciting thing to hear at this point in time. People mistake that...

Yes. Our engineer have been [indiscernible]. So our engineers, they've working from home. I mean we're at the point now where businesses open back up, and most people don't know anybody that's had the virus. And so we're almost at the point now where we'd be a lot more productive together than we are remote just from cycle time. Instead of waiting on 2 hours for an e-mail, you can walk down the hall, hey, give me this. So we're -- when you're entering a new phase, it's always exciting because things happen quickly and you make progress in a hurry, and it's been really good. We're also -- we also noticed that our would-be audience in the government cyber chaser space. Those guys have also had a pause since you can't fly anywhere to look at anything. And so we've had some pretty nice conversations with those guys about using better tools, which ours are certainly better, but people don't have the time to learn new things when they're too busy with the old things. So I believe that's going to come out pretty positively for us, if we had a lot more people using our tools.

Well, I think as I said, you guys -- I mean I know that no one really knows you and people look at you like you're a quarter-to-quarter earnings story, which is just a grossly mistaken way to look at this business. You guys seem to me like you're on the cusp one way or the other of realizing the opportunity that's been sitting in this company for a long time. That makes me pretty excited.

Yes. Me too, [ Ross ]. Appreciate it.

Your next question comes from the line of [ Drew ], whose last name was not able to be gathered.

My last name is [ Carter ]. Just calling about the cash flow statement. I didn't see it in the 8-K. Were you guys cash flow positive from last year or cash flow negative? Michael Paxton;Interim Chief Executive Officer: Well, the cash flow statement will be in the 10-Q, which will be filed later today or in the morning. And I'll just -- it was about even, I believe. I can't recall the number exactly.

Okay. And going forward, I'm just wondering the cash amount was over $3 million. And it was about the same as last quarter. Do you anticipate you'll have to eat into those cash reserves going forward? Or will you generally be cash flow positive? Michael Paxton;Interim Chief Executive Officer: Well, it's possible we'll eat into it a little bit. I think we feel pretty fortunate that we had a pretty profitable year last year. And along with that, which will also be in the 10-Q is the fact that we were successful in getting some funding from the PPP program. Where is that amount? Hold on. We got $629,000 from that. So that helps out.

Your next question comes from the line of Walter Schenker.

I feel bad, not that I can control over it, that I won't be the only person showing up at the annual meeting this year. Michael Paxton;Interim Chief Executive Officer: Yes. It's -- we're going to have kind of an interesting meeting. We're going to do it from here from our corporate headquarters, and we're going to open it up, but it's kind of, it's going to be different. You'd be stuck in the lobby on a call kind of with us. So you wouldn't enjoy it very much.

I have questions, but they may well be answered next week. I'd like to make a couple of just thoughts since you're putting a bunch of effort, hopefully into this. It would be very helpful to everybody involved, and you probably are being asked to do this elsewhere, if something resembling a presentation or at least some slides, if that's the word one still uses. I guess it's a PowerPoint, not slides, could be included in that so that as you address some of these issues, whether it's TAM or end markets or what you're doing with DoD and some new products, there's actually something to look at, which explains or defines what you're hoping to accomplish or where you are. I know there are security issues maybe about your balance sheet and -- not your balance sheet, your website, but it would be helpful at this point if you're going to get deeper into the technology and the information, if some of it could actually be in print. So it's a request. Michael Paxton;Interim Chief Executive Officer: Yes, we'll look into that.

We will make you happy on that front.

Good. Secondly, since we're not directly going to talk about our quarter, you're anticipating this is going to be roughly an hour call? I don't know how big your presentation is. I'm just trying to get a sense of what you're looking for.

It's going to be about an hour. Michael Paxton;Interim Chief Executive Officer: Yes. Just, just -- we're going to open it up for questions, too. So it depends on probably the question-and-answer session.

Yes. Could be a little longer. I guess, we'll let that -- we'll put that in the... Michael Paxton;Interim Chief Executive Officer: No, I don't anticipate more than an hour.

Okay, could be an hour. Michael Paxton;Interim Chief Executive Officer: Since our shareholders meeting is so different this year, I wanted to do a call after our meeting to let you know the results, and then we'll give a little further business update at that time.

Okay. And just as a recommendation, again, not only having some stuff in a PowerPoint or just some visuals to go with it. And you've heard me complain about this for, gee, not quite in 20 years, more than 15 years, anyway, it is. Again, it is -- there's lots of moving pieces. There are new opportunities, which you're going to discuss, both with DoD from the new salesman, new areas in DoD, your collaboration with DoD, your goals in commercialization. More details are better than less details but, a, because it's good for everybody; and b, it means we can come back and complain about it later because you actually gave details at only half a jug. But I'm looking forward to more details. We both -- we all know there's a lot going on and would like to hear more about a lot of these things, which I'm not going to bother wasting anyone's time now because I'm going to hear it next week.

Your next question comes from the line of [ Howard Brous ].

Just, without putting any words in either of your mouth, but in the last conference call, you talked about going from government DoD to commercial. There is a huge swing in addressable market and potential sales. Is this basically -- this transition is what you're going to be talking about next week? Michael Paxton;Interim Chief Executive Officer: Yes.

Well, there yes, I mean, one amongst others. Michael Paxton;Interim Chief Executive Officer: But that combination, it's always a combination here, and we're going to continue all of our government business, but we're hoping to get this other area going, too.

I'm showing no other questions. Michael Paxton;Interim Chief Executive Officer: Okay. Operator, we will wrap up the call. Thank you for participating in today's call. If you did not receive a copy of the press release or if you have further questions, you can call me at (972) 301-3658, e-mail mpaxton@intrusion.com. Talk to you all later.

Thanks, guys.

This concludes today's conference call. Thank you for your participation. You may now disconnect.