MIME-Version: 1.0 X-Document-Type: Workbook Content-Type: multipart/related; boundary="----=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33" This document is a Single File Web Page, also known as a Web Archive file. If you are seeing this message, your browser or editor doesn't support Web Archive files. Please download a browser that supports Web Archive, such as Microsoft Internet Explorer. ------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Workbook.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"

This page should be opened with Microsoft Excel XP or newer.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet01.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 30, 2013
Document and Entity Information
Entity Registrant Name INTRUSION INC
Entity Central Index Key 0000736012
Document Type 10-Q
Document Period End Date Mar 31, 2013
Amendment Flag false
Current Fiscal Year End Date --12-31
Entity Current Reporting Status Yes
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 12,172,017
Document Fiscal Year Focus 2013
Document Fiscal Period Focus Q1
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet02.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
Mar. 31, 2013
Dec. 31, 2012
Current Assets:
Cash and cash equivalents $ 301,000 $ 52,000
Accounts receivable 1,606,000 946,000
Inventories, net 12,000 5,000
Prepaid expenses 46,000 48,000
Total current assets 1,965,000 1,051,000
Property and equipment, net 237,000 260,000
Other assets 46,000 48,000
TOTAL ASSETS 2,248,000 1,359,000
Current Liabilities:
Accounts payable and accrued expenses 916,000 707,000
Dividends payable 317,000 279,000
Line of credit payable 311,000 130,000
Obligations under capital lease, current portion 85,000 96,000
Deferred revenue 449,000 52,000
Loan payable to officer 1,530,000
Total current liabilities 3,608,000 1,264,000
Loan payable to officer 1,530,000
Obligations under capital lease, noncurrent portion 94,000 116,000
Commitments and contingencies      
Stockholders' deficit:
Common stock, $0.01 par value: Authorized shares - 80,000 Issued shares - 12,182 as of March 31, 2013 Outstanding shares - 12,172 as of March 31, 2013 122,000 122,000
Common stock held in treasury, at cost - 10 shares (362,000) (362,000)
Additional paid-in capital 55,877,000 55,837,000
Accumulated deficit (58,990,000) (59,047,000)
Accumulated other comprehensive loss (107,000) (107,000)
Total stockholders' deficit (1,454,000) (1,551,000)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 2,248,000 1,359,000
Series 1
Stockholders' deficit:
Preferred stock 778,000 778,000
Series 2
Stockholders' deficit:
Preferred stock 724,000 724,000
Series 3
Stockholders' deficit:
Preferred stock $ 504,000 $ 504,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet03.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, Authorized shares 5,000 5,000
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, Authorized shares 80,000 80,000
Common stock, Issued shares 12,182 12,182
Common stock, Outstanding shares 12,172 12,172
Common stock held in treasury, shares 10 10
Series 1
Preferred stock, shares issued 220
Preferred stock, shares outstanding 220
Preferred stock, Liquidation preference (in dollars per share) $ 1,210
Series 2
Preferred stock, shares issued 460
Preferred stock, shares outstanding 460
Preferred stock, Liquidation preference (in dollars per share) $ 1,270
Series 3
Preferred stock, shares issued 354
Preferred stock, shares outstanding 354
Preferred stock, Liquidation preference (in dollars per share) $ 852
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet04.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net product revenue $ 1,755 $ 1,363
Net customer support and maintenance revenue 22 35
Total revenue 1,777 1,398
Cost of product revenue 629 610
Cost of customer support and maintenance revenue 6 5
Total cost of revenue 635 615
Gross profit 1,142 783
Operating expenses:
Sales and marketing 312 399
Research and development 399 398
General and administrative 343 311
Operating income (loss) 88 (325)
Interest expense, net (31) (27)
Income (loss) before income tax provision 57 (352)
Income tax provision 0
Net income (loss) 57 (352)
Preferred stock dividends accrued (37) (38)
Net income (loss) attributable to common stockholders $ 20 $ (390)
Net income (loss) per share attributable to common stockholders:
Basic (in dollars per share) $ 0 $ (0.03)
Diluted (in dollars per share) $ 0 $ (0.03)
Weighted average common shares outstanding:
Basic (in shares) 12,172 11,952
Diluted (in shares) 13,736 11,952
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet05.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Operating Activities:
Net income (loss) $ 57 $ (352)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 40 36
Stock-based compensation 70 68
Changes in operating assets and liabilities:
Accounts receivable (660) (62)
Inventories (7) 25
Prepaid expenses and other assets 4 (26)
Accounts payable and accrued expenses 212 107
Deferred revenue 397 284
Net cash provided by operating activities 113 55
Investing Activities:
Purchases of property and equipment (17) (6)
Financing Activities:
Proceeds from line of credit 508 240
Payments on line of credit (328) (320)
Penalties and waived penalties on dividends 7 3
Proceeds from stock options exercised 9
Principal payments on capital leases (34) (20)
Net cash provided by (used in) financing activities 153 (88)
Net increase (decrease) in cash and cash equivalents 249 (39)
Cash and cash equivalents at beginning of period 52 308
Cash and cash equivalents at end of period 301 269
Cash paid during the year for interest 5 4
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES:
Preferred stock dividends accrued 37 38
Purchase of leased equipment under capital lease $ 71
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet06.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Description of Business
3 Months Ended
Mar. 31, 2013
Description of Business
Description of Business

1.              Description of Business

 

We develop, market and support a family of entity identification, high speed data mining, regulated information compliance, data privacy protection and network intrusion prevention/detection products.  Our product families include:

 

·                                      TraceCop™ for identity discovery and disclosure,

·                                      Savant™ for network data mining,

·                                      Compliance Commander™ for regulated information and data privacy protection, and

·                                      SecureNet™ for network intrusion prevention and detection.

 

We market and distribute our products through a direct sales force to:

 

·                                      end-users,

·                                      value-added resellers,

·                                      system integrators,

·                                      managed service providers, and

·                                      distributors.

 

Our end-user customers include:

 

·                                      U.S. federal government entities,

·                                      foreign government entities,

·                                      local government entities,

·                                      banks,

·                                      credit unions,

·                                      other financial institutions,

·                                      hospitals and other healthcare providers, and

·                                      other customers.

 

We were organized in Texas in September 1983 and reincorporated in Delaware in October 1995. For more than 15 years, we provided local area networking equipment and were known as Optical Data Systems or ODS Networks. On April 17, 2000, we announced plans to sell, or otherwise dispose of, our networking divisions, which included our Essential Communications division and our local area networking assets. On June 1, 2000, we changed our name from ODS Networks, Inc. to Intrusion.com, Inc., and our ticker symbol from ODSI to INTZ to reflect our focus on intrusion prevention and detection solutions, along with information compliance and data privacy protection products. On November 1, 2001, we changed our name from Intrusion.com, Inc. to Intrusion Inc.

 

Our principal executive offices are located at 1101 East Arapaho Road, Suite 200, Richardson, Texas 75081, and our telephone number is (972) 234-6400.  Our website URL is www.intrusion.com.  References to “we”, “us”, “our” or “Intrusion Inc.” refer to Intrusion Inc. and its subsidiaries.  Compliance Commander™, SecureNet™ and TraceCop™ are trademarks of Intrusion Inc.

 

As of March 31, 2013, we had cash and cash equivalents of approximately $301,000, up from approximately $52,000 as of December 31, 2012.  We generated net income of $57,000 for the quarter ended March 31, 2013 compared to a net loss of $352,000 for the comparable quarter ended March 31, 2012.  As of March 31, 2013, in addition to cash and cash equivalents of $301,000, we had $314,000 in funding available under our $0.625 million line of credit at Silicon Valley Bank (“SVB”) and $0.67 million funding available from a promissory note to borrow up to $2.2 million from G. Ward Paxton, the Company’s Chief Executive Officer.  We are obligated to make payments of accrued dividends on all our outstanding shares of preferred stock that will reduce our available cash resources.  Based on projections of growth in revenue and net income in the coming quarters, and the borrowings available previously mentioned, we believe that we will have sufficient cash resources to finance our operations and expected capital expenditures for the next twelve months.  We expect to fund our operations through Company profits, our line of credit, borrowings from the Company’s CEO, and possibly additional investments of private equity and debt, which, if we are able to obtain, will have the effect of diluting our existing common stockholders, perhaps significantly.  Any equity or debt financings, if available at all, may be on terms which are not favorable to us and, in the case of equity financings, may result in dilution to our stockholders. If our operations do not generate positive cash flow in the upcoming year, or if we are not able to obtain additional debt or equity financing on terms and conditions acceptable to us, if at all, we may be unable to implement our business plan, fund our liquidity needs or even continue our operations.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet07.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Basis of Presentation
3 Months Ended
Mar. 31, 2013
Basis of Presentation
Basis of Presentation

2.              Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Item 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  The December 31, 2012 balance sheet was derived from audited financial statements, but does not include all the disclosures required by accounting principles generally accepted in the United States.  However, we believe that the disclosures are adequate to make the information presented not misleading.  In our opinion, all the adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included.  The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be achieved for the full fiscal year or for any future period.  The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2013.

 

The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different from the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued expenses, and dividends payable approximate their carrying amounts due to the relatively short maturity of these instruments.  The carrying value of the line of credit payable approximates fair value since this instrument bears market interest rates.  Loans payable to officer are with a related party and as a result do not bear market rates of interest.  Management believes based on its current financial position that it could not obtain comparable amounts of third party financing, and as such cannot estimate the fair value of the loans payable to officer.  None of these instruments are held for trading purposes.

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet08.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Inventories
3 Months Ended
Mar. 31, 2013
Inventories
Inventories

3.              Inventories (In thousands)

 

 

 

March 31,
2013

 

December 31,
2012

 

 

 

 

 

 

 

Inventories consist of:

 

 

 

 

 

Finished products

 

12

 

5

 

Net inventory

 

$

12

 

5

 

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet09.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Loan Payable to Officer
3 Months Ended
Mar. 31, 2013
Loan Payable to Officer
Loan Payable to Officer

4.              Loan Payable to Officer

 

On February 9, 2012, the Company entered into an unsecured revolving promissory note to borrow up to $2,200,000 from G. Ward Paxton, the Company’s Chief Executive Officer.  Under the terms of the note, the Company may borrow, repay and reborrow on the loan as needed up to an outstanding principal balance due of $2,200,000 at any given time through March 2013.

 

On February 7, 2013, the Company entered into an unsecured revolving promissory note to borrow up to $2,200,000 from G. Ward Paxton, the Company’s Chief Executive Officer.  Under the terms of the note, the Company may borrow, repay and reborrow on the loan as needed up to an outstanding principal balance due of $2,200,000 at any given time through March 2014.

 

Amounts borrowed from this officer accrue interest at a floating rate per annum equal to SVB’s prime rate plus 1% (5% at March 31, 2013).  All outstanding borrowings and accrued but unpaid interest is due on March 31, 2014.  As of March 31, 2013, the borrowings outstanding totaled $1,530,000 and accrued interest totaled $149,000.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet10.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Line of Credit
3 Months Ended
Mar. 31, 2013
Line of Credit
Line of Credit

5.              Line of Credit

 

On March 29, 2006, we entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) to establish a $1.0 million line of credit (the “2006 Credit Line”).  On June 30, 2008, we entered into an Amended and Restated Loan and Security Agreement with SVB to, among other things, replace the 2006 Credit Line with a $2.5 million line of credit (the “2008 Credit Line”).  On June 25, 2012, we entered into the Fourth Amendment to the Amended and Restated Loan and Security Agreement (as amended, the “Loan Agreement”) with SVB to replace our expiring line with a $0.625 million line of credit (the “Current Line of Credit”).  Our obligations under the Loan Agreement are secured by substantially all of our assets, including all of our intellectual property.  In addition, G. Ward Paxton, the Company’s Chairman, President and Chief Executive Officer, has established a Guaranty Agreement with SVB securing all outstanding balances under the Current Line of Credit.  Borrowings under the Current Line of Credit are based on advances (each an “Advance”) against certain of our accounts receivable that are approved by SVB (each an “Eligible Account”).  SVB may make an Advance of up to eighty percent (80%) of each Eligible Account, or such other percentage SVB may determine in its sole discretion.  Each Advance is subject to a finance charge calculated as a daily rate that is based on a 360-day annual rate of the greater of the prime rate plus 2.0% or 7.0%.  Finance charges are payable at the same time its related Advance is due.  Each Advance is also subject to a monthly collateral handling fee of 0.5% of all outstanding Advances, depending on certain qualifying financial factors specified in the Loan Agreement.  The collateral handling fee is payable at the same time its related Advance is due.  Each Advance must be repaid at the earliest of (a) the date that the Eligible Account related to the Advance is paid, (b) the date the Eligible Account is no longer eligible under the Loan Agreement, or (c) the date on which any “Adjustment” (as defined in the Loan Agreement) is asserted to the Eligible Account.  We have certain non-financial and financial covenants, including a liquidity coverage ratio and a rolling EBITDA computation, as defined in the Loan Agreement.  On June 24, 2013, the Loan Agreement terminates and all outstanding Advances, accrued but unpaid finance charges, outstanding collateral handing fees, and other amounts become due under the Loan Agreement and related documents.  As of March 31, 2013, the borrowings outstanding totaled $311,000 under the current Line of Credit.  The Company anticipates renewing the Loan Agreement with SVB, under similar terms, prior to the June 24, 2013 termination date, however, we can make no assurances that we will be able to renew the Loan Agreement or renew upon substantially similar terms and conditions.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet11.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Accounting for Stock-Based Compensation
3 Months Ended
Mar. 31, 2013
Accounting for Stock-Based Compensation
Accounting for Stock-Based Compensation

6.              Accounting for Stock-Based Compensation

 

During the three month periods ended March 31, 2013 and 2012, the Company granted 263,000 and 310,000 stock options, respectively, to employees.  The Company recognized $70,000 and $68,000, respectively, stock-based compensation expense for the three month periods ended March 31, 2013 and 2012.

 

During the three month period ended March 31, 2013 and 2012, none and 30,000 options were exercised under the 2005 Plan, respectively.

 

Valuation Assumptions

 

The fair values of employee and director option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

 

 

 

For Three
Months Ended
March 31, 2013

 

For Three
Months Ended
March 31, 2012

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

0.47

 

$

0.64

 

Weighted average assumptions used:

 

 

 

 

 

Expected dividend yield

 

0.0

%

0.0

%

Risk-free interest rate

 

0.8

%

0.8

%

Expected volatility

 

225.0

%

213.0

%

Expected life (in years)

 

4.9

 

4.9

 

 

Expected volatility is based on historical volatility and in part on implied volatility.  The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior.  The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Options granted to non-employees are valued using the fair market value on each measurement date of the option.

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet12.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Net Income (Loss) Per Share
3 Months Ended
Mar. 31, 2013
Net Income (Loss) Per Share
Net Income (Loss) Per Share

7.              Net Income (Loss) Per Share

 

Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of common shares outstanding for the period.  Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period.  Our common stock equivalents include all common stock issuable upon conversion of preferred stock and the exercise of outstanding options and warrants.  The aggregate number of common stock equivalents excluded from the diluted income (loss) per share calculation for the three month periods ending March 31, 2013 and 2012 are 1,458,511 and 4,021,225 as they are antidilutive.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet13.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Concentrations
3 Months Ended
Mar. 31, 2013
Concentrations
Concentrations

8.              Concentrations

 

Our operations are concentrated in one area—security software/entity identification.  Sales to the U.S. Government through direct and indirect channels totaled 67.7% of total revenues for the first quarter of 2013 compared to 42.7% of total revenues for the first quarter of 2012.  During the first quarter of 2013, approximately 57.9% of total revenues were attributable to three government customers compared to approximately 38.9% of total revenues attributable to two government customers in the first quarter of 2012.  Our similar product and service offerings are not viewed as individual segments, as our management analyzes the business as a whole and expenses are not allocated to each product offering.

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet14.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Commitments and Contingencies
3 Months Ended
Mar. 31, 2013
Commitments and Contingencies
Commitments and Contingencies

9.              Commitments and Contingencies

 

We are subject from time to time to various legal proceedings and claims that arise during the ordinary course of our business.  We do not believe that the outcome of those “routine” legal matters should have a material adverse affect on our consolidated financial position, operating results or cash flows; however, we can provide no assurances that legal claims that may arise in the future will not have such a material impact on the Company.

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet15.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Dividends Payable
3 Months Ended
Mar. 31, 2013
Dividends Payable
Dividends Payable

10.       Dividends Payable

 

During the quarter ended March 31, 2013, we accrued $14,000 in dividends payable to the holders of our 5% Preferred Stock, $14,000 in dividends payable to the holders of our Series 2 5% Preferred Stock and $9,000 in dividends payable to the holders of our Series 3 5% Preferred Stock.  As of March 31, 2013, we have $317,000 in accrued and unpaid dividends included in current liabilities.

 

Delaware law provides that we may only pay dividends out of our capital surplus or, if no surplus is available, out of our net profits for the fiscal year the dividend is declared and/or the preceding fiscal year.  These dividends continue to accrue on all our outstanding shares of preferred stock, regardless of whether we are legally able to pay them.  If we are unable to pay dividends on our preferred stock, we will be required to accrue an additional late fee penalty of 18% per annum on the unpaid dividends for the Series 2 Preferred Stock and Series 3 Preferred Stock.  Our CEO, CFO and one outside board member who are holders of our Series 2 and Series 3 Preferred Stock have waived any possible late fee penalties.  In addition to this late penalty, the holders of our Series 2 Preferred Stock and Series 3 Preferred Stock could elect to present us with written notice of our failure to pay dividends as scheduled, in which case we would have 45 days to cure such a breach.  In the event that we failed to cure the breach, the holders of these shares of preferred stock would then have the right to require us to redeem their shares of preferred stock for a cash amount calculated in accordance with their respective certificates of designation.  If we were required to redeem all shares of Series 2 Preferred Stock and Series 3 Preferred Stock as of April 30, 2013, the aggregate redemption price we would owe would be $2.2 million.

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet16.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Inventories (Tables)
3 Months Ended
Mar. 31, 2013
Inventories
Schedule of inventories

 

March 31,
2013

 

December 31,
2012

 

 

 

 

 

 

 

Inventories consist of:

 

 

 

 

 

Finished products

 

12

 

5

 

Net inventory

 

$

12

 

5

 

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet17.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Accounting for Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2013
Accounting for Stock-Based Compensation
Schedule of assumptions used to estimate the fair values of employee and director options awards at the date of grant using a Black-Scholes option-pricing model

 

For Three
Months Ended
March 31, 2013

 

For Three
Months Ended
March 31, 2012

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

0.47

 

$

0.64

 

Weighted average assumptions used:

 

 

 

 

 

Expected dividend yield

 

0.0

%

0.0

%

Risk-free interest rate

 

0.8

%

0.8

%

Expected volatility

 

225.0

%

213.0

%

Expected life (in years)

 

4.9

 

4.9

 

------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet18.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Description of Business (Details) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Dec. 31, 2011
Mar. 31, 2013
Current Line of Credit
Jun. 25, 2012
Current Line of Credit
Mar. 31, 2013
Promissory note
G. Ward Paxton, chief executive officer
Feb. 07, 2013
Promissory note
G. Ward Paxton, chief executive officer
Feb. 09, 2012
Promissory note
G. Ward Paxton, chief executive officer
Description of Business
Minimum number of years for which local area networking equipment was provided 15 years
Cash and cash equivalents $ 301,000 $ 269,000 $ 52,000 $ 308,000
Net income (loss) 57,000 (352,000)
Period during which the entity expects to have sufficient cash resources to finance its operations and capital expenditures 12 months
Description of Business
Funding available 314,000 670,000
Maximum borrowing capacity $ 625,000 $ 625,000 $ 2,200,000 $ 2,200,000 $ 2,200,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet19.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Basis of Presentation (Details)
3 Months Ended
Mar. 31, 2013
item
Basis of Presentation
Number of instruments held for trading purposes 0
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet20.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Inventories (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Inventories consist of:
Finished products $ 12 $ 5
Net inventory $ 12 $ 5
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet21.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Loan Payable to Officer (Details) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Mar. 31, 2013
G. Ward Paxton, chief executive officer
Revolving promissory note
Feb. 07, 2013
G. Ward Paxton, chief executive officer
Revolving promissory note
Feb. 09, 2012
G. Ward Paxton, chief executive officer
Revolving promissory note
Borrowing from Officer
Maximum borrowing capacity $ 2,200,000 $ 2,200,000 $ 2,200,000
Floating rate base prime rate
Percentage points added in interest rate 1.00%
Interest rate (as a percent) 5.00%
Loan payable to officer 1,530,000
Accrued interest 149,000
Loan payable to officer $ 1,530,000 $ 1,530,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet22.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Line of Credit (Details) (USD $)
Mar. 29, 2006
2006 Credit Line
Jun. 30, 2008
2008 Credit Line
Mar. 31, 2013
Current Line of Credit
Jun. 25, 2012
Current Line of Credit
Mar. 31, 2013
Current Line of Credit
Maximum
Line of Credit
Maximum borrowing capacity $ 1,000,000 $ 2,500,000 $ 625,000 $ 625,000
Contingent advances as a percentage of each Eligible Account 80.00%
Period of annual rate for calculating daily rate of finance charge on each advance 360 days
Finance charge basis prime rate
Percentage points added in daily rate of finance charge 2.00%
Minimum interest rate 7.00%
Monthly collateral handling fee (as a percent) 0.50%
Borrowings outstanding $ 311,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet23.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Accounting for Stock-Based Compensation (Details) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Accounting for Stock-Based Compensation
Stock-based compensation expense $ 70,000 $ 68,000
Options exercised (in shares) 0 30,000
Valuation Assumptions
Weighted average grant date fair value (in dollars per share) $ 0.47 $ 0.64
Weighted average assumptions used:
Expected dividend yield (as a percent) 0.00% 0.00%
Risk-free interest rate (as a percent) 0.80% 0.80%
Expected volatility (as a percent) 225.00% 213.00%
Expected life 4 years 10 months 24 days 4 years 10 months 24 days
Employees
Accounting for Stock-Based Compensation
Stock options granted (in shares) 263,000 310,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet24.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Net Income (Loss) Per Share (Details)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Net Income (Loss) Per Share
Number of common stock equivalents excluded from the diluted income per share calculation (in shares) 1,458,511 4,021,225
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet25.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Concentrations (Details)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Concentrations
Number of areas in which operations are concentrated 1
Three government customers
Concentrations
Number of customers 3
Two government customers
Concentrations
Number of customers 2
Total revenues | Customer | U.S. Government
Concentrations
Percentage of revenue 67.70% 42.70%
Total revenues | Customer | Three government customers
Concentrations
Percentage of revenue 57.90%
Total revenues | Customer | Two government customers
Concentrations
Percentage of revenue 38.90%
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/Sheet26.html Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii"
Dividends Payable (Details) (USD $)
3 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Mar. 31, 2013
5% preferred stock
Mar. 31, 2013
Series 2 preferred stock and series 3 preferred stock
item
Apr. 30, 2013
Series 2 preferred stock and series 3 preferred stock
Mar. 31, 2013
Series 2 5% preferred stock
Mar. 31, 2013
Series 3 5% preferred stock
Dividends Payable
Preferred stock dividends accrued during the period $ 37,000 $ 38,000 $ 14,000 $ 14,000 $ 9,000
Accrued and unpaid dividends 317,000 279,000
Dividend rate (as a percent) 5.00% 2.50% 3.50%
Percentage of additional late fee penalty payable on unpaid dividends 18.00%
Number of outside board members invested in preferred stock 1
Period within which entity must cure breach 45 days
Redemption price $ 2,200,000
------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33 Content-Location: file:///C:/10f80094_043a_4f12_9828_ebc9375cbe33/Worksheets/filelist.xml Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" ------=_NextPart_10f80094_043a_4f12_9828_ebc9375cbe33--