Intrusion (INTZ) Risk Analysis

We rely primarily on a combination of patent, copyright, trademark and trade secret laws, confidentiality procedures, and non-disclosure agreements to protect our proprietary technology. However, unauthorized parties may attempt to copy or reverse engineer aspects of our solutions or to obtain and use information that we regard as proprietary. Policing unauthorized use of our solutions is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. This is particularly true in foreign countries whose laws may not protect proprietary rights to the same extent as the laws of the U.S. and may not provide us with an effective remedy against unauthorized use. If protection of our intellectual property proves to be inadequate or unenforceable, others may be able to use our proprietary developments without compensation to us, resulting in potential cost advantages to our competitors.

Our reputation in the industry may be harmed if we experience delivery delays, or if our customers do not perceive the benefits of purchasing and using INTRUSION Shield as part of their comprehensive cybersecurity solution, our position as a leader in this technology space may be damaged and could affect the willingness of our customers, as well as potential customers, to purchase our other solutions that function separately from INTRUSION Shield. Any reputational damage could result in a decrease in orders for all our solutions, the loss of current customers, and a decrease in our overall revenues which could in turn have a material adverse effect on our results of operations.

Our solutions are designed to interface with our customers' existing networks, each of which has different specifications and utilize multiple protocol standards and products or solutions from other vendors. Many of our customers' networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our solutions will be required to interoperate with many products and solutions within these networks as well as future products or solutions to meet our customers' requirements. If we find errors in the existing software or defects in the hardware used in our customers' networks, we may have to modify our software or hardware to fix or overcome these errors so that our solutions will interoperate and scale with the existing software and hardware, which could be costly and negatively impact our operating results. In addition, if our solutions do not interoperate with those of our customers' networks, demand for our solutions could be adversely affected, orders for our solutions could be cancelled, or our solutions could be returned. This could hurt our operating results, damage our reputation, and seriously harm our business and prospects.

A substantial percentage of our current revenues result from sales to U.S. government entities. If we were to lose one or more of these customers, our revenues could decline, and our business and prospects may be materially harmed. Further, sales to the government present risks in addition to those involved in sales to commercial customers, including potential disruption due to appropriation and spending patterns, delays in approving a federal budget and the government's right to cancel contracts and purchase orders for its convenience. The factors that could cause us to lose these U.S. government customers or otherwise materially harm our business, prospects, financial condition, or results of operations include: - budget constraints affecting government spending generally, or specific departments or agencies, and changes in fiscal policies or a reduction of available funding;         - re-allocation of government resources;         - disruptions in our customers' ability to access funding from capital markets;         - curtailment of governments' use of outsourced service providers and governments' in-sourcing of certain services;         - the adoption of new laws or regulations pertaining to government procurement;         - government appropriations delays or blanket reductions in departmental budgets;         - suspension or prohibition from contracting with the government or any significant agency with which we conduct business;         - increased use of shorter duration awards, which increases the frequency we may need to recompete for work;         - impairment of our reputation or relationships with any significant government agency with which we conduct business;         - decreased use of small business set asides or changes to the definition of small business by government agencies;         - increased use of lowest-priced, technically acceptable contract award criteria by government agencies;         - increased aggressiveness by the government in seeking rights in technical data, computer software, and computer software documentation that we deliver under a contract, which may result in "leveling the playing field" for competitors on follow-on procurements;         - delays in the payment of our invoices by government payment offices; and         - national or international health emergencies, such as the COVID-19 public health pandemic. While we expect that developing relationships with non-governmental customers will mitigate or eliminate this dependence on, and risk from, serving governmental entities, we can offer no assurances that we will be able to sufficiently diversify our customer portfolio in a time and manner to adequately mitigate this risk.

We believe that we must expand our sales and marketing efforts for INTRUSION Shield to achieve marketplace acceptance and to generate revenue for the Company. However, these efforts depend, in large part, on the success of our channel partners as they market and sell INTRUSION Shield, which may not be successful. If we are unsuccessful in our efforts to leverage channel and strategic partners, we may not be able to generate sufficient revenue from INTRUSION Shield to improve the Company's financial position, results of operations, and cash flow position.

As a smaller reporting company, we are not required to disclose material changes to the risk factors that were contained in the 2025 Annual Report. You should carefully consider the risk factors we previously disclosed in the 2025 Annual Report. These risks could materially and adversely affect our business, financial condition, results of operations, and cash flows. However, these risks are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations, and cash flows.

Continuing events in many regions around the world have introduced a significant level of uncertainty in the dealings of our current and potential customers that could cause them to be hesitant to implement new cybersecurity initiatives regardless of the efficacy of our INTRUSION Shield product. Further, these entities may also determine not to deploy their cash reserves in the face of such uncertainty. These uncertainties could depress the interest or the ability of companies and governmental entities to test, evaluate, and deploy our INTRUSION Shield in their network environments.