<Page>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                              ----------------------

                                    FORM 10-Q

                              ----------------------

  [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended September 30, 2001

                                       OR

  [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

            For the transition period from ______________to______________

                        Commission File Number 0-20191
                                              ----------

                                  INTRUSION INC.
              ------------------------------------------------------
              (Exact name of Registrant as specified in its charter)

            DELAWARE                                     75-1911917
-------------------------------                      -------------------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)


                  1101 EAST ARAPAHO ROAD, RICHARDSON, TEXAS 75081
                  -----------------------------------------------
                     (Address of principal executive offices)
                                   (Zip Code)

                                 (972) 234-6400
               ----------------------------------------------------
               (Registrant's telephone number, including area code)

                                INTRUSION.COM, INC.
                    -------------------------------------------
                    (Former name, if changed since last report)

                                 * * * * * * * * * *

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X  No
   ---    ---

The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, on October 31, 2001 was 10,608,801.

================================================================================

<Page>


                                 INTRUSION INC.

                                      INDEX

<Table>
<Caption>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2001 and
     December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Condensed Consolidated Statements of Operations for the three months
     and nine months ended September 30, 2001 and September 30, 2000 . . . . 4

Condensed Consolidated Statements of Cash Flows for the nine months
     ended September 30, 2001 and September 30, 2000 . . . . . . . . . . . . 5

Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6-9

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10-20

Item 3.  Quantitative and Qualitative Disclosures About Market Risk. . . . . 21


PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 22

Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

</Table>



                                       2
<Page>


                                   PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS.

                                    INTRUSION INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In thousands, except par value amounts)

<Table>
<Caption>
                                                                                Sept 30,       Dec 31,
                                   ASSETS                                         2001          2000
                                                                              -----------    -----------
Current Assets:                                                               (Unaudited)
<S>                                                                           <C>             <C>
  Cash and cash equivalents                                                   $    17,250    $    20,345
  Short-term investments                                                            6,997         17,506
  Accounts receivable, less of allowance of $1,044 in 2001
    and $919 in 2000 for doubtful accounts and returns                              5,657          6,887
  Income taxes receivable                                                           3,557          1,743
  Inventories, net                                                                  5,617          8,359
  Other assets                                                                        836          1,714
  Deferred tax asset                                                                    -          3,764
  Net current assets - discontinued operations                                          -          3,958
Total current assets                                                               39,914         64,276
Property and equipment, net - continuing operations                                 4,379          7,134
Property and equipment, net - discontinued operations                                 786          1,499
Long-term investments                                                                 400          7,575
Intangible assets, net                                                              4,189          7,634
Other assets                                                                          104            361
Net other noncurrent assets - discontinued operations                                   -          3,935
                                                                              -----------    -----------
TOTAL ASSETS                                                                  $    49,772    $    92,414
                                                                              ===========    ===========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses                                       $     6,819    $     9,884
  Deferred revenue                                                                  1,995          1,878
  Net current liabilities - discontinued operations                                   614              -
                                                                              -----------    -----------
Total current liabilities                                                           9,428         11,762
Deferred tax liability - noncurrent                                                     -          1,841
Capital lease obligation                                                               22             24
Stockholders' Equity:
  Preferred stock, $.01 par value, authorized
    Shares - 5,000, no shares issued and outstanding                                    -              -
  Common stock, $.01 par value, authorized shares - 80,000
    Issued shares - 20,649 in 2001 and 20,525 in 2000
    Outstanding shares - 20,609 in 2001 and 20,485 in 2000                            206            205
  Common stock held in treasury, at cost - 40 shares                                 (362)          (362)
  Additional paid-in capital                                                       47,320         46,916
  Retained (deficit) earnings                                                      (6,461)        32,453
  Foreign currency translation adjustment                                            (381)          (425)
Total stockholders' equity                                                         40,322         78,787
                                                                              -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $    49,772    $    92,414
                                                                              ===========    ===========
</Table>

                                      See accompanying notes.


                                       3

<Page>

                                    INTRUSION INC. AND SUBSIDIARIES
                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (In thousands, except per share amounts)
                                              (Unaudited)


<Table>
<Caption>

                                                        Three Months Ended           Nine Months Ended
                                                      ----------------------      ----------------------
                                                       Sept 30,     Sept 30,       Sept 30,     Sept 30,
                                                         2001         2000           2001         2000
                                                      ---------    ---------      ---------    ---------
<S>                                                   <C>          <C>            <C>          <C>
Net Sales                                             $  3,612     $  6,456       $ 13,381     $ 18,575

Cost of sales                                            2,354        5,046         11,249       14,428
                                                      ---------    ---------      ---------    ---------

Gross profit                                             1,258        1,410          2,132        4,147

Operating expenses:
 Sales and marketing                                     4,597        7,571         19,123       20,033
 Research and development                                2,933        3,488         10,472        9,892
 General and administrative                                894        1,421          3,704        4,217
 Amortization of intangibles                               182          334            852          640
 Restructuring costs and other
  special charges                                            -            -          3,973            -
                                                      ---------    ---------      ---------    ---------

Operating loss                                          (7,348)     (11,404)       (35,992)     (30,635)

Interest income, net                                       334          885          1,436        2,513
Other income                                                51            8            112       66,361
                                                      ---------    ---------      ---------    ---------

Income (loss) before income taxes                       (6,963)     (10,511)       (34,444)      38,239

Income tax (benefit) expense                               (74)      (3,445)        (1,694)       5,952
                                                      ---------    ---------      ---------    ---------

Income (loss) from continuing
 operations                                             (6,889)      (7,066)       (32,750)      32,287
Income (loss) from discontinued
 operations, net of tax                                      -         (486)        (6,164)        (571)
                                                      ---------    ---------      ---------    ---------

Net income (loss)                                     $ (6,889)    $ (7,552)      $(38,914)    $ 31,716
                                                      =========    =========      =========    =========

Basic earnings (loss) per
 share, continuing operations                         $  (0.33)    $  (0.36)      $  (1.59)    $   1.67
                                                      =========    =========      =========    =========
Diluted earnings (loss) per
 share, continuing operations                         $  (0.33)    $  (0.36)      $  (1.59)    $   1.58
                                                      =========    =========      =========    =========

Basic earnings (loss) per  share                      $  (0.33)    $  (0.38)      $  (1.89)    $   1.64
                                                      =========    =========      =========    =========
Diluted earnings (loss) per share                     $  (0.33)    $  (0.38)      $  (1.89)    $   1.56
                                                      =========    =========      =========    =========

Weighted average common shares
 outstanding                                            20,592       19,778         20,550       19,339
                                                      =========    =========      =========    =========
Weighted average shares outstanding
 assuming dilution                                      20,592       19,778         20,550       20,374
                                                      =========    =========      =========    =========

</Table>

                                      See accompanying notes.



                                                 4

<Page>

                                 INTRUSION INC. AND SUBSIDIARIES
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands), (Unaudited)


<Table>
<Caption>

                                                                           Nine Months Ended
                                                                        -----------------------
                                                                         Sept 30,      Sept 30,
                                                                           2001          2000
                                                                        ---------      --------
<S>                                                                     <C>            <C>
Operating Activities:
Income (loss) from continuing operations                                $(32,750)      $32,287
Adjustments to reconcile income (loss) from continuing
 operations to net cash used in operating activities of
 continuing operations:
  Gain on sale of available for sale security                                  -       (66,355)
  Depreciation and amortization                                            3,442         3,433
  Impairment of intangible assets                                          3,109             -
  Deferred income tax (benefit) expense                                    1,923        (2,608)
Changes in operating assets and liabilities:
  Accounts receivable                                                      1,230        (2,275)
  Income taxes receivable                                                 (1,814)            -
  Inventories                                                              2,742        (2,172)
  Other assets                                                               683          (275)
  Accounts payable and accrued expenses                                   (3,065)       (2,576)
  Income taxes payable                                                         -           973
  Deferred revenue                                                           117           980
                                                                        ---------      --------
Net cash used in operating activities of continuing
 Operations                                                              (24,383)      (38,588)
                                                                        ---------      --------
Investing Activities:
  Proceeds from sale of available for sale security                            -        67,055
  Purchase of MimeStar, Inc.                                                   -        (4,000)
  Purchases of available for sale investments                            (10,629)      (50,979)
  Maturities of available for sale investments                            28,313        26,403
  Net purchases of property and equipment                                   (247)       (5,209)
                                                                        ---------      --------
Net cash provided by investing activities of
 continuing operations                                                    17,437        33,270
                                                                        ---------      --------
Financing Activities:
  Exercise of warrants and employee stock options                            405        15,876
  Payments on stockholder loan                                                 -         1,177
  Net repayment of capital leases                                             (2)           (3)
                                                                        ---------      --------
Net cash provided by financing activities of
 continuing operations                                                       403        17,050
                                                                        ---------      --------

Net cash provided by (used in) discontinued operations                     3,404          (571)
Effect of foreign currency translation adjustments
 on cash and cash equivalents                                                 44           (78)
                                                                        ---------      --------
Net (decrease) increase in cash and cash equivalents                      (3,095)       11,083
Cash and cash equivalents at beginning of period                          20,345        12,602
                                                                        ---------      --------
Cash and cash equivalents at end of period                              $ 17,250       $23,685
                                                                        =========      ========

</Table>

                                      See accompanying notes.



                                                 5

<Page>

                          INTRUSION INC. AND SUBSIDIARIES
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1. Description of Business

      We develop, market and support a family of security software and
appliances that address vital security issues facing organizations deploying
business applications over the Internet or internally via Intranets. We
currently provide information security solutions including intrusion detection
systems, security assessment systems, virtual private network appliances and
firewall appliances.

      We market and distribute our products through a direct sales force to
end-users, distributors and by numerous domestic and international system
integrators, service providers and value-added resellers. Our end-user customers
include high-technology, manufacturing, telecommunications, retail,
transportation, health care, insurance, entertainment, utilities and energy
companies, government agencies, financial institutions, and academic
institutions.

      Our company was 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 include our Essential Communications division
("Essential") and our local area networking assets. In accordance with these
plans, we have accounted for these businesses as discontinued operations. On
June 1, 2000, we changed our name from ODS Networks, Inc. to Intrusion.com, Inc.
and our NASDAQ ticker symbol from ODSI to INTZ to reflect our focus on
e-security solutions. On November 1, 2001 we changed our name from
Intrusion.com, Inc. to Intrusion Inc.

      Our principal executive offices are located at 1101 E. Arapaho Road,
Richardson, Texas 75081, and our telephone number is (972) 234-6400. References
to "we", "us", "our" or "Intrusion" refer to Intrusion Inc. and its
subsidiaries.


2. Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The December 31, 2000 balance sheet was
derived from audited financial statements, but does not include all the
disclosures required by generally accepted accounting principles. 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 and nine month periods ending September 30,
2001 are not necessarily indicative of the results that may be achieved for the
full fiscal year or for any future period. The condensed consolidated financial
statements included herein should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 2000. Certain prior year
information has been reclassified to conform with current year presentation.


                                       6

<Page>

      In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. The company is currently reviewing the impact
of SFAS No. 142 and will be performing a fair-value analysis at a later date in
connection with the adoption of SFAS No. 142 on January 1, 2002.


3. Inventories (In thousands)

<Table>
<Caption>

 Inventories consist of:                      Sept 30,     December 31,
                                               2000            2000
                                           -----------     ------------
                                           (Unaudited)
<S>                                        <C>             <C>
 Raw materials                                 $537          $1,550

 Work in progress                                 -           1,350

 Finished goods                               4,635           4,231

 Demonstration systems                          445           1,228
                                           -----------     ------------
 Net inventory - continuing operations      $ 5,617          $8,359
                                           ===========     ============
 Net inventory - discontinued operations    $     -          $3,958
                                           ===========     ============

</Table>

4. Income Taxes

      Our effective tax rate for the quarter ended September 30, 2001 was 1.1%,
compared to 32.8% for the quarter ended September 30, 2000. Our effective tax
rate for the nine months ended September 30, 2001 was 4.9%, compared to 15.6%
for the nine months ended September 30, 2000. The effective tax rate for the
nine months ended September 30, 2001 varied from the U.S. statutory rate
primarily due to the increase in the valuation allowance for deferred tax assets
which recognizes that tax benefits associated with a significant portion of our
operating losses may not be realized. Without such changes to the valuation
allowance, the Company's effective tax rate for the quarter and nine months
ended September 30, 2001 would have been 38%.


5. Restructuring Charges

      In June 2001, we recorded a charge of $4.0 million for restructuring costs
and other special charges consisting primarily of a $3.1 million charge to
recognize the impairment of intangible assets (primarily developed technology)
related to our SecurityAnalyst and SecureEnterprise product lines and $0.8
million for severance as a result of reductions in force. Demand has shifted to
our new intrusion detection and security appliance product lines. As such, we
streamlined operations and activities that are not aligned with these core
markets and strategies.




                                       7

<Page>

6. Earnings per Share (In thousands, except per share amounts)(Unaudited)

<Table>
<Caption>

                                                       Three Months Ended          Nine Months Ended
                                                      --------------------       ---------------------
                                                      Sept 30,    Sept 30,       Sept 30,     Sept 30,
                                                        2001        2000          2001          2000
                                                      --------    --------       --------     --------
<S>                                                   <C>         <C>            <C>          <C>
Numerator:
Net income (loss) and numerator for
  basic and diluted earnings per share                 $(6,889)    $(7,552)      $(38,914)    $ 31,716
                                                      --------    --------       --------     --------
Income (loss) from continuing operations
  and numerator for basic and diluted
  earnings per share, continuing
  operations                                           $(6,889)    $(7,066)      $(32,750)    $ 32,287
                                                      --------    --------       --------     --------
Denominator:
Denominator for basic earnings per share
 - weighted average common shares
    outstanding                                         20,592      19,778         20,550       19,339
Effect of dilutive securities:
  Stock options and warrants                                 -           -              -        1,035
                                                      --------    --------       --------     --------
Denominator for diluted earnings per
  share - adjusted weighted average
  common shares outstanding                             20,592      19,778         20,550       20,374
                                                      ========    ========       ========     ========
Basic earnings (loss) per share,
  continuing operations                                $ (0.33)    $ (0.36)      $  (1.59)    $   1.67
                                                      ========    ========       ========     ========
Diluted earnings (loss) per share,
  continuing operations                                $ (0.33)    $ (0.36)      $  (1.59)    $   1.58
                                                      ========    ========       ========     ========
Basic earnings (loss) per share                        $ (0.33)    $ (0.38)      $  (1.89)    $   1.64
                                                      ========    ========       ========     ========
Diluted earnings (loss) per share                      $ (0.33)    $ (0.38)      $  (1.89)    $   1.56
                                                      ========    ========       ========     ========

</Table>

      Total stock options outstanding at September 30, 2001 and September 30,
2000 that are not included in the diluted earnings per share computation due to
the antidilutive effect are 2.1 million and 1.6 million for the three months
ended September 30, 2001 and September 30, 2000, respectively, and 2.1 million
and 0.4 million for the nine months ended September 30, 2001 and September 30,
2000, respectively. Such options are excluded due to either a net loss per share
or due to exercise prices exceeding the average market value of our common stock
in the applicable period.


7. Comprehensive Income

Comprehensive loss for the nine months ended September 30, 2001 and 2000 was
$(38.9) million and $(12.4) million, respectively. The difference between net
income of $31.7 million for the nine months ended September 30, 2000 relates to
the realization of an unrealized gain on available for sale securities of $44.1
million.


8. Discontinued Operations

      In the second quarter of 2000, we discontinued our networking operations
and accordingly have shown the networking operations as discontinued in the
accompanying financial statements. Certain prior year information has been
reclassified to conform with the current presentation.



                                       8

<Page>

      During the first quarter of 2001, we closed the sale of our legacy
local area networking division generating a gain of $2.1 million which was
used to reduce the estimated net realizable value of the net assets of our
remaining discontinued operations, Essential. During the second quarter of
2001, in response to unfavorable market conditions and efforts to sell
Essential, we recorded additional charges to write down the net assets of
Essential to reflect its current estimated net realizable value of $0.8
million. The $5.0 million second quarter charge included $0.8 million for
operating losses expected to be incurred between July and the end of 2001 by
which time we expect to have exited, disposed of or otherwise transitioned a
majority of our ownership in Essential.

      The following represents a summary of assets and liabilities classified
as discontinued operations (In thousands):

<Table>
<Caption>
                                            Sept 30,    December 31,
                                              2001         2000
                                            --------    ------------
                                                 (Unaudited)
<S>                                        <C>          <C>
 Inventories, net                          $   -           $ 3,958
 Property and equipment, net                 786             1,499
 Intangible assets, net                        -             3,935
                                           -----           -------
 Discontinued assets                       $ 786           $ 9,392
                                           =====           =======
 Discontinued liabilities consist of:
 Accrued expenses                          $ 614           $     -
                                           -----           -------
 Discontinued liabilities                  $ 614           $     -
                                           =====           =======
</Table>

      The following represents a summary of losses from discontinued
operations (In thousands)(Unaudited):

<Table>
<Caption>

                                          Three Months Ended           Nine Months Ended
                                         ---------------------       ---------------------
                                         Sept 30,     Sept 30,       Sept 30,     Sept 30,
                                          2001         2000           2001          2000
                                         --------     --------       --------     --------
<S>                                      <C>          <C>            <C>          <C>
Net sales                                 $1,077       $3,777        $ 3,606      $15,075
Cost of sales                                529        2,668          2,635        9,650
                                         --------     --------       --------     --------
Gross profit                                 548        1,109            971        5,425

Operating expenses                           925        1,651          3,877        6,101
                                         --------     --------       --------     --------
Operating loss                              (377)        (542)        (2,906)        (676)

Other, net                                   377            0         (3,644)           -
                                         --------     --------       --------     --------
Loss before income taxes                       -         (542)        (6,550)        (676)

Income tax benefit                             -          (56)          (386)        (105)
                                         --------     --------       --------     --------

Loss from discontinued operations        $     -       $ (486)       $(6,164)     $  (571)
                                         ========     ========       ========     ========
</Table>

                                          9

<Page>

Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

      This report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; developments in
the company's markets and strategic focus; new products and product
enhancements; potential acquisitions and the integration of acquired
businesses, products and technologies; strategic relationships; the effect of
military actions on government or corporate spending on information security
products, the effect of restructuring plans and cost reductions; and future
economic, business and regulatory conditions. Such forward-looking statements
are generally accompanied by words such as "plan," "estimate," "expect,"
"believe," "should," "would," "could," "anticipate," "may" or other words
that convey uncertainty of future events or outcomes. These forward-looking
statements and other statements made elsewhere in this report are made in
reliance on the Private Securities Litigation Reform Act of 1995. The section
below entitled "Factors That May Affect Future Results of Operations" sets
forth and incorporates by reference certain factors that could cause actual
future results of the company to differ materially from these statements.

OVERVIEW

      We develop, market and support a family of security software and
appliances that address vital security issues facing organizations deploying
business applications over the Internet or internally via Intranets. We
currently provide information security solutions including intrusion
detection systems, security assessment systems, virtual private network
appliances and firewall appliances. On June 1, 2000, we changed our name from
ODS Networks, Inc. to Intrusion.com, Inc. and our NASDAQ ticker symbol from
ODSI to INTZ to reflect our focus on information security solutions. On
November 1, 2001 we changed our name from Intrusion.com, Inc. to Intrusion
Inc. During the second quarter of 2000, we announced our plan to sell, or
otherwise dispose of, our networking divisions which includes our Essential
Communications division and our local area networking assets and began
accounting for these networking divisions as discontinued operations. Given
our change in strategy, our results of operations prior to 2001 do not
necessarily reflect our current business.

      The following management's discussion and analysis of financial
condition and results of operations pertains only to our continuing
operations unless otherwise disclosed. Certain prior year information has
been reclassified to conform with the current presentation.

                                          10

<Page>

RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales. The period to period comparison
of financial results is not necessarily indicative of future results.

<Table>
<Caption>
                                                     Three Months Ended           Nine Months Ended
                                                  ------------------------     ------------------------
                                                    Sept 30,      Sept 30,      Sept 30,      Sept 30,
                                                     2001          2000          2001          2000
                                                  ----------    ----------     ---------    ----------
<S>                                               <C>           <C>            <C>           <C>
Net sales                                           100.0%        100.0%         100.0%       100.0%
Cost of sales                                        65.2          78.2           84.1         77.7
                                                  ----------    ----------     ---------    ----------
Gross profit                                         34.8          21.8           15.9         22.3
Operating expenses:
  Sales and marketing                               127.3         117.3          142.9        107.8
  Research and development                           81.2          54.0           78.3         53.3
  General and administrative                         24.8          22.0           27.7         22.7
  Amortization of intangibles                         5.0           5.2            6.4          3.4
  Restructuring costs and other
   special charges                                      -             -           29.7            -
                                                  ----------    ----------     ---------    ----------
Operating loss                                     (203.4)       (176.7)        (269.0)       (164.9)

Interest income, net                                  9.2          13.7           10.7          13.5
Other income                                          1.4           0.1            0.8         357.3
                                                  ----------    ----------     ---------    ----------
Income (loss) before income taxes                  (192.8)       (162.9)        (257.4)        205.9

Income tax (benefit) expense                         (2.0)        (53.4)         (12.7)         32.0
                                                  ----------    ----------     ---------    ----------
Income (loss) from continuing
 operations                                        (190.7)       (109.5)        (244.8)        173.9
Loss from discontinued operations,
 net of tax                                             -          (7.5)         (46.1)         (3.1)
                                                  ----------    ----------     ---------    ----------

Net income (loss)                                  (190.7)       (117.0)        (290.8)        170.8
                                                  ==========    ==========     =========    ==========
</Table>

<Table>
<Caption>
                                                     Three Months Ended           Nine Months Ended
                                                  ------------------------     -----------------------
                                                    Sept 30,      Sept 30,      Sept 30,      Sept 30,
                                                     2001          2000          2001          2000
                                                  ----------    ----------     ---------    ----------
<S>                                               <C>           <C>            <C>          <C>
Domestic sales                                       49.2%         73.2%         65.0%         81.5%
Export sales to:
  Europe                                             40.8           8.1           23.6          6.0
  Canada                                              5.4           0.6            3.9          3.0
  Asia                                                4.0          14.0            6.7          7.8
  Latin America                                       0.6           4.1            0.8          1.7
                                                  ----------    ----------     ---------    ----------
Net sales                                           100.0%        100.0%         100.0%       100.0%
                                                  ==========    ==========     =========    ==========
</Table>

                                          11

<Page>

      NET SALES. Net sales decreased to $3.6 million and $13.4, respectively,
compared to $6.5 million and $18.6 million, respectively, for the same
periods of 2000 as sales from our newest product lines, the SecureNet Pro
intrusion detection and PDS security appliance family of products, did not
increase as fast as our SecureCom and other security product lines declined.

      EXPORT SALES. Export sales for the quarter and nine months ended
September 30, 2001 increased to $1.8 million and $4.7 million, respectively,
compared to $1.7 million and $3.4 million, respectively, for the same periods
of 2000, as the security market continued to grow internationally. Though we
expect increased sales from export sales going forward, such export sales may
vary as a percentage of net sales in the future.

      CONCENTRATION OF SALES. Sales to TRW Systems & Information Technology
("TRW") were 0.2% and 8.6% for the quarter and nine months ended September
30, 2001, respectively, compared to 10.6% and 27.0% for the same periods of
2000. Sales to Lockheed Martin Federal Systems ("Lockheed Martin") were 0.5%
and 5.0% for the quarter and nine months ended September 30, 2001,
respectively, compared to 12.8% and 4.5% for the same periods of 2000. Sales
to iGov.com were 7.7% and 3.7% for the quarter and nine months ended
September 30, 2001, respectively, compared to 17.5% and 15.5% for the same
periods in 2000. Sales to SecureGate Limited ("SecureGate") were 0.0% and
0.2% for the quarter and nine months ended September 30, 2001, respectively,
compared to 11.5% and 4.0% for the same periods of 2000. In addition, a
portion of our sales to TRW, Lockheed Martin, iGov.com and other corporations
were for products resold by those organizations to various agencies of the
U.S. Government.

      GROSS PROFIT. Gross profit decreased to $1.3 million or 34.8% of net
sales for the quarter ended September 30, 2001, compared to $1.4 million or
21.8% of net sales for the quarter ended September 30, 2000. For the nine
months ended September 30, 2001, gross profit decreased to $2.1 million or
15.9% of net sales compared to $4.1 million or 22.3% of net sales for the
same period in the prior year. Gross profit margins as a percentage of net
sales were up for the three months ended September 30, 2001 primarily because
of the change in product mix from lower margin hardware products to higher
margin intrusion detection products. Gross profit margins as a percentage of
net sales were negatively impacted during the nine months ended September 30,
2001, due primarily to a second quarter inventory write off of $1.3 million
in our SecureCom product line as demand has shifted to our new intrusion
detection and security appliance product lines. Absent this write off, gross
profit would have been $3.5 million or 26.0% for the nine months ended
September 30, 2001.

      Gross profit as a percentage of net sales is impacted by several
factors, including shifts in product mix, changes in channels of
distribution, sales volume, fluctuations in manufacturing costs, pricing
strategies, and fluctuations in sales of integrated third-party products.

      SALES AND MARKETING. Sales and marketing expenses decreased to $4.6
million for the quarter ended September 30, 2001, compared to $7.6 million
for the quarter ended September 30, 2000. Sales and marketing expenses
decreased to $19.1 million for the nine months ended September 30, 2001,
compared to $20.0 million for the nine months ended September 30, 2000. Sales
and marketing expenses decreased in the three and nine month periods ended
September 30, 2001, compared to the same periods of 2000, primarily due to
the reorganization of our sales and marketing departments in the second and
third quarters of 2001 and other cost reduction initiatives. We expect sales
and marketing expenses to continue to decline in the

                                          12

<Page>

fourth quarter of 2001, in comparison to the third quarter of 2001. Sales and
marketing expenses may vary as a percentage of net sales in the future.

      RESEARCH AND DEVELOPMENT. Research and development expenses decreased
to $2.9 million for the quarter ended September 30, 2001, compared to $3.5
million for the quarter ended September 30, 2000. Research and development
expenses increased to $10.5 million for the nine months ended September 30,
2001, compared to $9.9 million for the nine months ended September 30, 2001.
Research and development costs are expensed in the period incurred. Research
and development expenses decreased in the three months ended September 30,
2001, compared to the same period in 2000 as we focused more of our
development efforts on our core security products, SecureNet Pro and PDS
security appliances, while reducing efforts on our other security products.
It is expected that research and development expenses will continue to
decrease in the fourth quarter of 2001, in comparison to the third quarter of
2001. Research and development expenses may vary as a percentage of net sales
in the future.

      GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased to $0.9 million for the quarter ended September 30, 2001, compared
to $1.4 million for the quarter ended September 30, 2000. General and
administrative expenses decreased to $3.7 million for the nine months ended
September 30, 2001, compared to $4.2 million for the same period last year.
General and administrative expenses decreased in the three and nine month
periods ending September 30, 2001 compared to the same periods of 2000,
primarily due to the restructuring done in the second and third quarters of
2001 and other cost reduction initiatives. It is expected that general and
administrative expenses will continue to decrease in the fourth quarter of
2001, in comparison to the third quarter of 2001. General and administrative
expense may vary as a percentage of net sales in the future.

      AMORTIZATION. Amortization expenses decreased to $0.2 million for the
quarter ended September 30, 2001, compared to $0.3 million for the quarter
ended September 30, 2000. Amortization expenses increased to $0.9 million for
the nine months ended September 30, 2001, compared to $0.6 million for the
nine months ended September 30, 2000. Amortization expenses decreased in the
three-month period ended September 30, 2001, compared with the same period in
2000, as a result of the June 30, 2001 write off of certain impaired assets
and intellectual properties acquired from Science Applications International
Corporate ("SAIC") in 1998. Therefore, all amortization for the quarter ended
September 30, 2001 was associated with the acquisition of MimeStar, Inc.
("Mimestar") on June 30, 2000. The increase in amortization for the
nine-month period ended September 30, 2001, as compared with the prior year,
is the result of the Mimestar acquisition occurring on June 30, 2000. Absent
subsequent acquisitions, all future amortization will continue to be
associated only with Mimestar intangibles and will be approximately $0.2
million per quarter.

      RESTRUCTURING CHARGES. In June 2001, we recorded a charge of
approximately $4.0 million for restructuring costs and other special charges
consisting primarily of a $3.1 million impairment charge related to
intangible assets of our SecurityAnalyst and SecureEnterprise product lines
and $0.8 million for severance as a result of reductions in force. Demand has
shifted to our new intrusion detection and security appliance product lines.
As such, we streamlined operations and activities that are not aligned with
these core markets and strategies.

                                          13

<Page>

      INTEREST. Net interest income decreased to $0.3 million and $1.4
million, respectively, for the quarter and nine months ended September 30,
2001, compared to $0.9 million and $2.5 million, respectively, for the same
periods in 2000. The net interest income decreases were primarily due to the
reduced overall cash balances resulting from operating losses. We expect net
interest income to decrease in the fourth quarter of 2001, due to further
operating losses and declining interest rates. Net interest income may vary
in the future based on our cash flow and rate of return on investments.

      INCOME TAXES. Our effective tax rate for the quarter ended September
30, 2001 was 1.1%, compared to 32.8% for the quarter ended September 30,
2000. Our effective tax rate for the nine months ended September 30, 2001 was
4.9%, compared to 15.6% for the nine months ended September 30, 2000. The
effective tax rate for the three months and nine months ended September 30,
2001 varied from the U.S. statutory rate primarily due to the increase in the
valuation allowance for deferred tax assets which recognizes that tax
benefits associated with a significant portion of our operating losses may
not be realized. Without such changes to the valuation allowance, the
Company's effective tax rate for the quarter and nine months ended September
30, 2001 would have been 38%.





                                          14

<Page>

LIQUIDITY AND CAPITAL RESOURCES

      Our principal source of liquidity at September 30, 2001 is $17.2 million
of cash and cash equivalents, $7.0 million of short-term investments and $0.4
million of investments with a stated maturity beyond one year. As of September
30, 2001, excluding discontinued operations, working capital was $30.5 million
compared to $48.6 million as of December 31, 2000.

      Cash used in continuing operations for the nine months ended September 30,
2001 was $24.4 million, primarily due to an operating loss from continuing
operations of $32.8 million, offset by a decrease in accounts receivable,
inventories, and other assets. Future fluctuations in inventory balances,
accounts receivable and accounts payable will be dependent upon several factors,
including, but not limited to, quarterly sales, our strategy in building
inventory in advance of receiving orders from customers, and the accuracy of our
forecasts of product demand and component requirements.

      Cash provided by investing activities of continuing operations in the nine
months ended September 30, 2001 was $17.4 million, which consisted of the net
proceeds of $17.7 million from the maturities and purchases of available for
sale securities and the purchase of property and equipment of $0.2 million.

      Cash provided by financing activities of continuing operations in the nine
months ended September 30, 2001 was $0.4 million, which was entirely the result
of the issuance of common stock upon the exercise of employee stock options.

      Cash provided by discontinued operations in the nine months ended
September 30, 2001 was $3.4 million, which consisted primarily of the net
proceeds of the sale of our legacy local area networking business partially
offset by losses incurred in the discontinued operations.

      At September 30, 2001, the Company did not have any material commitments
for capital expenditures.

      During the nine months ended September 30, 2001, the Company funded its
operations through the use of cash and cash equivalents.

      We believe that our cash, cash equivalents and investment balances will
provide sufficient cash resources to finance our operations and currently
projected capital expenditures through 2002. However, there can be no assurance
that our cash resources will be sufficient for the year 2002 and beyond.

      We may explore the possible acquisitions of businesses, products and
technologies that are complementary to our existing business. We are continuing
to identify and prioritize additional security technologies which we may wish to
develop, either internally or through the licensing or acquisition of products
from third parties. While we engage from time to time in discussions with
respect to potential acquisitions, there can be no assurances that any such
acquisitions will be made or that we will be able to successfully integrate any
acquired business. In order to finance such acquisitions, it may be necessary
for us to raise additional funds through public or private financings. 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.


                                      15

<Page>

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

      Numerous factors may affect our business and future results of operations.
These factors include, but are not limited to, current economic and market
conditions, the effect of military actions on government and corporate spending
on information security products, technological changes, competition and market
acceptance, acquisitions, product transitions, timing of orders, manufacturing
and suppliers, reliance on outsourcing vendors and other partners, intellectual
property and licenses, third-party products, dependence on key customers,
international operations, intellectual property issues and effects of
restructuring plans and cost reductions. The discussion below addresses some of
these and other factors. For a more thorough discussion of these and other
factors that may affect our business and future results, see the discussion
under the caption "Factors That May Affect Future Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2000.

      TECHNOLOGICAL CHANGES. The market for our products is characterized by
frequent product introductions, rapidly changing technology and continued
evolution of new industry standards. The market for security products requires
our products to be compatible and interoperable with products and architectures
offered by various vendors, including other security products, networking
products, workstation and personal computer architectures and computer and
network operating systems. Our success will depend to a substantial degree upon
our ability to develop and introduce in a timely manner new products and
enhancements to our existing products that meet changing customer requirements
and evolving industry standards. The development of technologically advanced
products is a complex and uncertain process requiring high levels of innovation
as well as the accurate anticipation of technological and market trends. There
can be no assurance that we will be able to identify, develop, manufacture,
market and support new or enhanced products successfully in a timely manner.
Further, we or our competitors may introduce new products or product
enhancements that shorten the life cycle of or make obsolete our existing
product lines, any of which could have a material adverse effect on our
business, operating results and financial condition.

      MARKET ACCEPTANCE. We are pursuing a strategy to increase the percentage
of our revenue generated through indirect sales channels including distributors,
value added resellers, system integrators, original equipment manufacturers and
managed service providers. There can be no assurance that our products will gain
market acceptance in these indirect sales channels. Further, competition among
security companies to sell products through these indirect sales channels could
result in significant price competition and reduced profit margins.

      We are also pursuing a strategy to further differentiate our product line
by introducing complementary security products and incorporating new
technologies into our existing product line. There can be no assurance that we
will successfully introduce these products or that such products will gain
market acceptance. We anticipate competition from networking companies, network
security companies and others in each of our product lines. We anticipate that
profit margins will vary among our product lines and that product mix
fluctuations could have an adverse effect on our overall profit margins.


                                      16

<Page>

      DISPOSITION OF DISCONTINUED OPERATIONS. On April 17, 2000, we announced
plans to sell, or otherwise dispose of, the assets in our networking divisions
which include our Essential Communications division and our local area
networking assets. The disposition of our local area networking assets was
completed in the quarter ended March 31, 2001 generating a gain of $2.1 million
which was used to reduce the estimated net realizable value of the net assets of
our remaining discontinued operations, Essential. During the second quarter of
2001, in response to unfavorable market conditions and efforts to sell
Essential, we recorded additional charges to write down the net assets of
Essential to reflect its current estimated net realizable value of $0.8 million.
The $5.0 million second quarter charge includes $0.8 million for operating
losses expected to be incurred between July and the end of 2001 by which time we
expect to have exited, disposed of or otherwise transitioned a majority of our
ownership in Essential.

      While we took an appropriate charge to exit, dispose of or otherwise
transition a majority of our ownership in Essential, there can be no assurance
that this charge will be sufficient. To the extent it is not, the additional
financial impact will be charged to discontinued operations in future periods.

      ACQUISITIONS. Internet Security Systems, Inc. ("ISS"), Cisco Systems, Inc.
("Cisco"), Symantec Corp. ("Symantec"), Enterasys Networks ("Enterasys"), Nokia
Corporation ("Nokia"), Nortel Networks ("Nortel") and other competitors have
acquired several security companies with complementary technologies, and we
anticipate that such acquisitions will continue in the future. These
acquisitions may permit such competitors to accelerate the development and
commercialization of broader product lines and more comprehensive solutions than
we currently offer. In the past, we have relied upon a combination of internal
product development and partnerships with other security vendors to provide
competitive solutions to customers. Certain of the recent and future
acquisitions by our competitors may have the effect of limiting our access to
commercially significant technologies. Further, the business combinations and
acquisitions in the security industry are creating companies with larger market
shares, customer bases, sales forces, product offerings and technology and
marketing expertise. There can be no assurance that we will be able to compete
successfully in such an environment.

      In September 1998, we completed an acquisition of certain assets of the
Computer Misuse and Detection System ("CMDS") Division from Science Applications
International Corporation ("SAIC"), a privately held company in San Diego,
California. On September 30, 1999, we entered a technology licensing agreement
with RSA Security Inc. ("RSA") under which we are the exclusive licensee of
RSA's Kane Security products in North America and Europe. On June 30, 2000, we
acquired MimeStar, Inc. ("MimeStar"), a Virginia corporation. MimeStar developed
an advanced, network based intrusion detection system called SecureNet Pro-TM-.
We may, in the future, acquire or invest in additional companies, business
units, product lines, or technologies to accelerate the development of products
and sales channels complementary to our existing products and sales channels.
Acquisitions involve numerous risks, including: difficulties in assimilation of
operations, technologies, and products of the acquired companies; risks of
entering markets in which we have no or limited direct prior experience and
where competitors in such markets have stronger market positions; the potential
loss of key employees of the acquired company; and the diversion of our
attention from normal daily operation of our business. There can be no assurance
that any other acquisition or investment will be consummated or that such
acquisition or investment will be realized.


                                      17

<Page>

      PRODUCT TRANSITIONS. Once current security products have been in the
market place for a period of time and begin to be replaced by higher performance
products (whether of our design or a competitor's design), we expect the net
sales of such products to decrease. In order to achieve revenue growth in the
future, we will be required to design, develop and successfully commercialize
higher performance products in a timely manner. There can be no assurance that
we will be able to introduce new products and gain market acceptance quickly
enough to avoid adverse revenue transition patterns during current or future
product transitions. Nor can there be any assurance that we will be able to
respond effectively to technological changes or new product announcements by
competitors, which could render portions of our inventory obsolete.

      MANUFACTURING AND SUPPLIERS. Our operational strategy relies on
outsourcing of product assembly and certain other operations. There can be no
assurance that we will effectively manage our third-party contractors or that
these contractors will meet our future requirements for timely delivery of
products of sufficient quality and quantity. Further, we intend to introduce a
number of new products and product enhancements which will require that we
rapidly achieve volume production of those new products by coordinating our
efforts with those of our suppliers and contractors. The inability of the
third-party contractors to provide us with adequate supplies of high-quality
products could cause a delay in our ability to fulfill orders and could have an
adverse effect on our business, operating results and financial condition.

      All of the materials used in our products are purchased under contracts or
purchase orders with third parties. While we believe that many of the materials
used in the production of our products are generally readily available from a
variety of sources, certain components such as microprocessors and mother boards
are available from one or a limited number of suppliers. The lead times for
delivery of components vary significantly and can exceed twelve weeks for
certain components. If we should fail to forecast our requirements accurately
for components, we may experience excess inventory or shortages of certain
components which could have an adverse effect on our business and operating
results. Further, any interruption in the supply of any of these components, or
the inability to procure these components from alternative sources at acceptable
prices within a reasonable time, could have an adverse effect on our business
and operating results.

      INTELLECTUAL PROPERTY AND LICENSES. There are many patents held by
companies which relate to the design and manufacture of data security systems.
Potential claims of infringement could be asserted by the holders of those
patents. We could incur substantial costs in defending ourself and our customers
against any such claim regardless of the merits of such claims. In the event of
a successful claim of infringement, we may be required to obtain one or more
licenses from third parties. There can be no assurance that we could obtain the
necessary licenses on reasonable terms.




                                      18

<Page>

      THIRD-PARTY PRODUCTS. We believe that it is beneficial to work with third
parties with complementary technologies to broaden the appeal of our security
products. These non-exclusive alliances allow us to provide integrated solutions
to our customers by combining our developed technology with third-party
products. For example, sales of our PDS security appliance are dependent upon
the security applications which operate on such appliances, our relationship
with the security application vendors, and competition with other security
appliance vendors. Our PDS firewall and VPN appliances integrate Check Point
Software Technologies Ltd. security applications. As we also compete with our
technology partners in certain segments of the market and compete with other
security appliance vendors who have similar alliances, there can be no assurance
that we will have access to all of the third-party products which may be
desirable or necessary in order to offer fully integrated solutions to our
customers.

      DEPENDENCE ON KEY CUSTOMERS. A relatively small number of customers have
accounted for a significant portion of our revenue. U.S. government agencies,
large system integrators and managed service providers are expected to continue
to account for a substantial portion of our net revenue. We continuously face
competition from ISS, Cisco, Netscreen, Nortel, Symantec, Enterasys, Nokia,
SonicWALL, WatchGuard and others for U.S. government security projects and
corporate security installations. Any reduction or delay in sales of our
products to these customers could have a material adverse effect on our
operating results.

      INTERNATIONAL OPERATIONS. Our international operations may be affected by
changes in demand resulting from fluctuations in currency exchange rates and
local purchasing practices, including seasonal fluctuations in demand, as well
as by risks such as increases in duty rates, difficulties in distribution,
regulatory approvals and other constraints upon international trade. Our sales
to foreign customers are subject to export regulations. In particular, certain
sales of our data security products require clearance and export licenses from
the U.S. Department of Commerce under these regulations. Any inability to obtain
such clearances or any required foreign regulatory approvals on a timely basis
could have a material adverse effect on our operating results.

      IMPACT OF GOVERNMENT CUSTOMERS. A significant portion of our revenue is
derived from sales to the U.S. government, either directly by Intrusion or
through system integrators and other resellers. Sales to the government present
risks in addition to those involved in sales to commercial customers, including
potential disruptions due to appropriation and spending patterns and the
government's reservation of the right to cancel contracts and purchase orders
for its convenience.

      EFFECTS OF RECENT TERRORIST ATTACKS AND MILITARY ACTIONS. Recent terrorist
attacks in the United States, as well as military actions or other events
occurring in response or in connection to them, including future terrorist
attacks against United States targets, actual conflicts involving the United
States or it allies or military or trade disruptions could impact our
operations, including by:

         -  reducing government or corporate spending on network security
            products;
         -  increasing the cost and difficulty in obtaining materials or
            shipping products; and
         -  affecting our ability to conduct business internationally.

Should such events occur, our business, operating results and financial
condition could be materially and adversely affected.


                                      19

<Page>


      RESTRUCTURING AND COST REDUCTIONS. We implemented a restructuring plan in
the first nine months of 2001. The objective of our restructuring plan is to
reduce our cost structure to a sustainable level that is consistent with the
current macroeconomic environment. We also implemented other strategic
initiatives designed to strengthen our operations. These plans involve, among
other things, reductions in our workforce and facilities, aligning our
organization around our business objectives, realignment of our sales force and
changes in our sales management. The workforce reductions could result in
temporary reduced productivity of our remaining employees. Additionally, our
customers and prospects may delay or forgo purchasing our products due to a
perceived uncertainty caused by the restructuring and other changes. Failure to
achieve the desired results of our initiatives could seriously harm our
business, results of operations and financial condition.

      GENERAL. Sales of our products fluctuate, from time to time, based on
numerous factors, including customers' capital spending levels and general
economic conditions. While certain industry analysts believe that there is a
significant market for data security products, there can be no assurance as to
the rate or extent of the growth of such market or the potential adoption of
alternative technologies. Currently, capital spending for information technology
products, including security products is being adversely affected by uncertain
economic conditions. Future declines in data security product sales as a result
of general economic conditions, adoption of alternative technologies or any
other reason could have a material adverse effect on our business, operating
results and financial condition.

      Due to the factors noted above and in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", our future earnings
and common stock price may be subject to significant volatility, particularly on
a quarterly basis. Past financial performance should not be considered a
reliable indicator of future performance and investors should not use historical
trends to anticipate results or trends in future periods. Any shortfall in
revenue and earnings from the levels anticipated by securities analysts could
have an immediate and significant effect on the trading price of our common
stock in any given period. Also, we participate in a highly dynamic industry
which often results in volatility of our common stock price.












                                      20

<Page>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      FOREIGN EXCHANGE. Revenue originating outside the U.S. in the quarters
ended September 30, 2001, 2000 and 1999 were 50.8%, 26.8% and 11.3% of total
revenues, respectively. Revenue originating outside the U.S. in the nine months
ended September 30, 2001, 2000 and 1999 were 35.0%, 18.5% and 15.8% of total
revenues, respectively. International sales are made mostly from our foreign
sales subsidiaries in the local countries and are typically denominated in U.S.
dollars. These subsidiaries incur most of their expenses in the local currency.

Our international business is subject to risks typical of an international
business, including, but not limited to: differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions and foreign exchange rate volatility. Accordingly, our future
results could be materially adversely affected by changes in these or other
factors. The effect of foreign exchange rate fluctuations on us in 2001, 2000
and 1999 was not material.

      INTEREST RATES. We invest our cash in a variety of financial instruments,
including bank time deposits, fixed rate obligations of corporations,
municipalities, and state and national governmental entities and agencies. These
investments are denominated in U.S. dollars. Cash balances in foreign currencies
overseas are operating balances and are invested in short-term time deposits of
the local operating bank.

      Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their fair market value
adversely affected due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses of principal if forced to sell
securities which have seen a decline in market value due to changes in interest
rates. Our investment securities are held for purposes other than trading.
Several investment securities have a maturity in excess of one year. The
weighted-average interest rate on investment securities at September 30, 2001
was 5.8%. The fair value of investments held at September 30, 2001 approximates
amortized cost.










                                      21

<Page>

                           PART II - OTHER INFORMATION



Item 6.     EXHIBITS AND REPORTS ON FORM 8-K.


            (A.)  EXHIBITS. The following exhibits are included herein:

                                    None


            (B.)  FORM 8-K.         We filed no reports on Form 8-K during the
                                    three months ended September 30, 2001.





















                                      22

<Page>

                               S I G N A T U R E S




      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




                                       INTRUSION INC.


Date: November 9, 2001               /s/ Jay R. Widdig
                              -------------------------------
                                       Jay R. Widdig
                         Vice President, Chief Financial Officer,
                                  Treasurer & Secretary
                        (Principal Financial & Accounting Officer)

















                                      23