SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 28, 1996
SECURE COMPUTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-27074 52-1637226
(State or other jurisdiction) (Commission File Number) (IRS Employer
of incorporation Identification No.)
2675 LONG LAKE ROAD
ROSEVILLE, MINNESOTA 55113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 628-2700
Item 5. Other Events.
On November 4, 1996, Jeffrey H. Waxman assumed the positions of President
and Chief Executive Officer of the Company. Mr. Waxman was also appointed to the
Board of Directors. Kermit M. Beseke will continue as Chairman of the Board of
the Company. For additional information regarding Mr. Waxman, please see the
press release of the Company attached hereto as Exhibit 99.1.
Item 7 of the Company's report on Form 8-K, dated August 28, 1996, is hereby
amended in its entirety as follows:
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
<S> <C>
(1) Financial Statements of Enigma Logic, Inc.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)
Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the six-month periods ended
June 30, 1995 and 1996 (unaudited)
Statement of Shareholders' Deficit for the fiscal years ended
December 31, 1992, 1993, 1994 and 1995 and for the six
months ended June 30, 1996 (unaudited)
Statement of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
for the six months ended June 30, 1995 and 1996 (unaudited)
Notes to Financial Statements
(2) Financial Statements of Border Network Technologies Inc.
(i) Border Network Technologies Inc. Financial Statements,
December 31, 1995
Auditors' Report
Balance Sheet as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)
Statement of Operations and Retained Earnings (Deficit)
for the period ended December 31, 1994, the year
ended December 31, 1995 and the six months ended June
30, 1995 and 1996 (unaudited)
Statement of Change is Financial Position for the
period ended December 31, 1994, the year ended
December 31, 1995 and the six months ended June 30,
1996 (unaudited)
Notes to Financial Statements
(ii) Border Network Technologies Inc. Financial Statements,
December 31, 1994
Auditors' Report
Balance Sheet as of December 31, 1994
Statement of Loss and deficit for the Period January 13, 1994 to December
31, 1994
Statement of Changes in Financial Position for the Period from January 13,
1994 to December 31, 1994
Notes to Financial Statements
(b) Pro Forma Combined Financial Information of Secure Computing Corporation, Enigma
Logic, Inc. and Border Network Technologies Inc.
(1) Pro forma combined Statements of Operations for the years
ended December 31, 1994 and 1995 are incorporated by
reference to the Company's Proxy Statement dated August 5,
1996, filed with the Securities and Exchange Commission on
August 7, 1996 (File No. 0-27074).
(2) Pro forma financial information for the periods ended June 30, 1995 and 1996
Pro Forma Combined Balance Sheet as of June 30, 1996 (unaudited)
Pro Form Combined Statement of Operations for the six months ended
June 30, 1996 (unaudited)
Pro Form Combined Statement of Operations for the six months ended
June 30, 1995 (unaudited)
Notes to Pro Forma Combined Financial Information (unaudited)
(c) Exhibits
27.1 Financial Data Schedule
99.1 Press Release of Secure Computing Corporation dated October 28, 1996.
</TABLE>
SIGNATURES
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.
SECURE COMPUTING CORPORATION
Date: November 8, 1996 By: /s/ Timothy P. McGurran
-----------------------
Timothy P. McGurran
Vice President of Finance, Treasurer
and Chief Financial Officer
EXHIBIT INDEX
No. Exhibit No. Page
27.1 Financial Data Schedule Filed Electronically
99.1 Press Release of Secure Computing
Corporation dated October 28, 1996. Filed Electronically
ENIGMA LOGIC, INC.
FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED) AND
DECEMBER 31, 1995 AND 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Enigma Logic, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, shareholders' deficit and cash flows present fairly, in all material
respects, the financial position of Enigma Logic, Inc. at December 31, 1994 and
1995 and the results of its operations and its cash flows for the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
San Jose, California
March 1, 1996, except for Note 8, which is as of August 28, 1996.
<TABLE>
<CAPTION>
ENIGMA LOGIC, INC.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, JUNE 30,
1994 1995 1996
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 316 $ 205 $ 15
Accounts receivable 419 1,019 978
Inventory 170 173 247
Other current assets - - 57
------- ------- --------
Total current assets 905 1,397 1,297
Property and equipment, net of accumulated
depreciation of $53, $87 and $117 (unaudited) 67 186 296
Other assets 9 30 47
------- ------- --------
$ 981 $ 1,613 $ 1,640
======= ======= ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings $ 50 $ 50 $ 50
Accounts payable 247 207 769
Accrued compensation 177 238 195
Accrued merger costs - - 1,795
Deferred revenues 387 502 409
Due to shareholders - - 2,328
------- ------- --------
Total current liabilities 861 997 5,546
Long-term debt to shareholders 1,700 1,845 --
------- ------- --------
Total liabilities 2,561 2,842 5,546
------- ------- --------
Commitments (Note 5)
Shareholders' deficit:
Preferred shares without par value, 7,000,000
shares authorized; none issued - - -
Common shares, $0.01 par value; 50,000,000
shares authorized; 18,134,680, 18,295,908
and 18,298,462 (unaudited) shares issued
and outstanding 181 183 183
Additional paid-in-capital 7,085 7,142 7,323
Accumulated deficit (8,846) (8,554) (11,412)
------- ------- --------
Total shareholders' deficit (1,580) (1,229) (3,906)
------- ------- --------
$ 981 $ 1,613 $ 1,640
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
ENIGMA LOGIC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
(AMOUNTS IN THOUSANDS) 1993 1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,590 $ 2,426 $ 3,901 $ 2,302 $ 2,479
Cost of net revenues 472 838 982 512 661
------- ------- ------- ------- -------
Gross margin 1,118 1,588 2,919 1,790 1,818
------- ------- ------- ------- -------
Operating expenses:
Marketing and selling 612 576 1,089 465 851
Engineering 357 393 585 284 580
General and administrative 345 419 814 435 1,054
Merger costs - - - - 2,110
------- ------- ------- ------- -------
1,314 1,388 2,488 1,184 4,595
------- ------- ------- ------- -------
Income (loss) from operations (196) 200 431 606 (2,777)
Interest (expense), net (135) (143) (139) (71) (81)
------- ------- ------- ------- -------
Net income (loss) $ (331) $ 57 $ 292 $ 535 $(2,858)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ENIGMA LOGIC, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
SERIES A SERIES B
PREFERRED SHARES PREFERRED SHARES COMMON SHARES
(AMOUNTS IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 973 $ 1,946 2,063 $ 2,578 1,794 $ 18
Conversion of Preferred Series A (973) (1,946) - - 4,902 49
Conversion of Preferred Series B - - (2,063) (2,578) 3,268 32
Conversion of debt to preferred
shareholder - - - - 8,171 82
Net loss - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1993 - - - - 18,135 181
Net income - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 - - - - 18,135 181
Issuance of Common Stock - - - - 100 1
Stock Option Exercises - - - - 61 1
Net income - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 - - - - 18,296 183
Stock Option Exercises (unaudited) - - - - 2 -
Common stock options issued for
services (unaudited) - - - - - -
Net income (unaudited) - - - - - -
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1996 (unaudited) - $ - - $ - 18,298 $ 183
========= ========== ========= ========= ======== ========
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
SHARE-
PAID-IN ACCUMULATED HOLDERS'
(AMOUNTS IN THOUSANDS) CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C>
Balance at December 31, 1992 $ 509 $ (8,572) $ (3,521)
Conversion of Preferred Series A 1,897 - -
Conversion of Preferred Series B 2,546 - -
Conversion of debt to preferred
shareholder 2,133 - 2,215
Net loss - (331) (331)
--------- --------- ---------
Balance at December 31, 1993 7,085 (8,903) (1,637)
Net income - 57 57
--------- --------- ---------
Balance at December 31, 1994 7,085 (8,846) (1,580)
Issuance of Common Stock 49 - 50
Stock Option Exercises 8 - 9
Net income - 292 292
--------- --------- ---------
Balance at December 31, 1995 7,142 (8,554) (1,229)
Stock Option Exercises (unaudited) 1 - 1
Common stock options issued for
services (unaudited) 180 - 180
Net income (unaudited) - (2,858) (2,858)
--------- ---------- ----------
Balance at June 30, 1996 (unaudited) $ 7,323 $ (11,412) $ (3,906)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
ENIGMA LOGIC, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
(AMOUNTS IN THOUSANDS) 1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (331) $ 57 $ 292 $ 535 $(2,858)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation 31 12 42 23 42
Stock expense - - 50 - 180
Change in assets and liabilities:
Accounts receivable (26) (120) (600) (411) 41
Inventory - (108) (3) 66 (74)
Other assets 6 - (21) 2 (74)
Accounts payable 43 6 (40) (17) 562
Accrued compensation 7 (22) 61 44 (43)
Merger costs - - - - 1,795
Deferred revenue (11) 255 115 (176) (93)
------- ----- ----- ------- -------
Net cash provided (used) by operating activities (281) 80 (104) 66 (522)
------- ----- ------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES -
Acquisition of property and equipment (24) (40) (161) (44) (152)
------- ------ ------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from shareholders 289 266 145 81 483
Repayments to shareholders - - - (100) -
Proceeds from exercise of stock options - - 9 - 1
------ ------ ------ ------- ------
Net cash provided by financing activities 289 266 154 (19) 484
----- ----- ----- ------- -----
Net increase (decrease) in cash (16) 306 (111) 3 (190)
Cash, beginning of year 26 10 316 316 205
----- ----- ----- ----- -----
Cash, end of year $ 10 $ 316 $ 205 $ 319 $ 15
======== ======== ======== ======== ========
NONCASH TRANSACTIONS:
Common stock options issued for services $ - $ - $ - $ - $ 180
======== ======== ======== ======== ========
Conversion of Preferred Stock to Common Stock $ 4,706 $ - $ - $ - $ -
======== ======== ======== ======== ========
Conversion of debt and interest to Common Stock $ 2,215 $ - $ - $ - $ -
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 6 $ 7 $ 6 $ 4 $ 3
======== ======== ======== ======== ========
Cash paid for income taxes $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Enigma Logic, Inc. (the Company) produces dynamic password security systems
which prevent unauthorized access to data or programs stored on computer
networks. The Company was incorporated in California on July 26, 1982 and
has its offices and operating facilities in Concord, California.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH
There are no current compensating balance requirements. The Company's bank
line of credit is guaranteed by the major shareholder. For the purposes of
the Statement of Cash Flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents.
REVENUE RECOGNITION
Revenue from the sale of the Company's products is generally recognized
upon shipment. Revenues received under maintenance agreements are
recognized over the terms of the agreements. The Company also provides free
technical support for limited warranty periods following delivery of its
products. Provision is made in the financial statements for the estimated
cost of this support.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company performs ongoing credit evaluations of its customers' financial
condition. The Company has not historically experienced accounts receivable
collection problems and, as a result, an allowance for bad debt has not
been required.
INVENTORY
Inventories consist primarily of purchased parts and are stated at the
lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. Ordinary maintenance and repairs are charged
to expense as incurred; major improvements are capitalized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including
accounts receivable and long-term debt to shareholders, approximate fair
value.
SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, "Accounting for the Cost of Capitalized
Software to be Sold, Leased or Otherwise Marketed," the Company examines
its software development costs after technological feasibility has been
established to determine the amount of capitalization that is required. For
all periods presented herein, software development costs incurred
subsequent to the establishment of technological feasibility have been
immaterial.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
The Company does not intend to adopt the measurement provisions of SFAS 123
with regard to employee-based stock compensation and will adopt the
disclosure provisions in the year ending December 31, 1996.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at June 30, 1996, the statement of
shareholders' equity for the six months ended June 30, 1996 and the
statements of income and of cash flows for the six month periods ended June
30, 1995 and 1996 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the
interim periods. The data disclosed in these notes to the financial
statements for these periods are also unaudited.
2. DEBT AGREEMENTS
Short-term borrowings were outstanding under a $50,000 bank line of credit,
which can be terminated by either party. Interest on the loans accrues at
2.5% above the bank prime rate, which was 10.75% at June 30, 1996. (See
Note 8)
The controlling shareholder has made cash advances to the Company in
exchange for notes bearing interest at 9.5% to 12% that are due on demand.
The shareholder, however, has agreed not to demand payment on any of the
notes or interest through December 31, 1996.
3. INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax reporting purposes of approximately $7,700,000 and
development and investment tax credit carryforwards of approximately
$70,000 which can be used to reduce future federal income tax liabilities.
These carryforwards expire between 2001 and 2009.
The Company also has net operating loss carryforwards for state income tax
reporting purposes of approximately $1,500,000 that expire between 1996 and
2000.
The components of net deferred tax assets consist of the following (in
thousands):
DECEMBER 31,
1994 1995
Deferred tax assets:
Net operating losses $ 2,740 $ 2,730
Reserves, accruals and other 150 190
Tax credit carryforwards 70 70
------- -------
2,960 2,990
Deferred tax valuation allowance (2,960) (2,990)
------- -------
Net deferred tax asset $ -- $ --
======= =======
The Company has established a valuation allowance equal to its deferred tax
assets on the basis that management cannot conclude that it is more likely
than not that they will be realized. Management's assessment is based on
the Company's history of net operating losses ("NOL's") and other
uncertainties regarding the timing of the utilization of the NOL
carryforwards. Section 382 of the Internal Revenue Code restricts the
annual utilization of the NOL's incurred prior to a change in ownership.
Such a change in ownership may have occurred in connection with a
recapitalization of the Company in 1993, and the Company is currently
assessing possible restrictions on the use of its NOL carryforwards as a
result of such possible change in ownership. There can be no assurance that
the Company's NOL carryforwards will be available for use in the future.
Differences in the net operating loss carryforwards for financial statement
and income tax purposes arise from the timing of the recognition of certain
revenues and expenses.
4. STOCK OPTIONS
1985 STOCK PLAN
In 1985, the Company adopted an Incentive Stock Option Plan which provides
for grants of options at a price not less than the fair market value of the
stock on the date of grant as determined by the Company's Board of
Directors. Grants to employees owning more than 10% of the Company's
outstanding voting stock must be priced not less than 110% of the fair
market value of the stock on the date of the grant. Options generally
become exercisable over vesting periods as determined by the Board of
Directors up to five years from the date of grant. The plan has a ten year
life which expired in February, 1995, at which time 9,641 options were
ungranted. At June 30, 1996, options to purchase 284,891 shares of Common
Stock were outstanding under the plan at $0.15-$0.25 per share.
The following table summarizes activity in the Company's 1985 Incentive
Stock Option Plan:
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING
AVAILABLE PRICE PER
FOR GRANT SHARES SHARE
<S> <C> <C> <C>
Balance at December 31, 1993 134,864 220,896 $0.15
Options granted (48,000) 48,000 $0.15
Options canceled 7,892 (7,892) $0.15
--------- -----------
Balance at December 31, 1994 94,756 261,004 $0.15
Options granted (236,891) 236,891 $0.25
Options canceled 151,776 (151,776) $0.15
Options exercised - (61,228) $0.15
Ungranted within 10 year limit (9,641) - $0.15
---------- -----------
Balance at December 31, 1995 - 284,891 $0.15-$0.25
============ ==========
</TABLE>
1994 STOCK PLAN
In 1994, the Company adopted the 1994 Stock Option Plan for which an
aggregate of 2,000,000 shares of Common Stock have been reserved for
issuance. As of June 30, 1996, options to purchase 2,000,000 shares of
Common Stock at $0.15-$0.75 per share have been issued under the 1994 Stock
Option Plan. The 1994 Stock Option Plan provides for the granting to key
executive employees and directors of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or nonqualified stock options, as designated at the time of
the grant. To the extent an optionee would have the right in any calendar
year to exercise for the first time one or more incentive stock options for
shares having an aggregate fair market value in excess of $100,000, any
such excess options shall be treated as nonqualified stock options.
1995 STOCK PLAN
In 1995, the Company adopted the 1995 Stock Option Plan for which an
aggregate of 1,525,000 shares of Common Stock have been reserved for
issuance. As of June 30, 1996, options to purchase 1,525,000 shares of
Common Stock at $0.25 per share have been issued under the 1995 Stock
Option Plan. The 1995 Stock Option Plan provides for the granting to key
executive employees and directors of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or nonqualified stock options, as designated at the time of
the grant. To the extent an optionee would have the right in any calendar
year to exercise for the first time one or more incentive stock options for
shares having an aggregate fair market value in excess of $100,000, any
such excess options shall be treated as nonqualified stock options. The
options generally vest over a two-year period.
1996 STOCK PLAN
In 1996, the Company adopted the 1996 Stock Option Plan for which an
aggregate of 2,150,000 shares of Common Stock have been reserved for
issuance. As of June 30, 1996, options to purchase 1,764,776 shares of
Common Stock at prices ranging from $0.75 to $2.81 per share have been
issued under the 1996 Stock Option Plan. The 1996 Stock Option Plan
provides for the granting to employees and directors of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options, as designated
at the time of the grant. To the extent an optionee would have the right in
any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value in excess of
$100,000, any such excess options shall be treated as nonqualified stock
options. The options generally vest over a four-year period.
1994, 1995 AND 1996 STOCK PLANS
The exercise price of all incentive stock options must be at least equal to
the fair market value of the Common Stock of the Company on the date of
grant. The exercise price of any incentive stock option granted to an
optionee who owns stock possessing more than 10 percent of the voting power
of all classes of the Company's stock must equal at least 110 percent of
the fair market value of the Common Stock on the date of grant. The
exercise price of any nonqualified stock option must be at least equal to
85 percent of the fair market value of the Common Stock of the Company on
the date of the grant.
The term of an incentive stock option may not exceed ten years, and no
incentive stock option granted to a ten percent shareholder shall be
exercisable for five years from the date of granting.
ALL PLANS
As of June 30, 1996, options exercisable under all Plans totaled
approximately 3,400,000 shares at $0.15 to $0.75 per share.
5. COMMITMENTS
Rental expense for the Company's offices and operating facilities amounted
to $115,000, $82,000 and $80,000 in 1995, 1994 and 1993, respectively, and
$79,000 (unaudited) and $35,000 (unaudited) for the six months ended June
30, 1996 and 1995, respectively. Future minimum payment on operating leases
was $1,011,000 at December 31, 1995.
Minimum future lease payments on noncancelable operating leases as of
December 31, 1995 are as follows:
1996 $ 225,000
1997 235,000
1998 243,000
1999 193,000
2000 115,000
Thereafter -
6. SALES TO SIGNIFICANT CUSTOMERS AND EXPORT SALES
One customer accounted for 38% of total revenue in 1995 and 29% of total
revenue in 1994. Four customers accounted for 53% (unaudited) of total
revenue for the six months ended June 30, 1996 and two customers accounted
for 70% (unaudited) of total revenue for the six months ended June 30,
1995. International sales accounted for 15%, 15% and 32% of sales in 1995,
1994 and 1993, respectively. Three customers accounted for 17%, 15% and
10%, respectively, of total accounts receivable at December 31, 1995.
Three customers accounted for 19%, 13% and 11%, respectively, of total
accounts receivable at December 31, 1994. Two customers accounted for 33%
(unaudited) and 15% (unaudited) of accounts receivable at June 30, 1996.
7. RECAPITALIZATION
In 1986, the Company's Articles of Incorporation were amended to authorize
issuance of 5,000,000 shares of preferred stock. Subsequently, 997,480
shares of Series A Preferred Stock were issued to one of the holders of
Common Stock and 2,626,500 shares of Series B Preferred Stock were issued
principally to two investment funds. The investment funds also advanced
$1,566,000 to the Company in exchange for notes.
In 1989, all the Series B Preferred Stock and notes held by the funds were
sold to the holder of the outstanding Series A Preferred Stock, and the
Company amended its Articles of Incorporation to authorize the issuance of
7,000,000 shares of Preferred Stock. In December 1992, the Shareholders
adopted a Plan of Reorganization whereby all outstanding Series A and B
Preferred Stock and the $1,566,000 of notes, exclusive of accrued
interest, were converted to Common Stock. Accrued interest of $649,000 on
the notes was canceled under the Plan.
Implementation of the plan was completed in June 1993, at which time the
cancellation of accrued interest and conversion of the preferred shares
and notes were recorded in the Company's financial statements. The Plan
also voided all outstanding warrants for the purchase of preferred and
common shares, most of which had been issued in connection with the
issuance of the Preferred Stock and notes.
8. SUBSEQUENT EVENTS
On June 26, 1996, the Company entered into a definitive agreement to
exchange all of its outstanding shares and options for 2.69 million shares
and options of Secure Computing Corporation in an acquisition accounted
for as a pooling of interests. The acquisition was approved by the
shareholders of both Secure Computing Corporation and the Company on
August 28, 1996.
In July 1996, the Company entered into a $500,000 Revolving Line of Credit
with a Bank (the Line). The Line expires October 31, 1996 and bears
interest at prime plus one percent. The Line is collateralize by
qualifying receivables and inventories under a borrowing base calculation.
BORDER NETWORK TECHNOLOGIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
PRICE WATERHOUSE
March 29, 1996
AUDITORS' REPORT
To the Board of Directors of
Border Network Technologies Inc.
We have audited the consolidated balance sheet of Border Network Technologies
Inc. as at December 31, 1995 and the consolidated statements of operations and
retained earnings (deficit) and changes in financial position for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Canada.
The financial statements as at December 31, 1994 and for the period then ended
were audited by other auditors who expressed an opinion without reservation on
those statements in their report dated October 2, 1995.
/s/ PRICE WATERHOUSE
Chartered Accountants
BORDER NETWORK TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995 1994
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash $ 9,300,157 $ 163,479 $ 18,367
Accounts receivable (Note 2) 3,110,813 1,294,352 140,203
Prepaid expenses 359,822 22,138 9,600
Income taxes recoverable - - 40,000
------------- ------------ ----------
12,770,792 1,479,969 208,170
Capital assets (Note 3) 853,974 285,984 3,865
Goodwill (Note 4) 1,509,960 - -
------------- ------------ ----------
$ 15,134,726 $ 1,765,953 $ 212,035
============= ============ ==========
LIABILITIES
Current liabilities
Accounts payable $ 6,245,012 $ 1,330,611 $ 93,681
Deferred support revenue 229,446 235,079 2,720
Income taxes payable 106,511 36,406 -
Current portion of long-term debt (Note 6) 20,000 23,582 80,000
------------- ------------ ----------
6,600,969 1,625,678 176,401
Long-term debt (Note 6) - 46,329 10,000
------------- ------------ ----------
6,600,969 1,672,007 186,401
SHAREHOLDERS' EQUITY
Share capital (Note 7) 12,302,540 38,000 38,000
Retained earnings (deficit) (3,768,783) 55,946 (12,366)
------------- ------------ ----------
8,533,757 93,946 25,634
------------- ------------ ----------
$ 15,134,726 $ 1,765,953 $ 212,035
============= ============ ==========
</TABLE>
BORDER NETWORK TECHNOLOGIES INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(expressed in Canadian dollars)
SIX MONTHS YEAR ENDED PERIOD ENDED
ENDED JUNE 30 DECEMBER 31 DECEMBER 31
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Revenue $ 6,127,440 $ 1,307,580 $ 4,511,229 $ 187,949
Cost of goods sold 710,213 83,239 462,026 11,705
-------------- ------------- ------------ ----------
5,417,227 1,224,341 4,049,203 176,244
Expenses
Sales and marketing 4,123,418 473,561 2,170,818 80,861
Research and development 919,597 267,886 806,877 83,733
General and administrative 893,672 193,758 975,317 24,016
-------------- ------------- ------------ ----------
5,936,687 935,205 3,953,012 188,610
-------------- ------------- ------------ ----------
Income (loss) from operations (519,460) 289,136 96,191 (12,366)
Interest income 195,677 - - -
-------------- ------------- ------------ ----------
Income (loss) before provision
for income taxes (323,783) 289,136 96,191 (12,366)
Provision for income taxes 7,596 - 27,879 -
-------------- ------------- ------------ ----------
Net income (loss) for the period (331,379) 289,136 68,312 (12,366)
Retained earnings (deficit),
beginning of period 55,946 (12,366) (12,366) -
Excess of share repurchase price over
carrying value (Note 7(a)(iii)) (3,493,350) - - -
-------------- ------------- ------------ ----------
Retained earnings (deficit),
end of period $ (3,768,783) $ 276,770 $ 55,946 $ (12,366)
============== ============= ============ ===========
</TABLE>
BORDER NETWORK TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(expressed in Canadian dollars)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED PERIOD ENDED
ENDED JUNE 30 DECEMBER 31 DECEMBER 31
1996 1995 1994
(unaudited)
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Net income (loss) for the period $ (331,379) $ 68,312 $ (12,366)
Item not involving cash
Amortization 181,046 47,223 555
Changes in noncash working capital items 2,669,554 395,728 (93,402)
------------ ---------- ----------
2,519,221 511,263 (105,213)
------------ ---------- ----------
Financing activities
Change in long-term debt, net (49,911) (20,089) 90,000
Issuance of common shares 8,615,804 - 38,000
Issuance of special warrants, net 9,409,355 - -
Business combination costs (Note 7(d)) (5,753,969) - -
Redemption of common shares (3,500,000) - -
------------ ---------- ----------
8,721,279 (20,089) 128,000
------------ ---------- ----------
Investing activities
Purchase of capital assets (749,036) (329,342) (4,420)
Investment in subsidiary (Note 4) (1,354,786) (16,720) -
------------ ---------- ----------
(2,103,822) (346,062) (4,420)
------------ ---------- ----------
Increase in cash during the period 9,136,678 145,112 18,367
Cash, beginning of period 163,479 18,367 -
------------ ---------- ----------
Cash, end of period $ 9,300,157 $ 163,479 $ 18,367
============ ========== ==========
</TABLE>
BORDER NETWORK TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(expressed in Canadian dollars)
(amounts at June 30, 1996 and for the six-month
periods ended June 30, 1996 and 1995 are unaudited)
1. INCORPORATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from the sale of software is recognized when shipped, and is net
of discounts and allowances for estimated future returns and exchanges.
Revenue from support contracts is deferred and taken into income on a
straight-line basis over the term of the contract.
TRANSLATION OF FOREIGN CURRENCIES
The economic activities of Border Network Technologies Europe Limited
("Border Europe"), a self-sustaining subsidiary, are independent of the
company and have a base currency in pounds sterling. Border Europe's
financial statements have been translated using the current rate method.
Other assets and liabilities in foreign currency are translated into
Canadian dollars at year-end exchange rates. Any resulting exchange
adjustments are included in current earnings. Revenue and costs are
translated at the average exchange rate prevailing during the year.
AMORTIZATION
Capital assets are recorded at cost and are amortized on a straight-line
basis over their estimated useful lives as follows:
Computer equipment 3 years
Office equipment 5 years
Leasehold improvements 5 years
INVESTMENT TAX CREDITS
Investment tax credits are accounted for using the cost reduction method.
Under this method, investment tax credits are deducted from the related
asset or expenditure.
INCORPORATION
The company was incorporated under the laws of the Province of Ontario on
January 13, 1994.
2. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
1996 1995
<S> <C> <C>
Shareholder reselling product as a distributor
Sales to a shareholder for the period $ 532,364 $ 427,876
Amount receivable from shareholder, included
in accounts receivable, at end of period 223,528 181,349
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
1995 1994
<S> <C> <C>
Shareholder reselling product as a distributor
Sales to a shareholder for the period $ 1,182,948 $ 116,671
Amount receivable from shareholder, included
in accounts receivable, at end of period 363,534 96,358
Interest paid on loans from related parties for the period 9,467 2,000
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
NET
--------------------------------------
ACCUMULATED JUNE 30 DECEMBER 31
COST AMORTIZATION 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Computer equipment $ 849,025 $ 146,658 $ 702,367 $ 218,756 $ 1,929
Office equipment 167,853 16,924 150,929 50,338 1,936
Leasehold improvements 81,765 81,087 678 16,890 -
------------ ---------- ----------- ---------- -------
$ 1,098,643 $ 244,669 $ 853,974 $ 285,984 $ 3,865
============ ========== =========== ========== =======
</TABLE>
4. ACQUISITION OF BORDER NETWORK TECHNOLOGIES EUROPE LIMITED
The company acquired 31.7% of the common shares of Border Europe on July
1, 1995. From July 1, 1995 to May 22, 1996, Border Europe was under the
joint control of the company and two other companies. On May 22, 1996,
the company acquired the remaining 68.3% of Border Europe in exchange for
cash and 81,818 common shares. The transaction has been accounted for
using the purchase method as follows:
<TABLE>
<S> <C>
Consideration
Cash $ 1,354,786
81,818 common shares 449,999
------------
1,804,785
Fair value of net assets acquired 294,825
------------
Excess of consideration over fair value of net assets acquired $ 1,509,960
============
</TABLE>
5. LINE OF CREDIT
A general security agreement has been registered as collateral for an
authorized line of credit of $400,000.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Bank loan, bearing interest at prime plus 1.5%, due
in equal monthly amounts to October 2000, secured
by capital assets $ - $ 57,911 $ -
Due to individuals related to a shareholder, bearing
interest at 50%, due July 1996 20,000 12,000 10,000
Due to shareholder, bearing interest at prime plus 2%,
repayable commencing January 1995 in monthly
amounts of $4,167 - - 50,000
Due to shareholder, bearing interest at prime plus 2%,
repayable April 1995 - - 30,000
--------- --------- ---------
20,000 69,911 90,000
Less: Current portion (20,000) (23,582) (80,000)
--------- --------- ---------
$ - $ 46,329 $ 10,000
========= ========= =========
</TABLE>
7. SHARE CAPITAL
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Authorized
Unlimited number of common shares
Unlimited number of nonvoting Class A shares
Issued
10,081,818 (1995 - Nil; 1994 - Nil) common shares $ 8,647,154 $ 38,000 $ 38,000
1,820,000 (1995 - Nil; 1994 - Nil) special warrants 9,409,355 - -
-------------- --------- ---------
18,056,509 38,000 38,000
Less: Business combination costs (Note 7(d)) (5,753,969) - -
-------------- --------- ---------
$ 12,302,540 $ 38,000 $ 38,000
============== ========= =========
</TABLE>
(a) In February 1996, the following events occurred:
(i) The 100 issued and outstanding common shares were
subdivided on an 80,000 to 1 basis, thereby creating 8
million issued and outstanding common shares. The
authorized capital was amended to include an unlimited
number of Class A nonvoting shares. Class A shares convert
into common shares upon the earliest of:
* the issuance of a receipt for a final prospectus;
* June 30, 1997; and
* a one-third vote by the holders of the Class A shares.
(ii) The company issued 3.4 million Class A shares for gross
proceeds of $8.5 million.
(iii) The company repurchased for cancellation 1.4 million common
shares for an aggregate price of $3.5 million.
(iv) The company granted stock options to certain full-time
employees and directors to purchase 996,000 common shares
of the company at a price of $2.50 per share.
(v) The company issued 1,820,000 special warrants for gross
proceeds of $10 million. Each special warrant is
exchangeable into one common share (1.1 common shares if a
receipt for a final prospectus is not issued by September
1, 1996), for no additional consideration, and will be
automatically exercised upon the earlier of:
* the issuance of a receipt for a final prospectus; and
* December 31, 1997.
(vi) The company issued 91,000 special warrants to the brokers
of transaction (v) above in exchange for services provided.
(b) In May 1996, the company issued 81,818 common shares in connection
with the acquisition of Border Europe (Note 4).
(c) Effective June 30, 1996, all Class A shares were converted into
common shares.
(d) In connection with the transaction described in Note 11, the
company has incurred costs of approximately $5.8 million.
8. COMMITMENTS
The company has leased premises requiring the following annual rental
payments:
1996 $136,000
1997 181,000
1998 120,000
9. INCOME TAXES
The company has claimed income tax credits in respect of scientific
research and development costs incurred of approximately $40,000. The
benefit of this item has not been reflected in these consolidated
financial statements.
10. ECONOMIC DEPENDENCE
For the six months ended June 30, 1996, approximately 23% (1995 - 43%) of
total sales were made to a related company (Note 2) and Border Europe,
and approximately 76% of total sales were attributable to ten customers.
11. SUBSEQUENT EVENT
The company entered into an acquisition and pre-amalgamation agreement
with Secure Computing Corporation ("Secure") on May 28, 1996. Upon
closing, which occurred in August 1996, the company became a wholly-owned
subsidiary of Secure and changed its name to Secure Computing Canada Ltd.
AUDITORS' REPORT
TO THE SHAREHOLDERS
BORDER NETWORK TECHNOLOGIES INC.
We have audited the balance sheet of Border Network Technologies Inc. as at
December 31, 1994 and the statements of loss and deficit and changes in
financial position for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.
Mississauga, Ontario /s/ McClurkin Ahier Dick & Company
October 2, 1995 CHARTERED ACCOUNTANTS
57 Queen Street South, Mississauga, Ontario L5M 1K5
Tel: (905) 858-4147 Fax: (905) 858-1162
BORDER NETWORK TECHNOLOGIES INC.
BALANCE SHEET
AS AT DECEMBER 31, 1994
1994
---------
ASSETS
CURRENT
Cash $ 18,367
Accounts receivable 140,203
Income taxes 40,000
Prepaid expenses 9,600
---------
208,170
CAPITAL, note 3 3,865
---------
$ 212,035
=========
LIABILITIES
CURRENT
Accounts payable $ 93,681
Deferred revenue 2,720
Current portion of long term debt 80,000
---------
176,401
LONG TERM DEBT, note 4 10,000
---------
186,401
---------
SHARE CAPITAL AND DEFICIT
SHARE CAPITAL, note 5 38,000
DEFICIT (12,366)
---------
25,634
---------
$ 212,035
=========
SEE ACCOMPANYING NOTES
Approved on behalf of the Board:
- --------------------------------- ---------------------------------
Director Director
BORDER NETWORK TECHNOLOGIES INC.
STATEMENT OF LOSS AND DEFICIT
FOR THE PERIOD JANUARY 13, 1994 TO DECEMBER 31, 1994
1994
---------
SALES $ 187,374
COST OF SALES 8,358
---------
GROSS PROFIT 179,016
---------
OTHER INCOME
Warranty 680
---------
179,696
---------
EXPENSES
Advertising and promotion 332
Amortization 555
Automotive 193
Engineering 7,606
Interest and bank charges 70
Interest on long term debt 2,000
Marketing 80,861
Office 18,368
Professional fees 4,950
Salaries 66,802
Software license fees 3,452
Telephone and fax 4,360
Travel 2,513
---------
192,062
---------
LOSS FOR THE PERIOD AND DEFICIT, END OF PERIOD $ (12,366)
=========
BORDER NETWORK TECHNOLOGIES INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE PERIOD FROM JANUARY 13, 1994 TO DECEMBER 31, 1994
1994
---------
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
Operations
Loss for the period $ (12,366)
Item not involving cash
Amortization 555
---------
(11,811)
Changes in non-cash working capital
balances
Accounts receivable (140,203)
Accounts payable 93,681
Income taxes (40,000)
Deferred revenue 2,720
Prepaid expenses (9,600)
---------
(105,213)
---------
INVESTING ACTIVITIES
Purchase of capital assets (4,420)
---------
FINANCING ACTIVITIES
Issuance of common shares 38,000
Long term debt 90,000
---------
128,000
---------
CASH, END OF PERIOD $ 18,367
=========
BORDER NETWORK TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
(a) Revenue Recognition
(i) Sale of Products and Consulting
Revenues from contracting activities involving the design,
manufacture and installation of equipment and software are
recorded on the completed contract method based upon
substantial completion. Any foreseeable losses on contracts
are charged to operations at the time they become evident.
(ii) Warranty
Revenue from warranty contracts is deferred and taken into
income over the term of the warranty.
(b) Capital Assets
Capital assets are recorded at cost. Amortization is provided on the
diminishing balance basis at the following rates:
Computer equipment - 30%
Office furniture and equipment - 20%
(c) Investment Tax Credits
Investment tax credits are accounted for using the cost-reduction
method. Under this method, investment tax credits are deducted from the
related asset or expenditure.
- -------------------------------------------------------------------------------
2. RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
Sales to a shareholder during the period totalled $ 116,671 and at year end the
amount included in accounts receivable was $96,358.
- -------------------------------------------------------------------------------
3. CAPITAL ASSETS 1994
- -------------------------------------------------------------------------------
Accumulated
Cost Amortization
------ ------------
Computer equipment $2,269 $340
Office furniture and equipment 2,151 215
----- ----
$4,420 $555
------ ----
Cost less accumulated
amortization $3,865
======
- -------------------------------------------------------------------------------
4. LONG TERM DEBT 1994
- -------------------------------------------------------------------------------
Due to shareholder, bearing interest at prime plus 2%,
repayable commencing January 31 1995 in monthly
principal amounts of $4,167 $50,000
Due to shareholder, bearing interest at prime plus 2%,
repayable April 1, 1995 30,000
Due to individuals related to a shareholder, bearing interest
at 50%, due July 1, 1996 10,000
-------
90,000
less current portion 80,000
-------
$10,000
=======
- -------------------------------------------------------------------------------
5. SHARE CAPITAL 1994
- -------------------------------------------------------------------------------
Authorized
Unlimited number common shares
Issued
100 common shares $ 38,000
========
- -------------------------------------------------------------------------------
6. INCOME TAXES
- -------------------------------------------------------------------------------
The Company has incurred tax losses of $52,000 expiring 2004, the benefit of
which has not been reflected in these financial statements.
- -------------------------------------------------------------------------------
7. COMMITMENTS
- -------------------------------------------------------------------------------
Subsequent to the year end, the Company has entered into a premises lease at an
annual rental as follows -
September 1, 1995 to August 31, 1996 - $ 95,124
September 1, 1996 to August 31, 1997 - 110,978
September 1, 1997 to August 31, 1998 - 110,978
Subsequent to the year end, the Company has entered into a phone system lease
commencing June, 1995 expiring January, 1999 in the monthly amount of $608.
<TABLE>
<CAPTION>
SECURE COMPUTING CORPORATION
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS, UNAUDITED)
SECURE
COMPUTING BORDER NETWORK ENIGMA PRO FORMA PRO FORMA
CORPORATION TECHNOLOGIES LOGIC ADJUSTMENTS COMBINED
--------------- ---------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $27,542 $6,838 $ 15 $34,395
Accounts receivable 3,614 2,287 978 6,879
Other current assets 1,959 265 304 2,528
--------------- ---------------- ------------ --------------- ----------------
33,115 9,390 1,297 -- 43,802
Property and equipment-net 3,884 628 296 -- 4,808
Other assets 970 1,110 47 -- 2,127
--------------- ---------------- ------------ --------------- ----------------
Total assets $37,969 $11,128 $1,640 -- $50,737
=============== ================ ============ =============== ================
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and other
accrued liabilities $3,179 $ 438 $ 964 $4,581
Accrued acquisition costs 3,084 4,231 1,795 9,110
Deferred revenue 798 169 409 1,376
Current portion of long-term debt -- 15 2,377 2,392
--------------- ---------------- ------------ --------------- ----------------
7,061 4,853 5,545 -- 17,459
--------------- ---------------- ------------ --------------- ----------------
Long-term debt -- -- -- -- --
Stockholders' equity (deficit):
Common stock 68 9,046 183 (9,158) 139
Additional paid-in-capital 45,549 -- 7,323 10,489 63,361
Accumulated deficit (14,709) (2,771) (11,411) (1,331) (30,222)
--------------- ---------------- ------------ --------------- ----------------
30,908 6,275 (3,905) -- 33,278
--------------- ---------------- ------------ --------------- ----------------
Total liabilities and equity $37,969 $11,128 $1,640 -- $50,737
=============== ================ ============ =============== ================
See notes to pro forma combined financial information.
</TABLE>
<TABLE>
<CAPTION>
SECURE COMPUTING CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
SECURE
COMPUTING BORDER NETWORK ENIGMA PRO FORMA PRO FORMA
CORPORATION TECHNOLOGIES LOGIC ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Products and services $4,039 $4,506 $2,478 $11,023
Government contracts 9,399 -- -- 9,399
---------------- ---------------- ------------ ---------------- -------------
13,438 4,506 2,478 -- 20,422
Cost of revenue 8,302 522 660 -- 9,484
---------------- ---------------- ------------ ---------------- -------------
Gross profit 5,136 3,984 1,818 -- 10,938
Operating Expenses:
Selling and marketing 3,334 3,106 850 7,290
Research and development 3,464 676 580 4,720
General and administrative 1,564 589 1,054 3,207
Acquisition costs 6,728 -- 2,110 4,231 13,069
---------------- ---------------- ------------ ---------------- -------------
15,090 4,371 4,594 4,231 28,286
---------------- ---------------- ------------ ---------------- -------------
Operating loss (9,954) (387) (2,776) (4,231) (17,348)
Net interest income (expense) 765 144 (81) -- 828
---------------- ---------------- ------------ ---------------- -------------
Loss before income taxes (9,189) (243) (2,857) (4,231) (16,520)
Income tax expense -- -- -- -- --
---------------- ---------------- ------------ ---------------- -------------
Net loss ($9,189) ($243) ($2,857) ($4,231) ($16,520)
================ ================ ============ ================ =============
Loss per share ($1.22)
=============
Weighted average shares outstanding 13,503
=============
</TABLE>
See notes to pro forma combined financial information.
<TABLE>
<CAPTION>
SECURE COMPUTING CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
SECURE
COMPUTING BORDER NETWORK ENIGMA PRO FORMA PRO FORMA
CORPORATION TECHNOLOGIES LOGIC ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Products and services $1,900 $961 $2,302 $5,163
Government contracts 6,647 -- -- 6,647
---------------- ---------------- ------------ ---------------- -------------
8,547 961 2,302 -- 11,810
Cost of revenue 5,705 61 512 -- 6,278
---------------- ---------------- ------------ ---------------- -------------
Gross profit 2,842 900 1,790 -- 5,532
Operating Expenses:
Selling and marketing 1,014 348 465 1,827
Research and development 1,987 197 284 2,468
General and administrative 851 142 435 1,428
---------------- ---------------- ------------ ---------------- -------------
3,852 687 1,184 -- 5,723
---------------- ---------------- ------------ ---------------- -------------
Operating income (loss) (1,010) 213 606 -- (191)
Net interest income (expense) (15) -- (71) -- (86)
---------------- ---------------- ------------ ---------------- -------------
Income (loss) before income taxes (1,025) 213 535 -- (277)
Income tax expense (benefit) -- -- -- -- --
---------------- ---------------- ------------ ---------------- -------------
Net income (loss) ($1,025) $213 $535 -- ($277)
================ ================ ============ ================ =============
Loss per share ($0.03)
=============
Weighted average shares outstanding 9,782
=============
</TABLE>
See notes to pro forma combined financial information.
SECURE COMPUTING CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
JUNE 30, 1996
1. STOCKHOLDERS' EQUITY
Common stock and additional paid-in-capital balances have been adjusted to
reflect the redemption of all outstanding shares of Border and Enigma as of
June 30, 1996 and the related issuance of approximately 7,060,000 new shares
of Secure common stock with a par value of $.01 per share.
Common stock and accumulated deficit balances have been adjusted to reflect
the reclassification of excess of share repurchase price over the carrying
value related to Border's repurchase of common stock in the first quarter of
1996.
2. REPORTING CURRENCIES
The pro forma financial information for Border is presented in U.S. dollars
and has been translated from Canadian dollars at an exchange rate of $1.00
to 1.36 $Cdn.
3. ACQUISITION COSTS
Acquisition costs have been adjusted by $4,231,000 to reflect the U.S.
accounting required treatment of recording these costs on the statement of
operations as opposed to the Canadian treatment of directly recording such
costs against stockholders' equity.
4. LOSS PER SHARE
The loss per share six-months ended June 30, 1995 is computed using the
weighted average number of common stock outstanding during the periods after
giving effect for additional shares as calculated under the rules of the
Securities and Exchange Commission Staff Accounting Bulletin No. 83 and for
the conversion of all preferred stock as of the beginning of the period. The
loss per share for the six-months ended June 30, 1996 is computed using the
weighted average number of common stock outstanding during the period and
does not include common stock equivalents as they would be anti-dilutive.
FOR IMMEDIATE RELEASE
SECURE COMPUTING NAMES INDUSTRY VETERAN WAXMAN AS
NEW PRESIDENT, CEO
ST. PAUL, MINN., OCT. 28, 1996--Secure Computing Corporation (Nasdaq: SCUR), a
leading provider of total computer network security solutions, today named
Jeffrey H. Waxman to the positions of president and chief executive officer.
Kermit M. Beseke, chairman and founder of Secure, made the announcement.
"We are extremely pleased to announce that Jeff Waxman is joining Secure. He is
an outstanding executive and brings 25 years of successful experience from
Novell, ServiceSoft, Uniplex and Xerox," Beseke said. Waxman starts on November
4, 1996, and will report to the Secure Board of Directors.
As president and CEO, Waxman will be responsible for all of Secure's businesses,
business unit integration, sales, marketing, operations and financial
performance.
While at Novell, Waxman served as Executive Vice President and General Manager
of the Business Applications Division, and worked with the board of directors to
secure a sale of part of the WordPerfect assets to Corel, while retaining
GroupWise (the fastest growing segment of the Groupware market) and several
other technologies key to Novell. He is credited for finding a win/win situation
for Novell and Corel while faced with an almost un-doable task.
"The Secure Computing organization holds great potential, with quality products
and people. Jeff Waxman has the leadership and experience to guide them through
the challenges they face, and he should prove to be successful," according to
Robert J. Frankenberg, former CEO of Novell.
As president and CEO of ServiceSoft, Waxman improved the profitability and
growth of that developer of diagnostic software. He also headed Uniplex, Inc.,
leading the international developer of integrated office applications to a 56
percent market share; and was vice president of sales and marketing for Computer
Consoles, Inc. He started his career with Xerox in 1968 and before leaving there
in 1983, he was operations manager for Federal sales worldwide, a $500 million
business.
Beseke, 53, joined Secure as president and CEO in 1990 to grow what was formerly
the technology center of Honeywell. He was elected chairman in 1996, and is
widely recognized for establishing Secure's vision of making the Internet and
corporate Intranets safe places to conduct business.
In November 1995, Beseke took Secure public, and this year he guided the company
through the strategic acquisitions of Webster Network Strategies, Border Network
Technologies and Enigma Logic, enabling Secure to fulfill the network security
needs of global enterprises, from the smallest to the largest in size.
Beseke will continue as board chairman and will lead Secure's technology vision
and creativity.
Headquartered in Roseville, Minn., Secure Computing is the second largest
network security company in the world. Secure Computing's product suites and
applications address every aspect of enterprise network security including
firewalls, web filtering, identification, authentication, authorization,
accounting and encryption technologies. The only network security company that
provides end-to-end network solutions encompassing all universal enterprise
security standards, Secure Computing has more than 3,000 customers worldwide,
ranging from small companies to Fortune 500 companies to government agencies.
For more information, please visit our Web site at http://www.sctc.com.
Contact: Tim McGurran/Aaron Tachibana Ann Barkelew/Ken Kadet
Secure Computing Corp. Fleishman-Hillard, Inc.
612-628-2700/510-827-5707 612-337-0354
[email protected] [email protected]
[email protected] [email protected]
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