UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 1998
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 0-27074
SECURE COMPUTING CORPORATION
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1637226
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
One Almaden Blvd., Suite 400
San Jose, CA 95113
(Address of principal executive offices) (Zip code)
(612) 628-2700
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
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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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date: Common Stock, $.01 par
value - 16,326,383 issued and outstanding as of November 3, 1998, which number
includes 743,636 Exchangeable Shares that have the same voting and other rights
as Common Stock and are immediately exercisable for shares of Common Stock.
<PAGE>
SECURE COMPUTING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets 3
(Unaudited) as of September 30, 1998 and
December 31, 1997
Condensed Consolidated Statements of 4
Operations (Unaudited) for the three
months ended September, 1998
and 1997 and the nine months ended
September 30, 1998 and 1997.
Condensed Consolidated Statements of 5
Cash Flows (Unaudited) for the nine
months ended September 30, 1998
and 1997
Notes to the Condensed Consolidated Financial 6 - 7
Statements (Unaudited)
Item 2. Management's Discussion and Analysis 8 - 9
of Financial Condition and Results of
Operations.
PART II. OTHER INFORMATION 10 - 11
-----------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
----------
2
<PAGE>
PART 1. FINANCIAL INFORMATION
SECURE COMPUTING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,672 $ 4,880
Accounts receivable, net 19,113 13,553
Deferred income taxes 2,938 2,113
Inventory 1,531 1,123
Other current assets 1,190 1,760
----------- -----------
Total current assets 42,444 23,429
PROPERTY AND EQUIPMENT
Equipment 7,065 8,008
Furniture & fixtures 2,049 2,595
Leasehold improvements 947 1,301
----------- -----------
10,061 11,904
Less accumulated depreciation and amortization (6,233) (6,286)
----------- -----------
3,828 5,618
OTHER ASSETS 3,301 2,007
----------- -----------
$ 49,573 $ 31,054
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 4,050 2,175
Accrued payroll liability 2,611 1,170
Other accrued liabilities 2,264 1,094
Deferred revenue 2,410 1,815
----------- -----------
Total current liabilities $ 11,335 $ 6,254
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share: -- --
Issued and outstanding shares---September 30, 1998 --
16,000 and December 31, 1997 -- 0
Common Stock, par value $.01 per share:
Issued and outstanding shares---September 30, 1998 --
16,250,655 and December 31, 1997 -- 15,762,820 163 158
Additional paid-in capital 85,884 68,131
Accumulated deficit (47,671) (43,378)
Foreign currency translation (138) (111)
----------- -----------
Total stockholders' equity 38,238 24,800
----------- -----------
$ 49,573 $ 31,054
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SECURE COMPUTING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
----------------------- ------------------------
<S> <C> <C> <C> <C>
Products and services revenue $ 13,808 $ 9,188 $ 35,828 $ 22,805
Government contracts revenue 2,549 3,049 7,829 11,375
---------- ---------- ---------- ----------
16,357 12,237 43,657 34,180
Cost of revenue 5,783 4,502 15,209 14,423
---------- ---------- ---------- ----------
Gross profit 10,574 7,735 28,448 19,757
Operating expenses:
Selling and marketing 5,604 5,308 17,131 14,762
Research and development 1,885 2,052 5,625 6,930
General and administrative 1,418 890 3,295 3,049
Restructure costs -- -- 7,800 --
---------- ---------- ---------- ----------
8,907 8,250 33,851 24,741
---------- ---------- ---------- ----------
Operating income/(loss) 1,667 (515) (5,403) (4,984)
Net interest income 228 127 285 429
---------- ---------- ---------- ----------
Income/(loss) before income taxes 1,895 (388) (5,118) (4,555)
Income taxes 208 -- 825 --
---------- ---------- ---------- ----------
Net income/(loss) $ 2,103 $ (388) $ (4,293) $ (4,555)
========== ========== ========== ==========
Basic earnings/(loss) per share $ 0.13 $ (0.02) $ (0.27) $ (0.29)
========== ========== ========== ==========
Weighted average shares outstanding 16,233 15,619 16,029 15,494
========== ========== ========== ==========
Diluted earnings/(loss) per share $ 0.11 $ (0.02) $ (0.27) $ (0.29)
========== ========== ========== ==========
Weighted average common shares
and equivalents outstanding 19,137 15,619 16,029 15,494
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SECURE COMPUTING CORPORATION
CONDENSED CONSOLDIATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
------------------------------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (2,381) $ (8,349)
INVESTING ACTIVITIES
Proceeds from sales of investments -- 5,935
Purchase of property and equipment (1,623) (1,714)
Increase in intangibles and other assets (1,665) (629)
----------- -----------
Net cash provided by (used in) investing activities (3,288) 3,592
FINANCING ACTIVITIES
Proceeds from issuance of Preferred Stock 15,432 --
Proceeds from issuance of Common Stock 2,326 1,316
Proceeds from sales-lease-back transaction 729 --
----------- -----------
Net cash provided by investing activities 18,487 1,316
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (26) --
Increase (decrease) in cash and cash equivalents 12,792 (3,441)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 4,880 12,130
----------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 17,672 $ 8,689
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SECURE COMPUTING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by Secure Computing Corporation (the "Company") without audit
and reflect all adjustments (consisting only of normal and recurring
adjustments and accruals) which are, in the opinion of management,
necessary to present a fair statement of the results for the interim
periods presented. The statements have been prepared in accordance with
the regulations of the Securities and Exchange Commission, but omit
certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full
fiscal year. These condensed financial statements should be read in
conjunction with the Consolidated Financial Statements and footnotes
thereto included in the Company's Annual Report on form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All inter-company balances and
transactions have been eliminated in consolidation. The financial
statements for all periods presented have been restated to reflect the
pooling of interests of the Company and its acquired subsidiaries
Secure Computing Canada Ltd. (formerly Border Network Technologies
Inc.) and Enigma Logic, Inc.
3. NET EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which was adopted on December
31, 1997. All earnings (loss) per share amounts for all periods have
been presented, and where necessary, restated to conform to the
Statement 128 requirements. Basic earnings per share is computed on the
basis of the average number of common shares outstanding. Diluted loss
per share does not include the effect of outstanding stock options and
warrants in a loss period as they are anti-dilutive.
4. RESTRUCTURING
In the first quarter of 1998, the Company announced plans to implement
a restructuring plan designed to facilitate further integration of
acquired businesses, and recorded a pre-tax expense of $7.8 million to
account for these actions, which include costs of lease terminations,
streamlining its product offerings and reducing the Company's cost
structure to increase operational efficiency. The plan resulted in the
separation of some employees worldwide and the closing of certain
facilities.
5. SALE OF CONVERTIBLE PREFERRED STOCK
In June 1998, the Company sold 16,000 shares of Series C Convertible
Preferred Stock (the "Preferred Stock") resulting in net proceeds to
the Company of approximately $15,432,000, net of $568,000 in
transaction costs. In connection with the sale of the Preferred Stock,
the Company also issued warrants to purchase 174,464 shares of the
Company's Common Stock. The warrants may be exercised on the earlier of
June 29, 2001 or a merger involving the Company in which the Company is
not the surviving entity. The exercise price of the warrants is 130% of
the average closing bid price of the Company's Common Stock on the 15
trading days immediately prior to June 30, 1998. The Preferred Stock is
convertible into the number of shares of Common Stock which may be
purchased for the stated value of $1,000 per share of Preferred Stock
at a per share price equal to the lower of a) the average closing bid
price of the Common Stock for the five trading days immediately prior
to the date of conversion, b) the average closing bid price of the
Common Stock for the 15 trading days immediately prior to the date of
conversion, and c) 103% of the average closing bid price of the Common
Stock for the 15 trading days immediately prior to the day of issuance
of the Preferred Stock.
6
<PAGE>
6. SIGNIFICANT ACCOUNTING POLICIES
In November 1997, the Financial Accounting Standards Board issued SOP
97-2 "Software Revenue Recognition" to replace SOP-91-1. The Company
adopted SOP 97-2 in the first quarter of 1998 and it did not materially
impact revenue recognition for this time period.
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income or shareholders equity. Statement 130 requires foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130. During
the third quarter of 1998 and 1997, total comprehensive income amounted
to $2,080,000 and ($388,000) respectively.
7
<PAGE>
SECURE COMPUTING CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
REVENUE. The Company's revenue increased 33.7 percent to $16,357,000 for the
third quarter of 1998 up from $12,237,000 in the same period of 1997. The
increase resulted from higher products and services revenue. Products and
services revenue was $13,808,000 for the quarter, an increase of 50.3 percent
over 1997, and reflects the Company's increased marketing and sales effort in
the commercial market. Government contracts revenue was $2,549,000 for the
quarter, a decrease of 16.4 percent from the third quarter of 1997, which
reflects the companies continued planned shift toward higher margin products.
The Company expects quarterly revenue from government contracts for the rest of
1998 to decline slightly in comparison to the third quarter of 1998.
GROSS PROFIT. Gross profit as a percentage of revenue increased from 63.2
percent in the third quarter of 1997 to 64.6 percent in 1998. The increase
resulted mainly from software only sales within products and services revenue,
which carry higher margins than sales of systems bundled with hardware. The
increased gross margin was also a result of a decrease in lower margin
government contract revenue. The Company believes, with the leveling in
government contracts revenue, that margins for the remainder of the year should
trend slightly higher.
SELLING AND MARKETING. Selling and marketing expense increased 5.6 percent to
$5,604,000 in the first quarter of 1998 up from $5,308,000 in the same period of
1997. As a percentage of revenue, selling and marketing expense was 34.3 percent
for the quarter compared to 43.4 percent in the same period of 1997. The
increase resulted primarily from expenses for a stronger sales and marketing
presence needed due to competitive pressures, increased international activities
and personnel additions made to position the Company for future growth. The
Company expects selling and marketing expenses for the rest of 1998 will remain
at levels comparable to the third quarter of 1998.
RESEARCH AND DEVELOPMENT. Research and development expense decreased by 8.1
percent to $1,885,000 in the third quarter of 1998 down from $2,052,000 in the
same period of 1997. As a percentage of revenue, research and development
expense was 11.5 percent for the quarter compared to 16.8 percent in the same
period of 1997. The decrease resulted primarily from savings achieved by
integrating duplicative development efforts.
GENERAL AND ADMINISTRATIVE. As a percentage of revenue, general and
administrative expenses were 8.7 percent for the third quarter of 1998 compared
to 7.3 percent for the third quarter of 1997. The Company expects the quarterly
rate of general and administrative expenses for the rest of 1998 to remain at
levels comparable to those of the third quarter of 1998.
RESTRUCTURE COSTS. In the first quarter of 1998, the Company announced and began
to implement a restructuring plan designed to facilitate further integration of
acquired businesses, and recorded a pre-tax expense of $7.8 million to account
for these actions, which include streamlining its product offerings and reducing
the unit's cost structure and the closure of certain facilities. The Company
expects that approximately $4.2 million of the non-recurring charges require
expenditures of cash. A significant portion of the restructuring activities have
been completed. The largest components of the charge will be lease termination
costs of approximately $2.5 million and the write off of related assets of $2.1
million.
NET INTEREST INCOME. The difference in net interest income between the periods
reflects higher average cash and investment balances in 1998 as compared to
1997.
INCOME TAXES. The Company recognized an income tax benefit in the third quarter
of 1998 of $208,000 compared to no income tax in the same period of 1997.
Management believes it is more likely than not that deferred tax assets, which
total $3.2 million at September 30, 1998, will be realized. The computation of
the Company's deferred tax assets and valuation allowance are based in part on
taxable income expected to be earned on government contracts and projected
interest income. The amount of the deferred tax assets considered realizable
could be reduced in the near term if estimates of future taxable income are
reduced.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by $12,792,000 from December
31, 1997 to September 30, 1998. The increase resulted primarily from the gross
proceeds of a $16,000,000 Preferred Stock offering offset by the use of cash to
fund the restructure, operations and purchase capital equipment. As of September
30, 1998, the Company had working capital of $31,109,000. The Company
anticipates using available cash to fund growth in operations, invest in capital
equipment, acquire businesses, license technology or products related to the
Company's line of business, and provide for restructuring activities.
Capital additions in the third quarter of 1998 were $426,000 and were primarily
made up of computer equipment, office furniture and leasehold improvements. The
Company expects to invest approximately $400,000 additional throughout the
remainder of 1998 mainly for computer equipment and facilities and business
systems upgrades.
At its current level of operations, the Company believes that its existing cash
and cash equivalents are sufficient to meet the Company's current working
capital and capital expenditure requirements through at least the next 12
months.
FORWARD LOOKING STATEMENTS
Certain statements made above, which are summarized below, are forward-looking
statements that involve risks and uncertainties, and actual results may be
materially different. Factors that could cause actual results to differ include
those identified below:
* THE COMPANY EXPECTS THAT THE PERCENTAGE OF ITS REVENUES DERIVED FROM
PRODUCTS AND RELATED SERVICES WILL INCREASE IN FUTURE YEARS, AS THE COMPANY
INCREASINGLY FOCUSES ON PRODUCT SALES. Meeting this expectation depends
upon the Company's ability to achieve a higher level of products and
services revenue, which may not occur for a variety of reasons, including
general market conditions for the Company's products and services, delays
or difficulties in the development of new products inability to obtain
market acceptance of new products offered by the Company, and introduction
of products by competitors.
* DURING 1998, THE COMPANY PLANS TO CONTINUE ITS RESEARCH AND DEVELOPMENT,
GENERAL AND ADMINISTRATIVE, AND SALES AND MARKETING EXPENDITURES AT CURRENT
LEVELS. This expectation depends on the Company maintaining the current
anticipated level of product development, which may not occur due to
unexpected increases in such costs or because of a need to accelerate or
begin new product development and also may be affected by current plans for
a full scale product marketing and branding campaign being curtailed,
delayed or decreased products and services revenue resulting in lower
selling expense. Fluctuations in revenue from quarter to quarter will
likely have an increasingly significant impact on the Company's results of
operations. Additionally, meeting this expectation depends upon the
Company's ability to control costs and achieve a higher level of revenue,
which may not occur for a variety of reasons, including general market
conditions for the Company's products and services, development and
acceptance of new products offered by the Company, and introduction of
products by competitors.
* MANAGEMENT BELIEVES IT IS MORE LIKELY THAN NOT THAT DEFERRED TAX ASSETS,
WHICH TOTAL $3.2 MILLION AT SEPTEMBER 30, 1998, WILL BE REALIZED. This
expectation depends mainly on the Company maintaining, at current levels,
its existing government contract business. If these contracts were lost or
adjusted downward, deferred tax assets would be expected to be written down
with a corresponding charge to income tax expense recorded.
* AT ITS CURRENT LEVEL OF OPERATIONS, THE COMPANY BELIEVES THAT ITS EXISTING
CASH AND CASH EQUIVALENTS ARE SUFFICIENT TO MEET THE COMPANY'S CURRENT
WORKING CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS THROUGH AT LEAST THE
NEXT 12 MONTHS. The Company's ability to generate revenue as currently
expected, unexpected expenses and the need for additional funds to react to
changes in the marketplace, including unexpected increases in personnel
costs and selling and marketing expenses or currently unplanned
acquisitions may impact whether the Company has sufficient cash resources
to fund its product development and marketing and sales plans for the
remainder of 1998 and early 1999.
* THE COMPANY EXPECTS QUARTERLY REVENUE FROM GOVERNMENT CONTRACTS FOR THE
REST OF 1998 TO REMAIN COMPARABLE TO THE THIRD QUARTER OF 1998. THE COMPANY
BELIEVES IN THE LEVELING IN GOVERNMENT CONTRACTS REVENUE, THAT THE MARGINS
FOR THE REMAINDER OF THE YEAR SHOULD TEND SLIGHTLY HIGHER. If the
government contracts were lost or adjusted downward, the quarterly revenue
from such contracts would decline, which decline could have a material
adverse effect on the Company's business, financial condition or results of
operations.
9
<PAGE>
SECURE COMPUTING CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 27, 1998, the Delaware Chancery Court, in CARMODY V. TOLL
BROTHERS, INC., Civil Action No. 15983, 1998 WL 418896 (Del. Ch. Ct.
Jul. 27, 1998), held that the "dead hand" provision of the Toll
Brothers, Inc. shareholder rights plan violated Delaware law. On August
26, 1998, a purported class action complaint was filed in the Delaware
Chancery Court in and for New Castle County by Rosalyn Golaine against
the Company, certain of its present officers, present directors, and
former directors (the "Golaine Action"). The complaint in the Golaine
Action alleges that the provisions of the July 24, 1997 shareholder
rights plan (the "Plan") permitting only those directors who voted for
the Plan (or their designated successors) to redeem the Rights granted
therein, violates Delaware law. The action seeks injunctive relief and
damages of an unspecified amount. A number of such actions have been
filed against other companies in response to the CARMODY V. TOLL
BROTHERS, INC. decision.
No trial in this action is scheduled and no discovery has occurred. The
Company has amended the Plan which will render moot the injunctive
relief requested, and believes it has meritorious defenses to the
damages allegations. The Company intends to defend this action
vigorously. The Company also is a defendant in various lawsuits,
contractual disputes, and other legal claims, the results of which are
not presently determinable. In the opinion of management, resolution of
these legal actions is not expected to have a material adverse effect
on the financial position of the Company. However, depending on the
amount and timing, an unfavorable resolution of any of these matters
could materially affect the Company's future results of operations or
cash flows in a particular period.
ITEM 2. CHANGES IN SECURITIES
On June 30, 1998, the Company sold 16,000 shares of newly issued Series
C Convertible Preferred Stock (the "Series C Preferred") and warrants
to acquire 174,464 shares of Common Stock to two investors affiliated
with Credit Suisse First Boston and Castle Creek Partners. The offer
and sale of these securities were completed pursuant to the exemption
provided by Regulation D under the Securities Act of 1933.
The Series C Preferred is convertible at the election of the holder
into shares of Common Stock beginning six months after issuance, and at
any time prior to six months upon the occurrence of certain events,
including a merger and similar transactions which would result in a
change of control of the Company. The Series C Preferred is senior to
the Company's Series A and Series B Convertible Preferred Stock and to
the Company's Common Stock in respect of the right to receive dividend
payments and liquidation preferences. The issuance of the Series C
Preferred may result in dilution to existing stockholders. The
foregoing summary of the principal rights and preferences of the Series
C Preferred is a general description only and is qualified by the
detailed terms and conditions of the Certificate of Designation of
Series C Preferred Stock. A more comprehensive description of the
rights and preferences of the Series C Preferred is contained in the
Company's Report on Form 8-K filed with the Commission on July 15,
1998. A copy of the Certificate of Designation of Series C Preferred
Stock is filed as an exhibit to the Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were approved at the Company's Annual Meeting of
Stockholders held on May 14, 1998 and reconvened May 27, 1998.
a) The following directors were elected:
Directors For Against
-----------------------------------------------------------------------
Betsy S. Atkins 8,394,030 67,179
Steven M. Puricelli 8,394,030 67,179
b) Amendment of the 1995 Omnibus Stock Plan
Number of Common Shares Voted
1995 Stock Plan For Against Abstain
-----------------------------------------------------------------------
Amendment to 1995 Stock Plan 5,786,464 2,668,465 27,494
c) The stockholders also approved the following proposal:
Number of Common Shares Voted
Independent Accountants For Against Abstain
-----------------------------------------------------------------------
Ratification of Ernst & Young LLP
as independent accountants 8,447,605 28,268 6,550
ITEM 5. OTHER INFORMATION
8-K dated July 15, 1998, as described in item 2.
YEAR 2000 DISCLOSURE
The Company has completed testing of its products and systems and
believes that its products and systems sold after December 31, 1998
will be Year 2000 compliant. The Company has also verified compliance
of third party computer software and hardware utilized by the Company.
The Company has not verified Year 2000 compliance of certain
semiconductors embedded in other third-party equipment used by the
Company, nor has the Company established the costs and risks associated
with such third party equipment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998:
27.1 Financial Data Schedule
11
<PAGE>
SECURE COMPUTING CORPORATION
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 3, 1998 By: \s\ Timothy P. McGurran
--------------------------
Timothy P. McGurran,
Senior Vice President of Operations
and Chief Financial Officer
(Duly authorized officer and
Principal Financial Officer)
12
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
27.1 Financial Data Schedule FILED ELECTRONICALLY
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 17,672,000
<SECURITIES> 0
<RECEIVABLES> 19,860,000
<ALLOWANCES> 747,000
<INVENTORY> 1,531,000
<CURRENT-ASSETS> 42,444,000
<PP&E> 10,061,000
<DEPRECIATION> 6,233,000
<TOTAL-ASSETS> 49,573,000
<CURRENT-LIABILITIES> 11,335,000
<BONDS> 00
00
00
<COMMON> 163,000
<OTHER-SE> 85,884,000
<TOTAL-LIABILITY-AND-EQUITY> 49,573,000
<SALES> 43,657,000
<TOTAL-REVENUES> 43,657,000
<CGS> 15,209,000
<TOTAL-COSTS> 15,209,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (285,000)
<INCOME-PRETAX> (5,118,000)
<INCOME-TAX> (825,000)
<INCOME-CONTINUING> (4,293,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,293,000)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
