AXENT TECHNOLOGIES INC, 10-K405, 1998-03-31

AXENT TECHNOLOGIES INC
10-K405, 1998-03-31
PREPACKAGED SOFTWARE

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(MARK ONE)
X Annual Report Pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
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: 0-28100

AXENT TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)

DELAWARE 87-0393420
(State or other jurisdiction of (IRS employer
incorporation or organization) identification No.)

2400 RESEARCH BOULEVARD, SUITE 200 20850
ROCKVILLE, MARYLAND (Zip Code)
(Address of principal executive office)

Registrant's telephone number, including area code: (301) 258-5043

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
----------------------- --------------------
Common Stock, par value Nasdaq National Market
$0.02 per share

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 XX No
-- --

Documents incorporated by the reference: Specified portions of the Definitive
Proxy Statement to be filed with the Commission pursuant to Regulation 14A in
connection with the 1998 Annual Meeting are incorporated herein by reference
into Part III of this Report. Such proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
Registrant's fiscal year ended December 31, 1997.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [X].

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 25, 1998 was approximately $635,071,000.

The number of shares of the Registrant's Common Stock outstanding as of March
25, 1998 was 24,066,801.
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AXENT TECHNOLOGIES, INC.

FORM 10-K

TABLE OF CONTENTS

Item 1. Business............................................................................. 1
Overview
Industry Background
AXENT's Information Security Solution
Products and Services
Sales and Marketing
Customers
Product Development
Competition
Intellectual Property Rights
Employees
Item 2. Properties........................................................................... 11
Item 3. Legal Proceedings.................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.................................. 12

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............ 12
Item 6. Selected Consolidated Financial Data................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................ 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 28
Item 8. Financial Statements and Supplementary Data.......................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 28

PART III

Item 10. Directors and Executive Officers of the Registrant................................... 28
Item 11. Executive Compensation............................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 28
Item 13. Certain Relationships and Related Transactions....................................... 28

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 28

Signatures........................................................................... 50
</TABLE>
<PAGE>

PART I

FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY.
FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTION OF AXENT'S PROSPECTUS/JOINT PROXY
STATEMENT DATED JANUARY 2, 1998 ENTITLED "RISK FACTORS" AND THE SECTION OF THIS
FORM 10-K ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE."
READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER DOCUMENTS AXENT
FILED FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING
THE QUARTERLY REPORTS ON FORM 10-Q FILED BY AXENT IN 1997 AND TO BE FILED IN
1998. READERS ARE CAUTIONED NOT TO RELY ON FORWARD-LOOKING STATEMENTS. AXENT HAS
NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO FORWARD-LOOKING STATEMENTS OR
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF FILING OF THIS FORM 10-K.

ITEM 1. BUSINESS.

Overview

AXENT Technologies, Inc. ("AXENT") is a leading developer and provider
of information security solutions designed to manage security policies and
protect the integrity of enterprise computer networks, including Internet-based
systems, internal networks, and individual servers, workstations and desktop and
laptop computers. AXENT emphasizes its ability to address more of the
information security issues facing organizations than any other single vendor as
well as the functional robustness and multiple platform coverage of its
solutions. When combined together, AXENT's products provide a more
comprehensive approach to minimizing the risks associated with the inherent
vulnerabilities of today's computing environments that provide inviting
opportunities for computer hackers, curious or disgruntled employees,
contractors and competitors to compromise or destroy sensitive information
within the systems or to otherwise disrupt the normal operation of the systems.

AXENT's products provide security assessment and policy management,
intrusion detection, data confidentiality, system and network access control,
user administration, activity monitoring, secure authentication solutions for
remote network access and virtual private networking capabilities for remote
users and remote sites. These products allow customers to create trusted systems
and networks that are protected from access, theft and damage by unauthorized
users from untrusted systems or networks such as the Internet and also enable
the creation of virtual private networks ("VPNs") through the encrypted
transmission of information across untrusted networks.

AXENT expects to continue expanding its product offerings through
acquisition, internal development and marketing arrangements to maintain its
leadership in the field of information security solutions for enterprise
computing environments. While its security management products have been
internally developed, AXENT completed acquisitions of AssureNet Pathways, Inc.
("AssureNet") in March 1997 and Raptor Systems, Inc. ("Raptor") in February
1998, which added secure authentication solutions for remote network access and
virtual private networking capabilities, network security solutions and secure
intranet and Web-access products.

INDUSTRY BACKGROUND

As organizations implement distributed enterprise information systems,
mission-critical applications and data, such as payroll, financial reporting,
order processing, billing, manufacturing design, funds transfer, customer and
supplier records, and medical records, are increasingly being deployed on
networks of personal computers, workstations and servers. The accessibility and
relative anonymity of users on these systems make the enterprise
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information systems and the integrity of the information that is stored on these
systems inherently vulnerable to compromise or destruction. In addition,
enterprise information systems are complex and involve a variety of hardware,
operating systems, networking protocols, and applications supplied by a
multitude of vendors, making these systems difficult to manage, monitor and
protect. Further, each application, operating system and device connected to
an enterprise system has its own method of addressing security, creating
inconsistencies throughout the system and adding different types of
vulnerabilities that can be exploited by an unauthorized user.

The demand for information security has increased with the proliferation of
enterprise information systems and the need for connectivity beyond local area
networks ("LANs") to enterprise-wide networks spanning multiple LANs and wide
area networks ("WANs"), including public networks such as the Internet. As
businesses empower employees with internal information on the desktop and run
critical enterprise applications across geographically dispersed facilities,
critical information may be scattered across thousands of file servers and
personal computers. When customers, remote employees, suppliers and other
business partners link inexpensively into enterprise information systems, the
number of points of access to critical information increase significantly. In
addition, data is communicated over the Internet or other insecure networks
that are vulnerable to interception of communications and increase accessibility
by hackers. The increased number of users sharing computing resources and
communicating over LANs, WANs and public networks such as the Internet poses
significant access and security issues. Those issues are difficult to address
due to breadth and ease of access, the use of disparate computing hardware,
operating systems and communications protocols and insecure communications
across the Internet, intranets, extranets and many internal networks. In
addition, an enterprise security solution must provide a central point of
control so that a security administrator for the enterprise can configure,
monitor and manage all security issues throughout the enterprise uniformly and
efficiently.

Although enterprise information systems have many business advantages, the
conflict between the benefit of easy access to information and the need to
protect and secure sensitive information requires information security solutions
specifically designed to function in large-scale, multi-platform computing
environments. Those solutions must perform the following functions:

. Security management. Enable management to centrally define, manage,
implement and enforce security policies which are tailored to the
specific needs and requirements of the business;

. Access Control. Control access to computing resources such as clients,
servers, networks, intranets or specific Web-application data for
intranets and extranets;

. Identification and authentication. Ensure the identity of users
attempting to access computing resources;

. Data protection. Preserve the confidentiality and integrity of
information by ensuring that only those with proper authority may view,
monitor, modify or delete information;

. Intrusion Detection. Monitor systems to detect and prevent intrusions
or unauthorized actions; and

. User Administration. Centrally administer a user's credentials and
privileges.

AXENT believes that most organizations seek a comprehensive set of systems
and network security products that can accommodate a large number of users and
integrate heterogeneous computing resources into a centrally manageable,
reliable and secure computing environment. The operating systems of most
distributed computing platforms and most third-party products generally address
only some of these needs, and few vendors provide centralized security
management or user administration for heterogeneous environments. In an
enterprise information environment, all of these functions must be available on
all parts of an enterprise system--personal computer or workstation, internal
network, server and connections to external networks such as the Internet--to
provide robust security.
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AXENT'S INFORMATION SECURITY SOLUTION

AXENT's approach to information security is to develop, market and support
a broad range of system and network security software products for the
protection of computer networks, including global Internet-based systems,
internal networks and individual servers, workstations and desktop and laptop
computers. AXENT believes that its integrated approach to systems and network
security products combined with its consulting services provides a more
comprehensive information security solution than the single product offerings
marketed by many of its competitors.

AXENT's security management products enable organizations to establish
appropriate security policies, including the need for centralized management of
the level of security on all platforms, status reporting and actions to be taken
to enforce security policies. Security management products ensure that only
authorized users have access to computing resources such as clients and servers
or the network itself, and monitor all systems to detect and prevent intrusions
or unauthorized actions. AXENT's security management products authenticate
users logging onto the network and preserve the confidentiality and integrity of
information by allowing only those who have proper authority to view, monitor,
modify or delete information. The security management products also enable the
security administrator to establish authorized users, create, modify and delete
user privileges and manage the credentials of users.

AXENT's Defender products provide access control, user authentication,
security management and encrypted communications over the Internet and public
carrier facilities primarily for the remote access market. The Defender
Security Server and Defender software tokens utilize one-time dynamic password
challenge/response identification and authentication methodology. AXENT also
offers a Defender hardware token for users who must use different or multiple
computers. The Defender token security system uses "two-factor authentication"
methodology in which something the user knows (a password or personal
identification number) and something the user has (the software token on the
user's computer or the hardware token) affirmatively identifies the user.
Because the Defender Security Server generates a dynamic (constantly changing)
challenge and transmits it to the user's computer in an encrypted message, and
the Defender software token generates a dynamic response and transmits it to the
Defender Security Server in an encrypted message, the Defender authentication
technology is not susceptible to "sniffing" programs that detect static
challenges or responses or attacks that randomly generate thousands of short
passwords. The Defender software token is incorporated into the PowerVPN
product that provides virtual private networking using an encrypted "tunnel" to
communicate securely over the Internet, intranets or public carrier facilities.
The PowerVPN product also is bundled with AXENT's PCShield product as "Security
Briefcase," to provide full Defender authentication, virtual private networking,
automatic encryption and decryption of all files to which the user has access on
the user's hard drive or network drives and user administration functions.

AXENT's Raptor products include a family of integrated network security
software products that provide comprehensive, enterprise-wide security for
organizational networks, including networks that are connected to the Internet.
The Raptor products include an application-level firewall, access control
products for workgroups and LANs, virtual private network technology that
enables an enterprise to communicate securely over the Internet and internal
networks (including intranets), products that secure mobile computer users and
remote sites and network security management products. The Raptor products also
include a Web access product that provides blocking of undesirable sites and a
product that provides centralized management, authentication and authorization
of users of Web applications, such as applications supporting electronic
commerce.

AXENT seeks to provide a comprehensive family of products that address an
organization's enterprise security requirements. AXENT intends to add new
products, enhance existing functions and increase the number of platforms
supported by its products. AXENT believes that adding new products and functions
to its existing product families and product lines will allow it to market new
technology to current customers while it expands its customer base. AXENT also
intends to integrate many of the functions of its system and network security
products to provide seamless sharing of functionality and management capability.

AXENT believes that the depth of its product functionality and breadth of
platform support give it an advantage over its competitors. Because of the
difficulty in developing software products that function across multiple,
disparate platforms, AXENT believes that its technology leadership creates a
significant barrier to entry for single
<PAGE>

platform vendors that attempt to support multiple platforms. AXENT has invested
heavily in developing several cross-platform technologies, which serve as the
core of its product families and provide hard-to-duplicate product features.

AXENT believes that there is a significant need for technical expertise in
deploying enterprise security solutions. AXENT has an experienced consulting
services group that is available to supply services before, during and after a
product sale, to configure a security solution appropriate to an enterprise's
needs. AXENT intends to expand its consulting services business to enable faster
implementation and rollout of AXENT's products.

PRODUCTS AND SERVICES

Security Management Products

AXENT's family of security management software products provides business
managers with a framework and the capability to centrally manage information
security across enterprise computing environments.

. OmniGuard/Enterprise Security Manager(R). Enterprise Security Manager,
AXENT's flagship product, enables a security administrator to centrally
define, manage and enforce information security policies in enterprise
computing environments and works with other AXENT security management
products and third-party security products, as well as other applications
and database security, such as Oracle(R). It provides a security management
framework that enables the establishment of security policies based on
business risk analysis, central control of the level of security on all
platforms, determination of the status of information security in the
enterprise and enforcement of corporate security policy. Enterprise Security
Manager security policies can be applied to a single user or machine, a
group of users or machines or to an entire organization. It integrates
security functionality from the operating system with the functionality
provided by it and other AXENT security management products, as well as
systems management frameworks such as BMC's Patrol, Tivoli Management
Environment, H-P OpenView and others. With an easy-to-use graphical user
interface, Enterprise Security Manager permits information security
administrators to quickly assess the overall status of corporate information
security and analyze weak areas. It monitors the entire network for viruses,
worms, weak passwords, trap doors, modifications to key programs or files,
users with unauthorized privileges, Internet vulnerabilities and other
security threats.

. Intruder Alert(TM). Intruder Alert permits information security
administrators to monitor an organization's network for suspicious events,
unauthorized activity and abuse of the network in real time. Using a
graphical user interface, a security manager can define rules and desired
reactions to unauthorized events across heterogeneous UNIX, NetWare, Windows
NT and personal computer platforms on the organization's network. Intruder
Alert combines packet monitoring, audit trail management and real-time node-
level activity monitoring, and uses knowledge-based technology to correlate
multiple events across multiple machines to determine if a security
violation has occurred. In addition to logging an event, Intruder Alert can
alert the security administrator of significant security threats in real
time by a message to the administrator's workstation, e-mail or pager.
Intruder Alert can also take active measures to control security such as
disconnecting a session, shutting down an application, blocking an external
Internet address or alerting an Internet firewall to block a particular type
of access. Intruder Alert is backed by AXENT's Information Security SWAT
team, whose mission is to stay on top of the latest hacker attacks and
provide new security countermeasures to detect and prevent them. Intruder
Alert customers receive constant updates from the AXENT SWAT team to address
the latest threats.

. PCShield(TM). PCShield, formerly named Enterprise Access Control, allows
managers to centrally define and control access to information on computers
running Windows 95 or Windows NT through user identification and
authentication functions, providing these systems with security
functionality meeting U.S. Government "C2" functionality guidelines.
PCShield allows system administrators to define file-level discretionary
access controls and automatically encrypts and decrypts protected files in a
manner transparent to the user, so that only authorized users can access
that file on the local hard drive, on a network server or as it is
transferred over either internal or external networks. PCShield also offers
features such as single sign-on to network servers, secure deletion of
protected files, idle workstation locking and enhanced password checking.
<PAGE>

. Enterprise Resource Manager(TM). Enterprise Resource Manager is a family of
products designed to administer users and other computing resources as well
as identify and authenticate network users. It provides enterprise-wide user
account administration across heterogeneous computing platforms, including
IBM MVS, UNIX, NetWare, Windows NT, Windows 95, Netscape, and others. For
end users, Enterprise Resource Manager provides one-time authentication,
which allows access to a wide range of computing platforms and applications
without the need to re-authenticate or remember remote access procedures or
multiple passwords. Enterprise Resource Manager includes a series of
management modules that enable user account administration and
authentication for individual platforms. Each shares a common architecture,
yet provides platform specific components that can be purchased and deployed
according to the needs of the enterprise. Modules currently available
include:

. UNIX Resource Manager, which centralizes administration across
heterogeneous UNIX platforms and provides enhanced UNIX authentication.

. NT Resource Manager, which provides fine-grained control over user
administration across multiple NT domains or NT clients.

. NetWare Resource Manager, which automates the process of granting user
IDS across the multiple bindery NetWare servers or in mixed bindery/NDS
environments as well as enhanced NetWare authentication.

. MVS Resource Manager, which facilitates the administration of users
across a mix of RACF, ACF 2 or Top Secret environments and ensures
secure authentication to MVS mainframes.

. Windows 95 Resource Manager, which enables organizations to centrally
manage Windows 95 desktop and notebook security in conjunction with
PCShield.

. Software Developers Kit, which enables organizations to add
administrative support for applications developed in-house or by a
third party.

. Privilege Manager(TM) for UNIX. Privilege Manager for UNIX enables users to
execute programs or commands that ordinarily require UNIX root privileges
without having to give the user access to the root account. In addition,
this product provides a full and indelible audit trail of all actions
occurring in important accounts such as root.

. NetRecon(TM). NetRecon is an intelligent network probe that scans enterprise
networks to determine security vulnerabilities, including interrelated
threats, and enable the security administrator to prioritize activities to
plug security holes. Its third-generation UltraScan technology executes
multiple scans simultaneously, checking for common vulnerabilities in
multiple systems, firewalls, routers, gateways, webservers and other
devices. NetRecon uses all leading network protocols to cover all network
devices across a variety of operating systems and communications protocols.
NetRecon is tightly integrated with Enterprise Security Manager.

. Security Briefcase(TM). Security Briefcase provides a three-pronged security
solution: two-factor strong user authentication, personal VPN and policy-
based automated local file encryption. Security Briefcase addresses all the
remote access security needs of the corporate road warrior with cost
effective virtual private network connectivity, two-factor user
authentication, boot protection, and automated file encryption. The
combination of multiple and essential security features allows users to
eliminate expensive long-distance and 800 number remote access charges,
secure the network from unauthorized mobile users and protect the valuable
data stored on the laptop.

Defender Network Access Products

. Defender(TM) Software Token. The Defender software token can be programmed
with a secret seed value by the security administrator for the enterprise.
When installed on a laptop or desktop computer, the Defender token
automatically computes a response to the challenge generated by the Defender
Security Server and transmits the response to authenticate the user. A
Defender hardware token is available for users of different or multiple
computers.
<PAGE>

. Defender Security Server(TM). This product runs on an organization's network
and connects by a mutually authenticated channel to communications servers,
firewalls and the PowerVPN Gateway. Defender Security Server issues random
challenges to users, calculates expected responses from the user's unique
tokens and authenticates the users for network access if the responses
match. It includes software for a hot backup server to provide continuous
operation in the event of hardware failure and load balancing for two or
more communication servers or firewalls. The Defender Security Server runs
on Windows NT, Sun Solaris, and NetWare and is available with integrated
Remote Authentication Dial-In User Service (RADIUS) server functionality,
letting end users leverage the Defender Security Server as the single secure
remote access server solution and management platform. The combined
Defender/RADIUS solution enables administrators to manage users and
authorizations in one place, instead of two. The Defender/RADIUS solution
provides highly secure two-factor authentication, authorization and
accounting while simplifying the management of mobile user remote access.

. Defender Management Software and Reports. The Defender Management Software
manages user IDs, tokens and access privileges. It can manage multiple
Defender Security Servers and produces reports of remote user connections
for capacity planning, cost allocation, call traffic analysis, user
management and overall security management.

. PowerVPN(TM). PowerVPN provides integrated two-factor user identification,
authorization and session encryption that creates an encrypted "tunnel" for
secure communications over the Internet or other public carrier facilities.
By permitting secure communication over the Internet, PowerVPN eliminates
expensive long-distance and 800-number calls from mobile computing users.
Users simply dial into the Internet using a local number and enter the
user's personal identification number (PIN) to activate the Defender
software or hand-held token which authenticates the user and connects to
authorized resources on the corporate LAN. PowerVPN assures that the LAN is
secure as it verifies that remote users are who they say they are, and it
encrypts data transmission from the user's personal computer to the
corporate LAN.

Raptor Network Security Products

. Raptor Firewall. The Raptor Firewall, formerly known as Raptor's Eagle
application-level firewall, is the foundation of the Raptor integrated
network security solution. The Raptor Firewall secures communications over
the Internet or other public networks and serves as a barrier between the
Internet and the enterprise network. It is an enterprise security product
that offers the proven security of application-level proxies combined with
the flexibility and extensibility of packet filtering. Raptor Firewall NT
incorporates the broadest range of security features, including secure
tunneling with IPSec and ISAKMP/Oakley industry-standard protocols, IP spoof
checking, a wide selection of strong authentication alternatives, a powerful
and flexible management interface, and the industry's only firewall-
integrated content blockers, WebNOT and NewsNOT. The Raptor Firewall
includes a powerful network security management facility with intuitive
graphical user interface, real-time suspicious activity monitoring and alert
capabilities, multiple types of standard encryption and authentication,
proxy services and RaptorConnect virtual private networking.

. RaptorLAN(TM) and RaptorDesk(TM). RaptorLAN and RaptorDesk, formerly known
as Raptor's EagleLAN and EagleDesk products, respectively, are designed for
improving the internal security of a LAN or Intranet by protecting against
unauthorized access to network resources by internal users. RaptorLAN
provides workgroup security while RaptorDesk protects communications among
individual PCs within and across workgroups.

. RaptorMobile(TM). RaptorMobile, formerly known as Raptor's EagleMobile
product, provides multiple levels of security for remote users utilizing a
PC to connect to an internal network or communicate within an Intranet.
RaptorMobile provides password protection for the PC, user authentication to
prevent unauthorized access to internal network resources and encrypted
"tunneling" of communications to protect the integrity of information
transmitted over the Internet or other public carrier facilities.

. RaptorConnect(TM) and RaptorNetwatch(TM). RaptorConnect and RaptorNetwatch,
formerly known as Raptor's EagleConnect and EagleNetwatch products,
respectively, provide centralized configuration, monitoring,
<PAGE>

administration and management capabilities in support of the Raptor
Firewall. RaptorConnect creates encrypted, authenticated "tunnels" of
communication within an enterprise's network and over a public network, such
as the Internet. RaptorConnect transparently manages connections between the
network security points throughout the entire enterprise. RaptorNetwatch
provides data graphing and 2D/3D visualization of network activity,
including protocol and application monitoring and reporting and trend
analysis.

. THE WALL(TM). THE WALL is a Windows NT-based preconfigured firewall for
protecting an organization's file transfers, electronic mail and World Wide
Web access, including blocking objectionable Web sites. It is designed to
specifically address the needs of smaller companies, schools and
municipalities for safe, simple and affordable access to the World Wide Web.
THE WALL provides the industry's highest level of security against outside
attacks by denying all incoming access to an organization's network. It
serves as the foundation for a new, entry-level product and provides a clean
and simple upgrade path to the Raptor Firewall.

. Web Defender(TM). Web Defender, formerly known as Raptor Axcess, supports a
company's growing number of Web applications. It provides central management
to authenticate and authorize end users. The result is simple, single sign-
on access to proprietary corporate data distributed across the Web. With
scaleable architecture supporting multi-vendor servers, Web Defender is
designed to grow as quickly as the user's corporate Web.

Services

In addition to its software products, AXENT provides fee-based, on-site
consulting and training services through a group of information security
analysts. AXENT's information security analysts deliver standardized fixed-price
consulting packages that can provide customers with an objective assessment of
their existing security systems, identify shortcomings in their computers or
networks and suggest corrective actions. The analysts, on a fee basis, assist
with information risk analysis, develop security policy, implement AXENT's
products and help organizations securely connect to the Internet. The analysts
also design customized consulting packages to help customers analyze their
information security requirements, integrate in-house security products into
AXENT's product framework or develop customized information security solutions.
In addition, the analysts provide pre-sales assistance for customers evaluating
AXENT's software products.

AXENT believes that a high level of continuing customer service and support
is required to be successful in the enterprise information security market. All
customers who enter into maintenance agreements with AXENT are provided normal
business hours telephone support staffed by experienced information security
professionals. For an additional charge, customers can receive telephone support
twenty-four hours a day, seven days a week. All customers who enter into
maintenance agreements with AXENT receive non-specific free upgrades and
enhancements to the current products that are made generally available and
access to technical support personnel for answers to product-related questions.
Fees for maintenance services are charged separately from AXENT's software
products.

AXENT offers a comprehensive, standardized education and training program
to end-users of its products. Training classes are offered through in-house
facilities at AXENT's offices in Utah and Massachusetts as well as at customer
locations. AXENT also provides on-site training services upon request by
customers. Fees for educational and training services are charged separately
from AXENT's software products.

SALES AND MARKETING

AXENT markets its products and services through a direct selling
organization and through a mix of indirect channels, including distributors,
resellers and systems integrators, both domestically and abroad. The sales
organization is divided regionally among the Americas and international
operations, which is divided into Europe and the Asia/Pacific regions. AXENT has
domestic sales offices in Maryland, California, Massachusetts and a number of
other states, and has international sales offices in England and in several
other countries in Europe and the Asia/Pacific region. During 1997,
approximately 74% of AXENT total revenues were through the direct selling
organization and approximately 26% of total revenues came through AXENT's
indirect channels, compared with approximately 91% of AXENT total revenues
through the direct sales organization and approximately 9% of total revenues
through AXENT's indirect channels during 1996 .

<PAGE>

AXENT's direct selling organization sells primarily to large, corporate
customers that have deployed or are beginning to deploy mission-critical
applications into client/server computing environments. AXENT's sales strategy
emphasizes activity-based selling, including telemarketing, to qualify
prospects and determine their information security requirements and strategic
solution selling once potential customers are identified. On-site meetings,
often conducted with one of AXENT's consulting staff, are used to demonstrate
information security solutions to finalize product and service transactions. A
customer's decision to use AXENT's products may involve a substantial financial
commitment, including the license costs, consulting fees and maintenance fees,
which may require approval of the customer's senior management. Decisions
regarding certain AXENT security management products may also involve
significant user education and deployment costs, as well as substantial
involvement of the customer's personnel resources, which may result in a long or
unpredictable sales cycle. AXENT has no significant inventory and little or no
backlog.

An important facet of AXENT's sales strategy is the development and
expansion of indirect distribution channels, such as OEMs, distributors, value
added resellers ("VARs"), systems integrators for particular vertical markets
and other software vendors whose products fit well with those of AXENT. Before
1997, AXENT used distributors primarily to serve international markets in which
AXENT had no direct presence, such as France, Germany, Italy, Norway, Sweden,
Finland, Australia, Asia and South America. As a result of its acquisition of
AssureNet in March 1997, AXENT added approximately 90 distributors and
resellers, which sell primarily AXENT's Defender products. In February 1998,
through its acquisition of Raptor, AXENT expanded its indirect selling
capabilities with several "master distributor" relationships and over three
hundred VARs, including strategic VARs, to which products were marketed
directly, regional VARs and international VARs in Europe, the Pacific Rim,
Australia and Latin America. In addition, AXENT expects to continue a
relationship between Raptor and Compaq Computer Corporation relating to Raptor
firewall products for Windows NT, and AXENT's relationship with BMC Software,
Inc., Hewlett-Packard Company and IBM's Tivoli business unit. AXENT expects
that it will continue its attempts to expand those indirect distribution
relationships in the future and provide more channel-ready products to resell
through those distributors and resellers, where appropriate.

International revenues accounted for approximately 23% of AXENT's revenues
in 1997, and approximately 24% of AXENT's revenues in 1996. See Note 14 of
Notes to the AXENT Consolidated Financial Statements for financial information
regarding AXENT's foreign operations.

In support of direct and indirect operations, AXENT conducts marketing
programs intended to position and promote its products and services. Marketing
personnel engage in a wide variety of activities in support of all distribution
channels, including direct mail, Internet marketing, advertising, seminars,
public relations and trade shows as well as overseeing AXENT's participation in
industry programs and forums. Strategic marketing is conducted through market
analysis and interpretation by a customer advisory council which meets for the
purpose of validating AXENT product development direction. AXENT's internal
product steering committee establishes long- and short-term strategic product
goals. In addition, AXENT's marketing department participates and assists in
preparing and giving sales and product training seminars for both AXENT's
internal sales force and the sales forces of its channel partners. The marketing
department also has a leading role in product marketing activities, including
product management, cooperative positioning and long-term product direction.

AXENT has experienced significant quarterly fluctuations in its operating
results and anticipates such fluctuations in the future. Generally, revenues,
operating income and net income have been higher in the fourth quarter of each
year than in the first quarter of the following year with the exception of 1997,
when the purchase of AssureNet mitigated that historic trend. AXENT believes
that fourth calendar quarter revenues are positively impacted by the end of year
budgeting cycles of some large corporate customers, as well as the annual nature
of AXENT's sales compensation plans. Revenues also tend to be lower in the
summer months, particularly in Europe, when businesses often defer purchase
decisions. Quarterly revenues and operating results depend on the volume and
timing of orders received, which may be affected by large individual
transactions and which sometimes are difficult to predict, especially with
regard to orders received through indirect distribution channels. AXENT
historically has recognized a substantial portion of its license revenues in the
last month of each quarter, and often in the last week of each quarter. AXENT
expects that this will continue for the foreseeable future as the portion of
revenues from indirect distribution channels increases.
<PAGE>

CUSTOMERS

AXENT primarily markets its products to large corporate and government
customers directly and through distributors and resellers. AXENT's customers
represent enterprises across a broad range of industries, including financial
services, technology, professional services, government, consumer products and
energy and utilities.

PRODUCT DEVELOPMENT

AXENT believes that a technically competent, quality oriented and highly
productive software development organization is the key to AXENT's continued
successful product introduction. The software development staff is also
responsible for enhancing AXENT's existing products and expanding its product
line. AXENT's security management products have been developed primarily by its
internal development staff, in some instances with the assistance of external
consultants. Through the acquisition of AssureNet in March 1997, AXENT added to
its product line the Defender software and hardware tokens, Defender Security
Server, Defender Management Software and certain related in-process research and
development projects, as well as the development staff responsible for those
products. In February 1998, AXENT added to its product line the Raptor
products, certain related in-process research and development projects and the
development staff responsible for those products and projects.

AXENT has four principal software development centers in Utah, New
Hampshire, California and Massachusetts. The Utah development laboratory is
responsible for AXENT's security management products and detection and response
to new types of hacker attacks. The New Hampshire development laboratory is
responsible for AXENT's resource management products. The California
development laboratory is responsible for the Defender products and related
technologies. The Massachusetts development laboratory is responsible for the
Raptor products and related technologies. Each software laboratory operates
with small project teams, support personnel, state-of-the-art software
development tools, and industry standard languages and compilers.

Each development center has tested the Year 2000 compliance of the
products for which it is responsible. AXENT believes that the current versions
of its products are Year 2000 compliant in that they will continue to function
substantially in accordance with their respective specifications after 1999.
There can be no assurance that operating systems or other programs operating on
systems with AXENT products at various customer sites will properly address the
change of century and millenium after 1999 or that testing of Year 2000
compliance by AXENT development centers will detect all possible errors or
problems that may arise after 1999.

AXENT has from time to time experienced delays in introducing new products
and product enhancements and there can be no assurance that AXENT will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products or product enhancements. In addition,
there can be no assurance that such new products or product enhancements will
meet the requirements of the marketplace and achieve market acceptance. Any such
failure could have a material adverse effect on AXENT's financial condition and
results of operations.

COMPETITION

Competition in the information security market is intense and constantly
evolving, and AXENT expects such competition to increase in the future. AXENT
believes that significant competitive factors affecting this market are breadth
of product, depth of product functionality, breadth of platform support, product
quality and performance, conformance to industry standards, product price and
customer support. In addition, AXENT believes that the ability to rapidly
develop and implement new products and features for the market is critical.
There can be no assurance that AXENT can maintain or enhance its competitive
position against current and future competitors. Significant factors such as the
emergence of new products, fundamental changes in computing technology and
aggressive pricing and marketing strategies may also affect AXENT's competitive
position. Many of these factors are out of AXENT's control.

AXENT's competitors fall into four main categories: large, multi-product
vendors, single purpose product providers, platform vendors and internally-
developed or publicly available software.

Large, multi-product vendors. AXENT's principal competitors include IBM
Corporation, Network Associates, Inc., Computer Associates International, Inc.
("CA"), Securities Dynamics Technologies, Inc. ("Security Dynamics"), Secure
Computing Corporation, Platinum Technology, Inc., Digital Equipment Corporation
("DEC") and Compagnie des Machines Bull SA ("Groupe Bull"). Each of these
organizations has strategic software products that cover various aspects of
information security and compete directly with one or more components of AXENT's
product line.

Single purpose product providers. AXENT's principal single purpose product
competitors include Uti Maco GmbH, Memco Software Ltd. (Memco's products are
also marketed by Platinum Technology, Inc. and IBM's Tivoli
<PAGE>

business unit), Fischer International Systems, Inc., Intrusion Detection, Inc.,
Internet Security Systems, Inc., CyberGuard and CheckPoint Software Technology,
Ltd. These vendors each sell products that offer particular information security
functions for specific computing platforms. These products compete with one or
more of AXENT's products in specific functional areas or on specific platforms.
While AXENT believes that these competitors do not provide the depth of function
and breadth of platform support provided by AXENT's products, there can be no
assurance that these competitors will not expand their product offerings to
other functional areas or platforms and compete with more of AXENT's products.

Platform vendors. AXENT competes with platform vendors such as Cisco
Systems, Inc., DEC, Hewlett-Packard, IBM, Sun Microsystems, Inc. and Microsoft
Corporation. Each of these vendors offers operating system software that often
includes native security functionality. To the extent that the security features
which become incorporated in operating systems overlap all or a portion of the
functionality offered by AXENT's products, AXENT's products may no longer be
required by customers to meet their information security requirements. All of
these vendors have indicated plans to expand the information security within
their operating systems.

Publicly available software. A portion of AXENT's enterprise security
solution occasionally competes with products that are internally developed by
potential customers or available as "freeware" or "shareware" in the public
domain for little or no cost.

Many of AXENT's current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition and a larger installed customer base than AXENT. In
addition, one or more of these competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, and to
devote greater resources to the development, promotion and sale of their
products than AXENT. There can be no assurance that AXENT's current or potential
competitors will not develop products comparable or superior to those developed
by AXENT or adapt more quickly than AXENT to new technologies, evolving industry
trends or changing customer requirements. Increased competition could result in
price reductions, reduced margins or loss of market share, any of which could
materially adversely affect AXENT's financial condition or results of
operations. There can be no assurance that AXENT will be able to compete
successfully against current and future competitors or that competitive
pressures faced by AXENT will not have a material adverse effect on its
financial condition and results of operations. If AXENT is unable to compete
successfully against current and future competitors, AXENT's financial condition
and results of operations will be materially adversely affected.

INTELLECTUAL PROPERTY RIGHTS

AXENT's success is heavily dependent on its proprietary technology. AXENT
views its software as proprietary and relies on a combination of trade secret,
copyright and trademark laws, non-disclosure agreements and contractual
provisions to establish and protect its proprietary rights. AXENT has no patents
or patents pending with respect to its security information products, but has
registered a number of its copyrights in the United States. AXENT has registered
certain of its trademarks in principal foreign countries and currently is
seeking to register other trademarks in those countries and in other foreign
jurisdictions. AXENT uses a signed license agreement with many customers and a
printed "shrink- wrap" license for all other users of its products in order to
protect its copyrights and trade secrets. Since shrink-wrap licenses are not
signed by the licensee, many authorities believe that they may not be
enforceable under many state's laws and the laws of many foreign jurisdictions.
The laws of Maryland, which the printed shrink-wrap licenses purport to make the
governing law, are unclear on this subject.

AXENT also relies on trade secrets to protect its proprietary rights in its
software. AXENT attempts to protect its trade secrets and other proprietary
information through agreements with customers and suppliers, non-disclosure and
non-competition agreements with employees and consultants and other security
measures. Although AXENT intends to protect its rights vigorously, there can be
no assurance that these measures will be successful.

Despite AXENT's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of AXENT's products or to obtain and use
information that AXENT regards as proprietary. Policing unauthorized use of
AXENT's products is difficult, and, while AXENT is unable to determine the
extent to which piracy of its software products exists, such piracy can be
expected to be a persistent problem, particularly in international markets and
as a result of the growing use of the Internet. In addition, the laws of some
foreign countries either do not protect AXENT's
<PAGE>

proprietary rights or offer only limited protection for those rights. There can
be no assurance that the steps taken by AXENT to protect its proprietary rights
will be adequate or that AXENT's competitors will not independently develop
technologies that are substantially equivalent or superior to AXENT's
technologies or products.

There has been substantial litigation in the software industry involving
intellectual property rights. Although AXENT does not believe that it is
infringing the intellectual property rights of others, there can be no assurance
that such claims, if asserted, would not have a material adverse effect on
AXENT's financial condition and results of operations. In addition, as AXENT may
acquire or license a portion of the software included in its products from third
parties, its exposure to infringement actions may increase because AXENT must
rely upon such third parties for information as to the origin and ownership of
such acquired or licensed software. Although AXENT would intend to obtain
representations as to the origins and ownership of such acquired or licensed
software and obtain indemnification to cover any breach of any such
representations, there can be no assurance that such representations will be
accurate or that such indemnification will provide adequate compensation for any
breach of such representations. In the future, litigation may be necessary to
enforce and protect trade secrets, copyrights and other intellectual property
rights of AXENT. AXENT may also be subject to litigation to defend against
claimed infringement of the rights of others or to determine the scope and
validity of the intellectual property rights of others. Any such litigation
could be costly and divert management's attention, either of which could have a
material adverse effect on AXENT's financial condition and results of
operations. Adverse determinations in such litigation could result in the loss
of AXENT's proprietary rights, subject AXENT to significant liabilities, require
AXENT to seek licenses from third parties and prevent AXENT from selling its
products, any one of which could have a material adverse effect on AXENT's
financial condition and results of operations.

EMPLOYEES

As of March 2, 1998, AXENT and its subsidiaries, including Raptor, had over
392 active employees worldwide, of which approximately 341 were employed in
offices in the U.S and approximately 51 were employed at other international
offices. None of the employees of AXENT or its subsidiaries is represented by a
labor union. AXENT has not experienced any work stoppages and considers its
relations with its employees to be good.

AXENT's future success will depend in significant part on its ability to
attract and retain qualified personnel. Competition for such qualified
technical, management, consulting and sales personnel is intense in the software
industry, and there can be no assurance that AXENT can attract and retain
necessary qualified personnel in the future.

ITEM 2. PROPERTIES.

AXENT's headquarters is located in approximately 17,000 square feet of
office space in Rockville, Maryland, which it has leased through February 1999.
AXENT's development laboratories are located in Utah, New Hampshire and
California, where it has leased approximately 20,000, 16,000, and 27,000 square
feet, respectively. As a result of the merger with Raptor, AXENT also has
primarily sales and marketing personnel and a development laboratory located in
Massachusetts in approximately 35,000 square feet of leased space. AXENT also
leases domestic sales offices in a number of locations, and approximately 9,000
square feet of office space in the United Kingdom and several other small
foreign sales offices. AXENT believes that its existing facilities are adequate
for its needs or that additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS.

On December 4, 1997, an action entitled Usher Fisher v. William Kaiser, et
al. was filed in the Delaware Court of Chancery in and for New Castle County
(the "Court"), purportedly as a class action on behalf of stockholders of
Raptor, against Raptor, the members of Raptor's Board and AXENT. The complaint
alleged that the Raptor Board breached their fiduciary duties in connection with
the approval of the merger of Raptor and AXENT (the "Merger") and sought, among
other things, to enjoin consummation of the Merger.

The plaintiff filed an amended complaint with the Court in January 1998
that repeats the claim that the Raptor Board breached their fiduciary duties to
the Raptor stockholders in connection with the approval of the Merger and
<PAGE>

alleges new claims which include, among other things, the lack of certain
disclosures in the Prospectus/Joint Proxy Statement mailed to Raptor
stockholders on or about January 5, 1998. The amended complaint also alleges
that AXENT aided and abetted the alleged breaches of fiduciary duty by the
Raptor Board. The amended compliant sought as relief, among other things, an
order enjoining the consummation of the Merger and requiring Raptor to make
additional disclosures to the Raptor stockholders concerning the Merger.
Plaintiff obtained an order from the Court expediting proceedings and scheduling
a hearing on a motion for preliminary injunction.

Raptor and the Raptor Board believed that the allegations in the amended
complaint were without merit, but also believed that the possibility of delay
and possible uncertainty with respect to consummation of the Merger relating to
the litigation were not in the best interests of Raptor and its stockholders.
Accordingly, representatives of Raptor and AXENT entered into discussions with
counsel for the plaintiff concerning a potential settlement of the litigation
and reached an agreement in principle to settle the litigation on January 20,
1998. In connection with that agreement in principle, Raptor and the Raptor
Board made no admission of liability but agreed to circulate to Raptor's
stockholders a Supplement to the Prospectus/Joint Proxy Statement containing
certain additional information, and the plaintiff agreed that, except for
certain confirmatory discovery, he would refrain from further proceedings
pending approval of a final settlement agreement by the Court and approval of
the Merger by Raptor's stockholders. Finally, the defendants agreed not to
oppose an application by plaintiff's counsel for an award of counsel fees and
expenses not to exceed $250,000, which will be payable by Raptor if the fee
application is approved. The Merger was approved by the requisite vote of
Raptor stockholders on February 5, 1998 and was consummated on that date.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

AXENT Common Stock is traded on The Nasdaq National Market under the symbol
"AXNT."

AXENT Common Stock began trading on The Nasdaq National Market on April 24,
1996. The following table sets forth for the periods indicated the high and low
sale prices per share of AXENT Common Stock on The Nasdaq National Market:
<TABLE>
<CAPTION>

High LOW
------ ------
<S> <C> <C>
1996
Second Quarter (from April 24, 1996)................................................. 24 13 1/2
Third Quarter........................................................................ 23 1/2 9 3/8
Fourth Quarter....................................................................... 24 1/4 13

1997
First Quarter........................................................................ 17 3/4 11
Second Quarter....................................................................... 17 3/8 10 7/8
Third Quarter........................................................................ 22 14 3/8
Fourth Quarter....................................................................... 25 1/2 15 1/8
</TABLE>

On March 23, 1998 the last reported sale price of AXENT's Common Stock was
$28.25 per share. As of March 23, 1998, AXENT had approximately 375 stockholders
of record, and approximately 12,000 beneficial owners, including former
stockholders of Raptor, based upon information provided by brokers in connection
with the mailing of proxy materials to holders of AXENT and Raptor common stock
as of December 31, 1997.

AXENT has never paid or declared any cash dividends on its Common
Stock. AXENT currently intends to retain any earnings for future growth and,
therefore, does not expect to pay cash dividends in the foreseeable future.
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data has not been restated to
reflect consummation of the merger with Raptor Systems, Inc. on February 5,
1998, and should be read in conjunction with AXENT's Consolidated Financial
Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Form
10-K. The selected consolidated financial data as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, are
unaudited but have been derived from AXENT's consolidated financial statements
included elsewhere in this Form 10-K, which have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report thereon is also included
in this Form 10-K. The selected consolidated financial data as of December 31,
1993, 1994 and 1995 and for each of the years ended December 31, 1993 and 1994
are unaudited but have been derived from audited financial statements of AXENT
not included in this Form 10-K.
<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Product licenses.............................. $4,316 $ 5,832 $10,117 $16,002 $ 32,078
Services...................................... 1,759 2,762 4,611 6,095 9,583
------ ------- ------- ------- ---------
Total net revenues......................... 6,075 8,594 14,728 22,097 41,661

Cost of net revenues........................... 939 1,238 1,747 1,912 4,204
------ ------- ------- ------- ---------
Gross profit.................................. 5,136 7,356 12,981 20,185 37,457
------ ------- ------- ------- ---------
Operating expenses:
Sales and marketing........................... 3,751 5,697 11,324 12,610 18,926
Research and development...................... 860 1,644 3,976 5,034 8,394
General and administrative.................... 862 1,048 2,393 2,483 3,377
Write-off of purchased in-process
research and development...................... -- 4,280 -- -- 27,632
------ ------- ------- ------- ---------
Total operating expenses...................... 5,473 12,669 17,693 20,127 58,329
------ ------- ------- ------- ---------
Income (loss) from continuing
operations before royalty,
interest and taxes............................ . (337) (5,313) (4,712) 58 (20,872)
Royalty income................................. -- -- -- 3,321 2,977
Interest income (expense)...................... -- -- (129) 1,065 1,760
Gain on sale of marketable securities.......... -- -- -- -- 1,738
Income tax benefit (provision)................. 906 2,040 2,146 (1,159) (5,299)
------ ------- ------- ------- ---------
Income (loss) from continuing
operations.................................... 569 (3,273) (2,695) 3,285 (19,696)
Income from discontinued
operations, net of tax........................ 1,663 3,782 5,050 2,395 255
------ ------- ------- ------- ---------
Net income (loss).............................. $2,232 $ 509 $ 2,355 $ 5,680 $(19,441)
====== ======= ======= ======= =========
Net income (loss) per common share (basic):
Continuing operations......................... $ 0.07 $ (0.41) $ (0.34) $ 0.35 $(1.65)
Discontinued operations....................... 0.21 0.48 0.64 0.26 0.02
Net income (loss) per common
share (basic)................................. $ 0.28 $ 0.07 $ 0.30 $ 0.61 $(1.63)
====== ======= ======= ======= =========
Number of shares used to compute basic
earnings per common share..................... . 7,875 7,944 7,949 9,386 11,927
====== ======= ======= ======= =========
Net income (loss) per common share (diluted):
Continuing operations......................... $ 0.07 $ (0.40) $ (0.32) $ 0.31 $(1.65)
Discontinued operations....................... 0.20 0.46 0.60 0.23 0.02
------ ------- ------- ------- ------
Net income (loss) per common
share (diluted)............................... $ 0.27 $ 0.06 $ 0.28 $ 0.54 $(1.63)
====== ======= ======= ======= =========
Number of shares used to compute diluted
earnings per common share..................... . 8,278 8,276 8,420 10,662 11,927
====== ======= ======= ======= =========

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $4,577 $ 6,612 $ 6,083 $17,261 $ 25,790
Marketable securities......................... -- -- -- 18,629 15,100
Net identifiable (assets)
liabilities from discontinued
operations.................................... 3,685 (1,221) 1,319 163 --
Working capital............................... 691 2,366 1,948 31,731 39,451
Total assets.................................. 7,141 10,009 12,646 44,001 56,475
Total debt.................................... -- 2,817 900 -- --
Stockholders' equity.......................... 1,358 1,944 2,976 34,448 43,059
</TABLE>
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially. Factors
that might cause or contribute to such differences include, but are not limited
to those discussed in the section of AXENT's Prospectus/Joint Proxy Statement
dated January 2, 1998 entitled "Risk Factors" and the section of this Item
entitled "Certain Factors That May Affect Future Performance." Readers should
carefully review the risks described in other documents AXENT filed from time to
time with the Securities and Exchange Commission, including the quarterly
reports on Form 10-Q filed by AXENT in 1997.

OVERVIEW

The financial statements of AXENT, selected financial data and other financial
data included in this Form 10-K have not been restated to reflect consummation
of the acquisition of Raptor, which was accounted for as a pooling-of-interests
and consummated on February 5, 1998, in accordance with APB No. 16. In future
reports covering periods subsequent to the consummation of the merger, AXENT's
historical financial statements and related financial information will
be restated to combine earlier financial statements of AXENT and Raptor.
Unaudited pro forma financial information restated to reflect the combined
--- -----
operations of AXENT and Raptor, consisting of statements of operation for the
three years ended December 31, 1997 and balance sheets at December 31, 1997 and
1996, are included in this Item under the caption "Unaudited Pro Forma Combined
Information of AXENT and Raptor."

The financial statements and results of operations of AXENT include the
operations of AssureNet Pathways, Inc. ("AssureNet") from January 7, 1997.
AssureNet was acquired by AXENT in a transaction accounted for as a purchase.
In connection with that transaction, AXENT incurred a one-time charge of
approximately $27.63 million for the write-off of purchased in-process research
and development costs in the first quarter of 1997.

Since January 1, 1995, AXENT has divested (i) its Helpdesk products business,
which was sold in February 1996, for cash, a note, royalties and the assumption
of certain liabilities, and (ii) its OpenVMS utility software products business,
which was conveyed to Raxco Software, Inc.("Raxco"), effective as of December
31, 1995. AXENT has retained ownership of the OpenVMS utility software products
that are distributed by Raxco pursuant to an Exclusive Distributor License
Agreement, which provides that Raxco will pay AXENT a royalty through 2000,
unless extended. The historical results of operations for these divested
operations have been accounted for as discontinued operations in accordance with
APB No. 30. Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Annual Report contain forward-
looking statements which involve risks and uncertainties. AXENT's actual results
may differ significantly from the results discussed in forward-looking
statements.

AXENT's revenues are derived principally from two sources: (i) product license
fees for the use of AXENT's software products and (ii) service fees for
maintenance, consulting services and training related to AXENT's software
products. AXENT generally ships its software on a trial basis and recognizes
revenue upon acceptance of the software by the customer. Service revenues from
consulting and training are recognized as services are performed, and
maintenance revenues are deferred and recognized ratably over the maintenance
period, typically one year.

AXENT markets its products primarily through a direct sales organization,
distributors and other marketing relationships. Sales made through distributors
typically have a lower gross margin than direct sales. Revenues from independent
distributors accounted for approximately 8%, 9% and 26% of AXENT's net revenues
from its information security products for each of the years ended December 31,
1995, 1996 and 1997, respectively. AXENT expects the percentage of its net
revenues derived from independent distributors to increase in future periods.
AXENT generally records revenue from distributors at the net license or service
fee, after deducting the distributors' commissions.

AXENT is employing internal resources to test its computer systems and the
computer programs it employs for Year 2000 compliance and to identify and
correct any instances of Year 2000 problems that may exist. Management currently
does not expect that Year 2000 compliance expense for its existing computer
systems and the programs it employs will be material to the results of its
operations or will involve significant capital expenditures.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Revenues. AXENT's net revenues from product licenses increased
approximately 100%, or $16.08 million, from $16.00 million in 1996 to $32.08
million in 1997, representing 72% and 77% of total net revenues for
<PAGE>

1996 and 1997, respectively. The increase in product license revenue is
primarily attributable to broader acceptance of AXENT's products, the
introduction and general release of new products and the expansion of available
products running on new or additional platforms. AXENT has also benefited since
January 7, 1997 from the licensing of the Defender products acquired through the
acquisition of AssureNet.

AXENT's net revenues from maintenance, support and consulting services
increased approximately 57%, or $3.48 million, from $6.10 in 1996 to $9.58 in
1997, representing 28% and 23% of total net revenues for 1996 and 1997,
respectively. The increase in services revenues is primarily attributable to
growth in the customer base purchasing maintenance, as well as the addition of
the Defender customers on maintenance acquired through the AssureNet
transaction.

AXENT currently believes that year-to-year comparisons of net revenues from
the licensing of different software products and the provision of related
services are not necessarily meaningful as an indication of future performance.

Revenues derived from North American and international operations as a
percent of total revenues were 77% and 23%, respectively, in 1997 as compared to
76% and 24%, respectively in 1996.

Cost of Net Revenues. AXENT's cost of net revenues for product licenses
include the cost of media, product packaging, documentation and other production
costs, amortization of purchased software, product royalties and provisions for
bad debt. Cost of net revenues for product licenses increased approximately
296%, or $1.68 million, from $566,000 in 1996 to $2.24 million in 1997,
representing 4% and 7% of net revenues from product licenses in 1996 and 1997,
respectively. The increase in the cost of net revenues for product licenses is
primarily attributable to the commencement of amortization on the purchased
software acquired through the AssureNet transaction, plus the addition of the
cost of producing the products associated with the Defender product line. Cost
of net revenues for product licenses, as a percentage of revenues from product
licenses, may fluctuate from period to period due to a change in product mix, a
change in the number or size of transactions recorded in a quarter, or an
increase or decrease in licenses of royalty-bearing products.

AXENT's cost of net revenues from maintenance, support and consulting
services includes direct and indirect costs of providing technical support,
consulting and training services to AXENT's customers. Cost of net revenues
associated with services increased 46%, or $617,000 from $1.35 million in 1996
to $1.96 million in 1997, representing 22% and 20% of net revenue from
maintenance, support and consulting services in 1996 and 1997, respectively.
The dollar increase in cost of net revenues from maintenance, support and
consulting services is directly related to the increase in staff of AXENT's
customer support operations necessary to support a larger installed customer
base as well as additional products offered by AXENT, including the Defender
product line acquired in the AssureNet transaction.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, including commissions, salaries, benefits, bonuses and travel,
advertising, public relations and trade shows. Sales and marketing expenses
increased 50%, or $6.32 million, from $12.61 million in 1996 to $18.93 million
in 1997, representing 57% and 45% of total net revenues for 1996 and 1997,
respectively. The increase in dollar amount was primarily due to the additional
investment in staff to support AXENT's growth as well as the addition of costs
associated with the Defender product line. The decrease in sales and marketing
expenses as a percentage of total net revenues was due primarily to the greater
increase in total net revenues. AXENT currently anticipates that the dollar
amount of sales and marketing expenses will increase as AXENT continues to hire
additional staff to support AXENT's growth in future periods.

Research and Development. Research and development expenses consist
primarily of personnel costs, including salaries, benefits, bonuses and travel,
in addition to third party development contracts. Research and development
expenses increased 67%, or $3.36 million, from $5.03 million in 1996 to $8.39
million in 1997, representing 23% and 20% of total net revenue for 1996 and
1997, respectively. The increase in dollar amount resulted from the addition of
staff needed to develop, maintain and enhance AXENT's enterprise software
products, in addition to the costs associated with the Defender product line
acquired in the AssureNet transaction. The decrease in research and development
expenses as a percentage of total net revenues was due primarily to the greater
increase in total net revenues. AXENT currently anticipates that the dollar
amount of research and development expenses will increase as AXENT continues to
commit substantial resources to research and development in future periods.
<PAGE>

General and Administrative. General and administrative expenses consist
primarily of personnel costs, including salaries, benefits, bonuses, travel and
other related costs for management, finance and accounting, legal and other
professional services. General and administrative expenses increased 36%, or
$894,000, from $2.48 million in 1996 to $3.38 million in 1997, representing 11%
and 8% of total net revenues for 1996 and 1997, respectively. The increase in
dollar amount is primarily a result of increased staffing to support
organizational growth and the integration of AssureNet. The decrease in general
and administrative expenses as a percentage of total net revenues was due
primarily to the greater increase in total net revenues. AXENT currently
anticipates that the dollar amount of general and administrative expenses will
increase as AXENT continues to hire additional staff to support AXENT's growth
in future periods.

In 1996 and 1997, certain general and administrative expenses are offset
in part by fees billed by AXENT under the Administrative Services Agreement
between AXENT and Raxco. That agreement provides for Raxco to pay AXENT for the
cost of providing certain operational and system support services including
bookkeeping, personnel processing, administrative support, facilities management
and product packaging and mailing. In 1997, AXENT charged Raxco $570,000 under
the Administrative Services Agreement, a decline of $180,000 from $750,000 in
1996. AXENT anticipates a continued decline in the fees resulting from this
agreement, which is expected to terminate in 1998.

Write-off of purchased in-process research and development. During 1997,
AXENT incurred a one-time charge associated with the acquisition of AssureNet of
approximately $27.63 million for the write-off of purchased in-process research
and development that had not reached technological feasibility and had no
probable future use.

Income from Continuing Operations before Royalties, Interest and Taxes. As
a result of the approximately $27.63 million write-off of purchased in-process
research and development, AXENT recorded a loss from continuing operations
before royalties, interest and taxes of $20.87 million in 1997 compared to a
gain of $58,000 in 1996. Excluding the one-time charge, income from continuing
operations before royalties, interest and taxes increased $6.70 million from
income of $58,000 to income of $6.76 million, for 1996 and 1997, respectively.
The increase is primarily attributable to the overall increase in world-wide
revenues offset in part by the investments required to generate such revenues.

Royalty Income. Royalty income consists of amounts payable to AXENT
pursuant to the Exclusive Distributor License Agreement with Raxco related to
the OpenVMS utility software products owned by AXENT. Royalty income declined
10%, or $344,000, from $3.32 million in 1996 to $2.98 million in 1997. The
decline is primarily attributable to erosion of market share that the OpenVMS
platform has experienced as more companies migrate to UNIX, PC and NT based
systems. AXENT expects continued decline in this royalty in future periods.

Interest Income. Interest income increased 65%, or $695,000, from $1.07
million in 1996 to $1.76 million in 1997. The increase is attributable
primarily to having the proceeds from AXENT's April 1996 initial public
offering fully invested during all of 1997.

Gain on Marketable Securities. As part of the consideration for the sale of
its storage management products in 1994, AXENT received a warrant to purchase
250,000 shares of common stock of MTI Technology Corporation ("MTI"). On
October 15, 1997, AXENT exchanged the warrant for 161,830 shares of MTI common
stock. During 1997, AXENT received proceeds of $1.74 million ($1.04 million, net
of taxes) from the sale of 131,380 shares of MTI common stock. As of January
1998, the remaining 30,000 unsold shares of MTI common stock had been sold.

Income Taxes. AXENT accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). In accordance with SFAS No. 109, AXENT previously determined that
unrecognized tax benefits did not satisfy the recognition criteria set forth in
the standard. Accordingly, a valuation allowance was recorded against the
applicable deferred tax asset. During 1997, a portion of the valuation
allowance which was recorded against the deferred tax asset was released.
Management believes that it is more likely than not that this tax asset will be
realized.
<PAGE>

Income (Loss) from Continuing Operations. As a result of the approximately
$27.63 million write-off of purchased in-process research and development, AXENT
recorded a loss from continuing operations of $19.70 million in 1997 compared
to a gain of $3.30 million in 1996. Excluding the one-time charge, income from
continuing operations increased 142%, or $4.65 million, from income of $3.30
million to income of $7.94 million, for 1996 and 1997, respectively. The
increase is primarily attributable to the overall increase in world-wide
revenues offset in part by the investments required to generate such revenues.

Income from Discontinued Operations. Income from discontinued operations
consists of the net results of operations from the divested businesses of AXENT,
which for financial statement purposes have been accounted for in accordance
with APB No. 30 and classified as discontinued operations. AXENT's income from
discontinued operations decreased 89% , or $2.14 million, from $2.40 million in
1996 to $255,000 in 1997. AXENT currently anticipates no further income from
discontinued operations.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Net revenues. AXENT's net revenues from product licenses increased
approximately 58%, or $5.88 million, from $10.12 million in 1995, to $16.00
million in 1996, representing 69% and 72% of total net revenues for 1995 and
1996, respectively. The increase in product license revenue is primarily
attributable to the expansion of AXENT's product offerings, with the
introduction, general release and increased market acceptance of additional
products comprising the OmniGuard family of software products throughout 1995
and 1996, offset in part by a decrease in license revenues derived from AXENT's
other (primarily OpenVMS) computer security software products. Product license
revenues relating to the OmniGuard family of software products accounted for
approximately 97% of AXENT's net product license revenues in 1996 compared with
85% in 1995.

AXENT's net revenues from maintenance, support and consulting services
increased approximately 32%, or $1.48 million, from $4.61 million in 1995 to
$6.10 million in 1996, representing 31% and 28% of total net revenues in 1995
and 1996, respectively. The increase in net revenues from maintenance, support
and consulting services is attributable to a larger base of customers on
maintenance agreements resulting from the increased licensing of AXENT's
OmniGuard products, offset in part by a decrease in maintenance revenues derived
from AXENT's other (primarily OpenVMS) computer security software products. In
addition, the size and number of consulting engagements associated with the
licensing of AXENT's OmniGuard products increased from 1995 to 1996. The
decrease in net revenues from maintenance and support services as a percentage
of total net revenues is attributable to the greater increase in total revenues,
particularly net revenues from product licenses.

Revenues derived from North American and from international operations as a
percent of total net revenues were 76% and 24%, respectively, in 1996 as
compared to 73% and 27%, respectively, in 1995.

Cost of net revenues. AXENT's cost of net revenues from product licenses
includes the cost of media, product packaging, documentation and other
production costs, amortization of purchased software costs and provisions for
bad debt. Cost of net revenues associated with product licenses decreased
approximately 36%, or $321,000, from $887,000 in 1995 to $566,000 in 1996,
representing 9% and 4% of net revenues from product licenses in 1995 and 1996,
respectively. The decrease in cost of net revenues associated with product
licenses is primarily attributable to an increase in production efficiency due
to the consolidation of worldwide production in the second half of 1995, a
change in product media from tape to CD-ROM resulting in a decrease in
production and shipping expense and an increase in the average size of the
transactions recorded in 1996. Cost of net revenues associated with product
licenses as a percentage of net revenues from product licenses may fluctuate
from year to year due to a change in product mix or a change in the number or
size of transactions recorded year over year.

AXENT's cost of net revenues from maintenance, support and consulting
services includes direct and indirect costs of providing technical support,
training and consulting services to AXENT's customers. Cost of net revenues
associated with maintenance, support and consulting services increased 57%, or
$486,000, from $860,000 in 1995 to $1.35 million in 1996, representing 19% and
22% of net revenues from maintenance and support services in 1995 and 1996,
respectively. The increase in cost of net revenues from maintenance and support
services is primarily attributable to increased staffing of AXENT's customer
support, training and consulting operations necessary to support a larger
customer base and the additional products and platforms supported by AXENT.
<PAGE>

Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, including commissions, salaries, benefits and bonuses, travel,
telephone, costs of advertising, public relations seminars and trade shows.
Sales and marketing expenses increased 11%, or $1.29 million, from $11.32
million in 1995 to $12.61 million in 1996, representing 77% and 57% of total net
revenue for 1995 and 1996, respectively. The increase in dollar amount was due
primarily to increased commissions associated with the additional revenues,
additional investment in AXENT's US and UK operations and increased investment
in indirect distribution, offset in part by the closing of AXENT's German and
Swiss direct offices during the fourth quarter of 1995. The decrease in sales
and marketing expenses as a percent of total net revenues is attributable to the
greater increase in total net revenues.

Research and development. Research and development expenses consist
primarily of personnel costs, including salaries, benefits and bonuses, travel
and other personnel-related expenses of the employees engaged in ongoing
research and development projects and third party development contracts. Costs
related to research and development of products generally are expensed as
incurred. Research and development expenses increased 26%, or $1.05 million,
from $3.98 million in 1995 to $5.03 million in 1996, representing 27% and 23% of
total net revenues for 1995 and 1996, respectively. The increase in dollar
amount resulted primarily from the addition of internal and third-party contract
developers needed to develop, maintain and enhance the OmniGuard family of
software products, including AXENT's Enterprise Resource Manager product which
was under development in 1996. The decrease in research and development expenses
as a percentage of total net revenues was due primarily to the greater increase
in total net revenues.

General and administrative. General and administrative expenses consist
primarily of personnel costs, including salaries, benefits and bonuses and
related costs for management, finance and accounting, legal and other
professional services. General and administrative expenses increased 4%, or
$90,000 from $2.39 million in 1995 to $2.48 million in 1996, representing 16%
and 11% of total net revenue for 1995 and 1996, respectively. The decrease in
general and administrative expenses as a percentage of total net revenues was
due primarily to the greater increase in total net revenues.

In 1996, certain general and administrative expenses were offset in part by
fees billed by AXENT under the Administrative Services Agreement between AXENT
and Raxco. That agreement provides for Raxco to pay AXENT for the cost of
providing certain operational and system support services including bookkeeping,
personnel processing, administrative support, facilities management and product
packaging and mailing. In 1996, AXENT charged Raxco $750,000 under the
Administrative Services Agreement.

Royalty income. In 1996, AXENT recorded royalty income of $3.32 million,
representing 15% of total net revenue pursuant to the Exclusive Distributor
License Agreement with Raxco. The Agreement provides for payment by Raxco to
AXENT the greater of (i) a 30% royalty on license and services fees related to
the OpenVMS utility software products owned by AXENT and marketed exclusively by
Raxco or (ii) $2.0 million for 1996.

Interest (expense) income. Interest (expense) income increased $1.20
million, from an expense of $129,000 in 1995, to income of $1.07 million for
1996. The increase is primarily attributable to interest on the proceeds from
AXENT's initial public offering, as well as a decrease in the amortization of
discount on the note payable.

Income taxes. In accordance with SFAS No. 109, AXENT previously determined
that unrecognized tax benefits did not satisfy the recognition criteria set
forth in the standard. Accordingly, a valuation allowance was recorded against
the applicable deferred tax asset. During 1996, a portion of the valuation
allowance for the deferred tax asset was released as a result of AXENT's
profitable operations, which established the recognition of a deferred tax asset
in the amount of $400,000 as of December 31, 1996.

AXENT recorded an income tax benefit in 1995 related to the loss from
continuing operations in 1995 and an income tax provision in 1996 related to the
income from continuing operations in 1996. The effective rate for 1996 differs
from the federal statutory rate due to the utilization of prior years net
operating losses and the change in the valuation allowance for deferred tax
assets.
<PAGE>

Income (loss) from continuing operations before royalty, interest and
taxes. As a result of the above, AXENT recorded income from continuing
operations of $58,000 in 1996, compared with the loss of $4.71 million for 1995.

Income from discontinued operations. Income from discontinued operations
consists of the net results of operations from the divested businesses of AXENT,
which for financial statement purposes have been accounted for in accordance
with APB 30 and classified as discontinued operations. AXENT's income from
discontinued operations decreased 52%, or $2.65 million, from $5.05 million in
1995 to $2.40 million in 1996, representing 34% and 11% of total net revenues
for 1995 and 1996, respectively.
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth unaudited quarterly consolidated financial
data for 1996 and 1997. AXENT believes that all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the selected quarterly information when
read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere herein. The results of operations for any quarter are not
necessarily indicative of results that may be expected for any subsequent
periods.

UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS OF AXENT
(IN THOUSANDS)
<TABLE>
<CAPTION>

1996 1997
----------------------------------------- ---------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
-------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Product licenses........... $2,674 $ 3,929 $ 3,124 $ 6,275 $ 5,915 $ 6,921 $ 7,314 $11,928
Services................... 1,408 1,396 1,828 1,463 2,240 2,340 2,425 2,578
------ ------- ------- ------- -------- ------- ------- -------
Total net revenues........ 4,082 5,325 4,952 7,738 8,155 9,261 9,739 14,506

Cost of net revenues........ 382 481 456 593 934 986 1,013 1,271
------ ------- ------- ------- -------- ------- ------- -------
Gross profit................ 3,700 4,844 4,496 7,145 7,221 8,275 8,726 13,235
------ ------- ------- ------- -------- ------- ------- -------
Operating expenses:
Sales and marketing........ 2,813 2,968 2,891 3,938 4,292 4,438 4,515 5,681
Research and
development.............. 1,084 1,173 1,253 1,524 1,897 1,981 2,003 2,513
General and
administrative............ 557 595 620 711 784 853 793 947
Write-off of purchased
in-process research
and development........... -- -- -- -- 27,632 -- -- --
------ ------- ------- ------- -------- ------- ------- -------
Total operating
expenses............... 4,454 4,736 4,764 6,173 34,605 7,272 7,311 9,141
------ ------- ------- ------- -------- ------- ------- -------
Income (loss) from
continuing operations
before royalty,
interest and taxes......... (754) 108 (268) 972 (27,384) 1,003 1,415 4,094
Royalty income.............. 800 804 794 923 658 868 741 710
Interest income............. 72 257 339 397 369 440 457 494
Gain on the sale of
marketable securities...... -- -- -- -- -- -- -- 1,738
Income tax provision........ (35) (25) (365) (734) (501) (932) (1,045) (2,821)
------ ------- ------- ------- -------- ------- ------- -------
Income (loss) from
continuing operations...... 83 1,144 500 1,558 (26,858) 1,379 1,568 4,215
Income from discontinued
operations, net of tax..... 1,027 526 591 251 173 82 -- --
------ ------- ------- ------- -------- ------- ------- -------
Net income (loss)........... $1,110 $ 1,670 $ 1,091 $ 1,809 $(26,685) $ 1,461 $ 1,568 $ 4,215
====== ======= ======= ======= ======== ======= ======= =======
Net income (loss) per
common share (basic):
Continuing operations...... $ 0.01 $ 0.12 $ 0.05 $ 0.16 $ (2.32) $ 0.12 $ 0.13 $ 0.34
Discontinued operations.... 0.13 0.06 0.06 0.03 0.01 0.01 -- --
------ ------- ------- ------- -------- ------- ------- -------
Net income (loss) per
common share (basic)....... $ 0.14 $ 0.18 $ 0.11 $ 0.19 $ (2.31) $ 0.13 $ 0.13 $ 0.34
Number of shares used in
computing net income
(loss) per common
share outstanding
(000's)(basic)............. 7,958 9,469 9,737 9,913 11,572 11,695 12,029 12,275

Net income (loss)
per common share (diluted):
Continuing operations...... $ 0.01 $ 0.11 $ 0.05 $ 0.14 $ (2.32) $ 0.11 $ 0.12 $ 0.31
Discontinued operations.... 0.11 0.05 0.05 0.02 0.01 0.01 -- --
------ ------- ------- ------- -------- ------- ------- -------
Net income (loss) per
common share (diluted)..... $ 0.12 $ 0.16 $ 0.10 $ 0.16 $ (2.31) $ 0.12 $ 0.12 $ 0.31
Number of shares used in
computing net income
(loss) per common share
outstanding (000's)
(diluted).................. 9,101 10,652 10,886 11,093 11,572 12,928 13,366 13,384
</TABLE>
<PAGE>

UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS OF AXENT
(AS A PERCENTAGE OF TOTAL NET REVENUES)
<TABLE>
<CAPTION>

1996 1997
--------------------------------------- ---------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Product licenses........... 65.6% 73.8% 63.1% 81.1% 72.5% 74.7% 75.1% 82.2%
Services................... 34.4 26.2 36.9 18.9 27.5 25.3 24.9 17.8
----- ----- ----- ----- ------- ----- ----- -----
Total net revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cost of net revenues........ 9.3 9.0 9.2 7.7 11.5 10.6 10.4 8.8
----- ----- ----- ----- ------- ----- ----- -----
Gross profit................ 90.7 91.0 90.8 92.3 88.5 89.4 89.6 91.2
----- ----- ----- ----- ------- ----- ----- -----
Operating expenses:
Sales and marketing........ 69.0 55.7 58.4 50.9 52.7 47.9 46.4 39.2
Research and
development............... 26.6 22.0 25.3 19.7 23.3 21.4 20.6 17.3
General and
administrative............ 13.7 11.2 12.5 9.2 9.6 9.2 8.1 6.5
Write off of purchased
in-process research
and development........... -- -- -- -- 338.8 -- -- --
----- ----- ----- ----- ------- ----- ----- -----
Total operating
expenses................ 109.3 88.9 96.2 79.8 424.4 78.5 75.1 63.0
----- ----- ----- ----- ------- ----- ----- -----
Income (loss) from
continuing operations
before royalty,
interest and taxes......... (18.6) 2.1 (5.4) 12.5 (335.9) 10.9 14.5 28.2
Royalty income.............. 19.6 15.1 16.0 11.9 8.1 9.4 7.6 4.9
Interest income............. 1.8 4.8 6.8 5.1 4.5 4.7 4.7 3.4
Gain on sale of marketable
securities................. -- -- -- -- -- -- -- 12.0
Income tax provision........ (0.9) (0.5) (7.4) (9.5) (6.1) (10.1) (10.7) (19.4)
----- ----- ----- ----- ------- ----- ----- -----
Income (loss) from
continuing operations...... 1.9 21.5 10.0 20.0 (329.4) 14.9 16.1 29.1
Income from discontinued
operations, net of tax..... 25.2 9.9 11.9 3.2 2.1 0.9 -- --
----- ----- ----- ----- ------- -----
Net income (loss)........... 27.1% 31.4% 21.9% 23.2% (327.3)% 15.8% 16.1% 29.1%
===== ===== ===== ===== ======= ===== ===== =====

</TABLE>
The following table sets forth the cost of net revenues as a percentage of the
related net revenues for the periods indicated.
<TABLE>
<CAPTION>
1996 1997
--------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- --------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of product
licenses....................... 4.2% 3.0% 3.7% 3.5% 8.6% 7.2% 7.8% 5.6%
Cost of services................ 19.2% 26.1% 18.6% 25.5% 19.0% 20.9% 18.4% 23.4%

</TABLE>
<PAGE>

AXENT has experienced quarterly fluctuations in operating results and
anticipates that such fluctuations will continue. Quarterly revenues and
operating results depend on the volume and timing of orders received during the
quarter, which are sometimes difficult to forecast. Historically, AXENT has
often recognized a substantial portion of its product license revenues in the
last month of the quarter. Operating results may fluctuate due to a variety of
reasons, including the impact of a large order. In addition, revenues tend to be
lower in the summer months, particularly in Europe, where businesses often defer
purchase decisions. Because AXENT's staffing and other operating expenses are
based on anticipated revenues, a substantial portion of which is not typically
generated until the end of each quarter, delays in the receipt of orders can
cause significant variations in operating results from quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

During 1996 and 1997, AXENT financed its operations through cash flows from
continuing operations. AXENT's continuing operating activities provided cash of
$5.58 million and $7.25 million in 1996 and 1997, respectively. Total cash
provided from discontinued operations was $379,000 in 1996 and total cash used
in discontinued operations was $412,000 in 1997. During 1997, AXENT received
proceeds of $1.74 million ($1.04 million, net of taxes) from the exercise of
stock warrants it received in connection with the sale of AXENT's storage
management products in 1994. During 1997, AXENT's primary uses of cash from
continuing operating activities were the payment of transaction costs related to
the acquisition of AssureNet, the payment of severance and accrued expenses
incurred as a result of the AssureNet acquisition and the payment of accrued
bonuses, value-added tax (VAT), commissions and other accrued expenses
associated with AXENT's performance in previous periods. As a result of AXENT's
initial public offering in 1996, AXENT received proceeds of approximately $25.08
million, net of approximately $1.96 million in underwriting discounts and
$960,000 in offering expenses. During 1995, AXENT financed its operations
primarily through cash flows generated from discontinued operations and
available working capital as well as cash flows from continuing operations.

AXENT made capital expenditures of approximately $955,000 and $1,198,000 in
1996 and 1997, respectively. These purchases have generally consisted of
computer workstations, networking equipment, office equipment, office furniture
and equipment and leasehold improvements. AXENT had no firm commitments for
capital expenditures at December 31, 1997.

During 1997, AXENT's financial position was also affected by the following: 1)
AXENT had cash outlays of approximately $2.23 million for transaction costs
associated with the acquisition of AssureNet; 2) AXENT made payments totaling
$2.32 million in severance and accrued liabilities incurred as a result of the
AssureNet acquisition; 3) AXENT paid-off the $1.40 million balance for the line
of credit carried by AssureNet, which included draws of $490,000; 4) AXENT
received proceeds of $1.92 million from the issuance of common stock upon the
exercise of stock options; 5) AXENT received payments totaling $645,000 on the
note receivable related to the sale of AXENT's storage management products in
1994; and 6) AXENT received net proceeds of $3.93 million from its investing
activities during 1997.

AXENT believes that its working capital at December 31, 1997 and cash
generated from operations will be sufficient to meet its capital expenditures,
working capital and other cash requirements both for the next twelve months and
for the foreseeable future.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. Both SFAS No. 130 and SFAS No. 131 are
required to be adopted for fiscal years beginning after December 15, 1997. Upon
the effective date of each of the new statements, AXENT will make the necessary
changes to comply with the provisions of each statement and restate all prior
periods presented. AXENT does not expect the adoption of these statements to
have a material impact on its financial condition or results of operations.

The American Institute of Certified Public Accountants has issued Statement of
Position ("SOP") 97-2, Software Revenue Recognition. SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997, and
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. AXENT does not expect the
application of the SOP to have a material impact on its financial condition or
results of operations.
<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

Although AXENT has experienced significant growth in revenues from its software
products, AXENT does not believe prior growth rates are indicative of future
operating results. In addition, AXENT expects increased competition and intends
to invest significantly in its product development. As a result, there can be no
assurance that AXENT will remain profitable on a quarterly or annual basis. Due
to AXENT's limited operating history with respect to many of its software
products, predictions as to future operating results are difficult. Future
operating results may fluctuate due to factors such as: demand for AXENT's
products; the size and timing of customer orders; the number of competitors and
the breadth and functionality of their product offerings; the introduction of
new products and product enhancements by AXENT or its competitors; the budgeting
cycle of customers; changes in the proportion of revenues attributable to
license fees and consulting services; the availability of services personnel to
demonstrate, install, configure and implement products; changes in the level of
operating expenses; competitive conditions in the industry; and changes in
technologies affecting computing, networking, communications, systems and
applications management and data security. AXENT's future operating results
also may be affected if it fails to recognize the anticipated benefits of its
acquisition of Raptor on the timetable projected by AXENT; those benefits
include, among others, integration of AXENT and Raptor product offerings and
coordination of their respective sales, marketing and research and development
teams without disruption or unanticipated expense. AXENT's future results of
operations may also be adversely affected if the anticipated integration of
Raptor operations produces unexpected expenses, delays, inefficiencies, loss of
key personnel, loss of resellers or distributors or loss of consultants or if it
leads to adverse effects on customer purchasing decisions.

The market for AXENT's software products is highly competitive, and AXENT
expects that it will face increasing price pressures from its current
competitors and new market entrants. As a result of increasing consolidation in
the information security industry, AXENT expects that it will become subject to
increased competition, which may negatively impact existing collaborative,
marketing, reselling, distribution or marketing agreements or relationships and
thereby materially adversely affect AXENT's financial condition and results of
operations. Any material reduction in the price of AXENT's software products
would negatively affect gross margins and could materially adversely affect
AXENT's financial condition and results of operations.

The licensing of many of AXENT's enterprise-class software products generally
involves significant testing by and education of prospective customers as well
as a commitment of resources by both parties. For these and other reasons, the
sales cycle associated with the licensing of AXENT's enterprise-class security
software products is typically long and subject to a number of significant risks
over which AXENT has little or no control and, as a result, AXENT may expend
significant resources pursuing potential sales that will not be consummated.

AXENT anticipates that international sales will continue to represent a
significant percentage of revenue in the foreseeable future. International sales
are subject to a number of risks, including unexpected changes in regulatory
requirements, export limitations on encryption technologies, tariffs and other
trade barriers, political and economic instability in foreign markets,
difficulty in the staffing, management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable collection,
currency fluctuations and potentially adverse tax consequences. The uncertainty
of the monetary exchange values has caused, and may in the future cause, some
foreign customers to delay new orders or delay payment for existing orders.
These factors may, in the future, contribute to fluctuations in AXENT's
financial condition and results of operations. Although AXENT's results of
operations have not been materially adversely affected to date as a result of
currency fluctuations, the long-term impact of currency fluctuations, including
any possible effect on the business outlook in other developing countries,
cannot be predicted.

UNAUDITED PRO FORMA COMBINED INFORMATION OF AXENT AND RAPTOR

On February 5, 1998, AXENT consummated the acquisition of Raptor, which was
accounted for as a pooling-of-interests. As consummation of the transaction
occurred after the end of AXENT's fiscal year, AXENT has not restated its
financial statements included herein, in accordance with APB No. 16. In future
reports covering periods subsequent to the consummation of the merger, AXENT's
historical financial statements and related financial information will be
restated to combine earlier financial statements of AXENT and Raptor. The
following unaudited pro forma combined financial statements are provided as
--- -----
supplemental information to reflect the combined results of operations for the
three years ended December 31, 1997 and each quarterly period therein and the
financial condition of the combined operations at
<PAGE>

December 31, 1997 and 1996. These unaudited pro forma combined financial
--- -----
Statements should be read in conjunction with AXENT's consolidated financial
statements and notes thereto included elsewhere in this Form 10-K and Raptor's
consolidated financial statements and notes thereto included in its Form 10-K
for the year ended December 31, 1996 (SEC File No. 0-27538). Rates of revenue or
expense growth, levels of profitability or rates of earnings growth are not
necessarily meaningful as an indicator of future performance.

In connection with the acquisition of Raptor, AXENT expects to incur a one-
time charge in the first quarter of 1998 of approximately $17.40 million for
costs related to consummation of the merger. That one-time charge is not
reflected in the following unaudited pro forma combined financial statements.
--- -----

UNAUDITED PRO FORMA COMBINED CONSOLIDATED ANNUAL STATEMENT
OF OPERATIONS FOR AXENT AND RAPTOR
<TABLE>
<CAPTION>

Year Ended December 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
(In thousands)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Product licenses.............................. $13,592 $ 29,425 $ 56,114
Services...................................... 5,038 7,199 13,707
------- -------- ---------
Total net revenues.......................... 18,630 36,624 69,821

Cost of net revenues........................... 2,055 2,758 6,556
------- -------- ---------
Gross profit.................................. 16,575 33,866 63,265
------- -------- ---------
Operating expenses:
Sales and marketing........................... 15,160 21,606 31,856
Research and development...................... 5,343 8,111 12,677
General and administrative.................... 3,546 4,704 7,030
Write-off of purchased in-process
research and development................... -- -- 34,154 (1)
------- -------- ---------
Total operating expenses.............. 24,049 34,421 85,717
------- -------- ---------
Loss from continuing
operations before royalty,
interest and taxes............................ (7,474) (555) (22,452)
Royalty income................................. -- 3,321 2,977
Interest income, net........................... (53) 3,479 4,611
Gain on sale of marketable securities.......... -- -- 1,738 (1)
Income tax benefit (provision)................. 2,146 (1,159) (5,744)(1)
------ ------- --------
Income (loss) from continuing
operations.................................... (5,381) 5,086 (18,870)(1)
Income from discontinued
operations, net of tax........................ 5,050 2,395 255
------- -------- ---------
Net income (loss).............................. $ (331) $ 7,481 $(18,615)
======= ======== =========

Net income (loss) per common share (basic):
Continuing operations......................... $ (0.56) $ 0.27 $(0.83)
Discontinued operations....................... 0.52 0.13 0.01
------- -------- ---------
Net income (loss) per common share (basic):.... $ (0.04) $ 0.40 $(0.82)
======= ======== =========
Number of shares used in computing
basic earnings per share...................... 9,635 18,551 22,638
======= ======== =========

Net income (loss) per common share (diluted):
Continuing operations......................... $ (0.56) $ 0.24 $(0.83)(1)
Discontinued operations....................... 0.52 0.11 0.01
------- -------- ---------
Net income (loss) per common share (diluted):.. $ (0.04) $ 0.35 $(0.82)
======= ======== =========
Number of shares used in computing
diluted earnings per share.................... 9,635 21,575 22,638
======= ======== =========
</TABLE>
- ----------
(1) Data related to 1997 Statement of Operations includes nonrecurring charges
of $34,154 ($31,871 net of tax) as a result of the write-off of in-process
research and development and nonrecurring income of $1,738 ($1,043 net of taxes)
from the sale of marketable securities. Net income from continuing operations
was $11,958 and diluted net income per common share from continuing operations
was $0.48 excluding the nonrecurring charges.
<PAGE>

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEETS
FOR AXENT AND RAPTOR
<TABLE>
<CAPTION>

DECEMBER 31,
----------------------------
ASSETS 1996 1997
-------- ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 54,828,000 $ 51,618,000
Marketable securities................................ 34,026,000 40,882,000
Accounts receivable.................................. 8,874,000 18,223,000
Other current assets................................. 1,302,000 4,337,000
------------ ------------
Total current assets.............................. 99,030,000 115,060,000
------------ ------------
Property and equipment, net ........................... 2,819,000 4,263,000
Other assets........................................... 5,336,000 5,458,000
------------ ------------
Total assets......................................... $107,185,000 $124,781,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------
Current liabilities:
Accrued liabilities and accounts payable............. $ 9,000,000 $ 13,120,000
Deferred revenue..................................... 4,609,000 7,396,000
------------ ------------
Total current liabilities......................... 13,609,000 20,516,000
------------ ------------
Commitments and contingencies
Stockholders' equity................................... 93,576,000 104,265,000
------------ ------------
Total liabilities and stockholders' equity........... $107,185,000 $124,781,000
============ ============

</TABLE>
<PAGE>

UNAUDITED PRO FORMA COMBINED CONSOLIDATED QUARTERLY STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

1996 1997
--------------------------------------- ----------------------------------------
Mar. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues:
Product licenses.............................. $ 4,569 $ 6,635 $ 6,987 $11,235 $ 10,878 $12,635 $13,491 $19,110
Services...................................... 1,581 1,597 2,106 1,915 2,917 3,275 3,580 3,935
------- ------- ------- ------- -------- ------- ------- -------
Total net revenues........................... 6,150 8,232 9,093 13,150 13,795 15,910 17,071 23,045

Cost of net revenues........................... 534 690 679 855 1,290 1,533 1,676 2,057
------- ------- ------- ------- -------- ------- ------- -------
Gross profit................................... 5,616 7,542 8,414 12,295 12,505 14,377 15,395 20,988
------- ------- ------- ------- -------- ------- ------- -------
Operating expenses:
Sales and marketing........................... 4,410 4,912 5,349 6,935 7,132 7,563 7,785 9,376
Research and development...................... 1,651 2,057 2,080 2,323 2,836 2,924 3,119 3,798
General and administrative.................... 1,107 1,016 1,204 1,378 1,681 1,834 1,692 1,823
Write-off of purchased in-process research
and development.............................. -- -- -- -- 27,632 6,522 -- --
------- ------- ------- ------- -------- ------- ------- -------
Total operating expenses................... 7,168 7,985 8,633 10,636 39,281 18,843 12,596 14,997
------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from continuing operations
before royalty, interest and taxes............ (1,552) (443) (219) 1,659 (26,776) (4,466) 2,799 5,991
Royalty income................................. 800 804 794 923 658 868 741 710
Interest income................................ 441 958 995 1,085 1,079 1,165 1,154 1,213
Gain on the sale of
marketable securities......................... -- -- -- -- -- -- -- 1,738
Income tax (provision) benefit................. (35) (25) (365) (734) (962) 728 (1,773) (3,737)
------- ------- ------- ------- -------- ------- ------- -------
Income (loss) from
continuing operations......................... (346) 1,294 1,205 2,933 (26,001) (1,705) 2,921 5,915
Income from discontinued
operations, net of tax........................ 1,027 526 591 251 173 82 -- --
------- ------- ------- ------- -------- ------- ------- -------
Net income (loss).............................. $ 681 $ 1,820 $ 1,796 $ 3,184 $(25,828) $(1,623) $ 2,921 $ 5,915
======= ======= ======= ======= ======== ======= ======= =======

Net income (loss) per common share (basic):
Continuing operations $ (0.02) $ 0.07 $ 0.06 $ 0.15 $ (1.17) $ (0.08) $ 0.13 $ 0.26
Discontinued operations 0.07 0.03 0.03 0.01 0.01 0.01 -- --
------- ------- ------- ------- -------- ------- ------- -------
Net income (loss) per
common share (basic) $ 0.05 $ 0.10 $ 0.09 $ 0.16 $ (1.16) $ (0.07) $ 0.13 $ 0.26
Number of shares used in computing
net income (loss) per common share
outstanding (000's)(basic) 14,774 19,447 19,821 20,339 22,136 22,360 22,793 23,128
Net income (loss) per common share (diluted):
Continuing operations $ (0.02) $ 0.06 $ 0.05 $ 0.13 $ (1.17) $ (0.08) $ 0.11 $ 0.23
Discontinued operations 0.06 0.02 0.03 0.01 0.01 0.01 -- --
------- ------- ------- ------- -------- ------- ------- -------
Net income (loss) per
common share (diluted) $ 0.04 $ 0.08 $ 0.08 $ 0.14 $ (1.16) $ (0.07) $ 0.11 $ 0.23
Number of shares used in computing
net income (loss) per common share
outstanding (000's)(diluted) 15,916 22,566 22,725 23,120 22,136 22,360 25,491 25,514
</TABLE>
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated financial statements and schedules required by Item 8 are
incorporated herein by reference to the AXENT Consolidated Financial Statements
and financial statement schedules filed with this Form 10-K, under Item 14 of
Part IV. Quarterly financial information required by Item 8 are included in
Item 7, above.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

The information required by Item 10 is hereby incorporated by reference to
the Definitive Proxy Statement of the Company to be filed in connection with its
1998 Annual Meeting of Stockholders (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is hereby incorporated by reference to
the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 12 is hereby incorporated by reference to
the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is hereby incorporated by reference to
the Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

Page
Number
------

(a) Documents filed as part of the report:
(1) Report of Independent Accountants.......................... 31
Consolidated Balance Sheets at December 31, 1996 and 1997.. 32
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997........................ 33
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997............ 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997........................ 35
Notes to Consolidated Financial Statements................. 36
(2) Financial Statement Schedule.............................. 52
(3) Exhibits
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>

3.1(1) Amended and Restated Certificate of Incorporation of AXENT.
3.2(2) Amended and Restated Bylaws of AXENT.
4.1(1) Specimen stock certificate for shares of Common Stock of AXENT.
10.1(1) AXENT's 1991 Amended and Restated Stock Option Plan.
10.2(3) AXENT's 1996 Amended and Restated Stock Option Plan.
10.3(3) AXENT's 1996 Amended and Restated Directors' Stock Option Plan.
10.7(1) Registration Rights Agreement dated as of December 10, 1992, by and among AXENT and the parties
thereto.
10.7.1(3) Amendment No. 1 to Registration Rights Agreement dated as of February 26, 1997, by and among
AXENT and the parties thereto.
10.8(1) Settlement Agreement effective as of September 13, 1991, by and among AXENT and the parties
thereto.
10.9(1) Form of Indemnification Agreement between AXENT and its directors and executive officers.
10.10(1) Agreement of Merger dated as of November 17, 1994, among AXENT, Datamedia Corporation and
Raxco Acquisition Corporation.
10.11(1) Lease Agreement dated as of September 6, 1995, by and between
Research Grove Associates and AXENT.
10.12(1) Lease of Real Property dated as of March 7, 1995, by and between
TNK Associates and AXENT.
10.13(1) Deed of Lease dated as of March 14, 1995 by and between Bill Harris
Music, Inc. and AXENT.
10.14(1) Agreement dated as of December 30, 1987, by and between AXENT and
William R. Davy.
10.15(1) Agreement dated as of September 20, 1990, by and between AXENT and
William R. Davy.
10.16(1) Agreement dated as of November 7, 1991, by and between AXENT and
William R. Davy.
10.18(1) Severance Arrangement for John C. Becker, dated October 16, 1992.
10.19(1) Severance Arrangement for Brett Jackson, dated October 16, 1992.
10.20(1) AXENT's Officer/Vice President Severance Policy.
10.21(1) Exclusive Distributor License Agreement, effective as of December
31, 1995, between AXENT and Raxco Software, Inc.
10.22(1) Administrative Services Agreement, effective as of December 31,
1995, between the Company and Raxco Software, Inc.
10.24(1) Agreement and Plan of Separation, effective as of December 31,
1995, between AXENT and Raxco Software, Inc.
10.29(3) Amended Agreement and Plan of Merger among AXENT, Axquisition,
Inc., and AssureNet Pathways, Inc, dated as of January 6, 1997 and
amended February 26, 1997.
10.30(4) AXENT's 1998 Employee Stock Purchase Plan.
10.31(4) AXENT's 1998 Incentive Stock Plan.
10.32(4) AXENT's Exchange Option Plan for Optionees of Raptor Systems, Inc.
10.33(4) Agreement and Plan of Merger among AXENT, Axquisition Two, Inc. and
Raptor Systems, Inc. dated as of December 1, 1997.
21.1 * Subsidiaries of the Registrant.
23.1 * Consent of Coopers & Lybrand L.L.P.
23.1A * Opinion of Coopers & Lybrand L.L.P. on certain financial data
schedules.
24.1 * Power of Attorney (included in signature pages).

SCHEDULE DESCRIPTION
-------- -----------

II. * Valuation and Qualifying Accounts All other schedules for which
provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the
related instructions or are applicable, and therefore have been
omitted.
</TABLE>
<PAGE>

- ----------------------------
(1) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-1 (File No. 333-01368) and incorporated herein by reference.
(2) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-
Q for the Quarter Ended September 30, 1996.
(3) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-4 (File No. 333-20207) and incorporated herein by reference.
(4) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-4 (File No. 444-43265) and incorporated herein by reference.

* Filed herewith.

(b) Reports on Form 8-K. AXENT filed a report on Form 8-K dated February 5,
1998 that reported information under items 2, 5 and 7 (which incorporated
financial statements of Raptor and pro forma information by reference to
the Prospectus/Joint Proxy Statement of AXENT dated January 2, 1998) with
respect to the closing of the merger with Raptor Systems, Inc., certain
related matters and the action taken by AXENT's stockholders at the special
meeting on February 5, 1998.

(d) Financial Statement Schedules. The consolidated financial statement
schedule required by this Item are listed under Item 14(a)(2).
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of AXENT Technologies, Inc.:

We have audited the consolidated balance sheets of AXENT Technologies, Inc.
and subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AXENT
Technologies, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Washington, D.C.
January 27, 1998
<PAGE>

AXENT TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

DECEMBER 31,
----------------------------
ASSETS 1996 1997
------ ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 17,261,000 $ 25,790,000
Marketable securities.................................................... 18,629,000 15,100,000
Accounts receivable, net of allowance for doubtful accounts of $318,000
and $506,000, respectively.............................................. 4,826,000 10,391,000
Other current assets..................................................... 568,000 1,586,000
------------ ------------
Total current assets.................................................. 41,284,000 52,867,000
------------ ------------
Property and equipment, net (note 4)....................................... 1,417,000 2,240,000
Purchased software and other assets........................................ 1,300,000 1,368,000
------------ ------------
Total assets............................................................. $ 44,001,000 $ 56,475,000
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accrued liabilities and accounts payable (notes 2 and 7)................. $ 6,524,000 $ 8,608,000
Deferred revenue......................................................... 3,029,000 4,808,000
------------ ------------
Total current liabilities............................................. 9,553,000 13,416,000
------------ ------------
Commitments and contingencies (note 8)
Stockholders' equity: (notes 2, 9, and 10)
Common stock, par value $0.02: 10,130,064 and 12,396,641 shares issued
and outstanding, respectively........................................... 203,000 248,000
Additional paid-in capital............................................... 47,909,000 75,912,000
Accumulated deficit...................................................... (13,597,000) (33,038,000)
Currency translation adjustments and other............................... (67,000) (63,000)
------------ ------------
Total stockholders' equity............................................ 34,448,000 43,059,000
------------ ------------
Total liabilities and stockholders' equity............................... $ 44,001,000 $ 56,475,000
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>

AXENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net revenues:
Product licenses......................................... $10,117,000 $16,002,000 $ 32,078,000
Services................................................. 4,611,000 6,095,000 9,583,000
----------- ----------- ------------
Total net revenues................................... 14,728,000 22,097,000 41,661,000
Cost of net revenues:
Product licenses......................................... 887,000 566,000 2,241,000
Services................................................. 860,000 1,346,000 1,963,000
----------- ----------- ------------
Total cost of net revenues........................... 1,747,000 1,912,000 4,204,000
----------- ----------- ------------
Gross profit............................................... 12,981,000 20,185,000 37,457,000
----------- ----------- ------------
Operating expenses:
Sales and marketing...................................... 11,324,000 12,610,000 18,926,000
Research and development................................. 3,976,000 5,034,000 8,394,000
General and administrative............................... 2,393,000 2,483,000 3,377,000
Write-off of purchased in-process
research and development.............................. -- -- 27,632,000
----------- ----------- ------------
Total operating expenses............................. 17,693,000 20,127,000 58,329,000
----------- ----------- ------------
Income (loss) from continuing operations
before royalty interest and taxes......................... (4,712,000) 58,000 (20,872,000)
Royalty income............................................. -- 3,321,000 2,977,000
Interest (expense) income.................................. (129,000) 1,065,000 1,760,000
Gain on sale of marketable securities...................... -- -- 1,738,000
Income tax benefit (provision) (note 11)................... 2,146,000 (1,159,000) (5,299,000)
----------- ----------- ------------
Income (loss) from continuing
operations................................................ (2,695,000) 3,285,000 (19,696,000)
Income from discontinued operations, net
of tax (note 2)........................................... 5,050,000 2,395,000 255,000
----------- ----------- ------------
Net income (loss).......................................... $ 2,355,000 $ 5,680,000 $(19,441,000)
=========== =========== ============

Net income (loss) per common share (basic):
Continuing operations.................................... $ (0.34) $ 0.35 $ (1.65)
Discontinued operations.................................. 0.64 0.26 0.02
----------- ----------- ------------
Net income (loss) per common share (basic)................ $ 0.30 $ 0.61 $ (1.63)
=========== =========== ============
Number of shares used in computing net income (loss) per
common share outstanding (basic).......................... 7,948,914 9,385,889 11,927,248
=========== =========== ============
Net income (loss) per common share (diluted):
Continuing operations.................................... $ (0.32) $ 0.31 $ (1.65)
Discontinued operations.................................. 0.60 0.23 0.02
----------- ----------- ------------
Net income (loss) per common share (diluted).............. $ 0.28 $ 0.54 $ (1.63)
=========== =========== ============
Number of shares used in computing net income (loss) per
common share outstanding (diluted)........................ 8,420,100 10,662,043 11,927,248
=========== =========== ============

</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>

AXENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

CURRENCY
COMMON STOCK ADDITIONAL TRANSLATION
-------------------- PAID-IN ADJUSTMENT ACCUMULATED
SHARES AMOUNT CAPITAL & OTHER DEFICIT TOTAL
---------- -------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994.............................. 7,944,389 $159,000 $28,438,000 $(477,000) $(26,176,000) $ 1,944,000
Net income......................... -- -- -- -- 2,355,000 2,355,000
Stock options exercised............ 9,075 -- 18,000 -- -- 18,000
Foreign currency translation gain.. -- -- -- 46,000 -- 46,000
Spin-off of discontinued
operations........................ -- -- (6,323,000) 392,000 4,544,000 (1,387,000)
---------- -------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31,
1995.............................. 7,953,464 159,000 22,133,000 (39,000) (19,277,000) 2,976,000
Net income......................... -- -- -- -- 5,680,000 5,680,000
Issuance of common stock
(net of costs of
$960,000)......................... 2,000,000 40,000 25,040,000 -- -- 25,080,000
Stock options exercised............ 176,600 4,000 339,000 -- -- 343,000
Tax benefit related to
employee stock options............ -- -- 397,000 -- -- 397,000
Foreign currency translation loss.. -- -- -- (28,000) -- (28,000)
---------- -------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31,
1996.............................. 10,130,064 203,000 47,909,000 (67,000) (13,597,000) 34,448,000
Net loss........................... -- -- -- -- (19,441,000) (19,441,000)
AssureNet acquisition.............. 1,550,000 31,000 23,046,000 -- -- 23,077,000
Stock options exercised............ 716,577 14,000 1,904,000 -- -- 1,918,000
Tax benefit related to
employee stock options............ -- -- 3,053,000 -- -- 3,053,000
Unrealized gain on marketable
securities, net of tax provision
of $159,000 ...................... -- -- -- 238,000 -- 238,000
Foreign currency translation loss.. -- -- -- (234,000) -- (234,000)
---------- -------- ----------- --------- ------------ ------------
BALANCE, DECEMBER 31,
1997.............................. 12,396,641 $248,000 $75,912,000 $ (63,000) $(33,038,000) $ 43,059,000
========== ======== =========== ========= ============ ============

</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
AXENT TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------ ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations............................................. $(2,695,000) $ 3,285,000 $(19,696,000)
Adjustments to reconcile income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................ 263,000 692,000 1,569,000
Write-off of purchased in-process research and development........................... -- -- 27,632,000
Provision for losses on accounts receivable.......................................... (18,000) 233,000 (392,000)
Change in deferred income taxes...................................................... -- (400,000) 773,000
Accretion of discount on marketable securities....................................... -- -- (347,000)
Gain on sale of marketable securities................................................ -- -- (1,738,000)
Amortization of discount on long-term debt........................................... 129,000 51,000 --
Change in assets and liabilities 3,791,000
(Increase) decrease in accounts receivable........................................... (2,565,000) 12,000 (3,752,000)
Increase in prepaid expenses and other assets........................................ (121,000) (230,000) (788,000)
Increase (decrease) in accrued liabilities and accounts payable...................... 885,000 1,723,000 (747,000)
(Decrease) Increase in income taxes payable.......................................... (2,146,000) (397,000) 3,791,000
(Decrease) Increase in deferred revenue.............................................. (616,000) 613,000 944,000
----------- ------------ ------------
Net cash (used in) provided by operating activities............................... (6,884,000) 5,582,000 7,249,000
Net cash provided by (used in) discontinued operating activities (note 2)......... 7,707,000 379,000 (412,000)
----------- ------------ ------------
Net cash provided by operating activities............................................ 823,000 5,961,000 6,837,000
----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures................................................................. (867,000) (955,000) (1,198,000)
Sale of property, plant, and equipment............................................... -- -- 41,000
Maturity of marketable securities (note 13).......................................... -- -- 18,629,000
Purchases of marketable securities (note 13)......................................... -- (18,629,000) (14,356,000)
Proceeds from sale of marketable securities (note 13)................................ -- -- 1,738,000
Purchase of software................................................................. -- (900,000) (25,000)
Proceeds from sale of Helpdesk business.............................................. -- 300,000 --
Payments for corporate acquisition (net of cash acquired)(note 3).................... (1,833,000) (854,000) (4,554,000)
----------- ------------ ------------
Net cash (used in) provided by investing activities............................... (2,700,000) (21,038,000) 275,000
Net cash provided by discontinued investing activities (note 2)................... 1,284,000 860,000 645,000
----------- ------------ ------------
Net cash (used in) provided by investing activities................................. (1,416,000) (20,178,000) 920,000
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from initial public offering of common
stock (net of costs of $960,000).................................................... -- 25,080,000 --
Proceeds from line of credit draws................................................... -- -- 490,000
Principal payments on line of credit................................................. -- -- (1,402,000)
Proceeds from issuance of common stock............................................... 18,000 343,000 1,918,000
----------- ------------ ------------
Net cash provided by financing activities........................................ 18,000 25,423,000 1,006,000
----------- ------------ ------------
Effect of exchange rate changes on cash............................................... 46,000 (28,000) (234,000)
----------- ------------ ------------
Net (decrease) increase in cash and cash equivalents.................................. (529,000) 11,178,000 8,529,000
Cash and cash equivalents, beginning of period........................................ 6,612,000 6,083,000 17,261,000
----------- ------------ ------------
Cash and cash equivalents, end of period.............................................. $ 6,083,000 $ 17,261,000 $ 25,790,000
=========== ============ ============

</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>

AXENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

AXENT Technologies, Inc. and its subsidiaries (the "Company" or "AXENT")
develop, market, license and support enterprise-wide information security
solutions for client/server computing environments and provide related services.

The financial statements of AXENT have not been restated to reflect
consummation of the acquisition of Raptor Systems, Inc. ("Raptor") which was
accounted for as a pooling-of-interests and consummated on February 5, 1998, in
accordance with APB No. 16. See Note 15.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, which could differ from actual results. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses for these financial statements.

Consolidation

The accompanying consolidated financial statements include the accounts of
AXENT Technologies, Inc. and its wholly-owned subsidiaries, including AXENT
Technologies Limited, AXENT BV, AssureNet Pathways, Inc. and its subsidiaries,
and Datamedia Corporation and its subsidiaries. These entities are collectively
referred to as the "Company." All significant intercompany transactions have
been eliminated.

Revenue Recognition

The Company develops, markets, licenses and supports computer software
products and provides related services. The Company conveys the rights to use
the software products to customers under perpetual license agreements, and
conveys the rights to product support and enhancements in annual maintenance
agreements or understandings. The Company generally ships its software on a
trial basis and recognizes revenue upon acceptance of the software by the
customer. The Company defers and recognizes maintenance and support services
revenue over the term of the contract period, which is generally one year. The
Company recognizes training and consulting services revenue as the services are
provided. The Company generally expenses sales commissions as the related
revenue is recognized and pays sales commissions upon receipt of payment from
the customer. The Company's revenue recognition policies for all periods
presented are in conformity with the Statement of Position 91-1, "Software
Revenue Recognition," promulgated by the American Institute of Certified Public
Accountants.

In addition to the direct sales effort, the Company licenses its products
and provides support services to customers through a network of independent
distributors. The Company generally records revenue from independent
distributors at the net license or service fee, after deducting the
corresponding independent distributor's commissions. Product support and
enhancement fees from independent distributors, net of independent distributor
commissions, are recorded as deferred revenue when received and recognized
ratably over the applicable contract period. Included in the financial
statements are net revenues from independent distributors of $1,211,000,
$1,930,000, and $10,677,000 in 1995, 1996 and 1997, respectively.
<PAGE>

Software Development Costs

Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software development
costs once technological feasibility is established, which the Company generally
defines as completion of a working model. Capitalization ceases when the
products are available for general release to customers, at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated product life, or on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between achieving
technological feasibility and the general availability of such software has been
short, and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs with respect to its continuing operations.

Net income per common share

During 1997, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings per Share," to calculate net income per share.
Basic earnings per common share have been computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares outstanding plus an assumed increase in common
shares outstanding for dilutive securities. Net income as reported is available
to common stockholders and is not adjusted for basic or diluted earnings per
share. Dilutive securities consist entirely of options to acquire common stock
for a specified price and their dilutive effect is measured using the treasury
method. Earnings per share for all other periods presented have been restated to
conform to SFAS No. 128.

The following table reconciles the weighted average number of common shares
during each period for basic earnings per share with the comparable amount for
diluted earnings per share.

<TABLE>
<CAPTION>
(amounts in thousands) 1995 1996 1997
- ---------------------- ----- ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding (basic) 7,949 9,386 11,927
Stock options 471 1,276 --
----- ------ ------
Weighted average shares outstanding (diluted) 8,420 10,662 11,927
===== ====== ======
</TABLE>
Purchased Software

Purchased software is recorded at the lower of cost or net realizable
value. Amortization is calculated on a straight-line basis over the estimated
lives of the software products, generally three years. Amortization expense for
the years ended December 31, 1996 and 1997 was $57,000 and $432,000,
respectively. Purchased software, included in other assets, is as follows:

December 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
Purchased software........ $ 602,000 $1,192,000
Accumulated amortization.. (102,000) (534,000)
--------- ----------
Purchased software, net... $ 500,000 $ 658,000
========= ==========
</TABLE>
<PAGE>

In 1996, the Company entered into an agreement with an unrelated third
party to pay up to $1,500,000 for a nonexclusive license to the source code of
certain security technology. Pursuant to this agreement, the Company paid the
third party a $500,000 acquisition fee upon acceptance of the source code, plus
a non-refundable royalty prepayment of $400,000. Amortization expense was zero
and $167,000 for 1996 and 1997, respectively, and is included in the schedule
above.

As a result of the AssureNet purchase in 1997, the Company acquired
$1,455,000 of purchased software. Due to AssureNet's history of net operating
losses, a full valuation allowance was recorded against AssureNet's deferred tax
assets. During 1997, a tax benefit in the amount of $890,000 was recognized due
to the utilization of AssureNet's deferred tax assets and the reduction of the
related valuation allowance. In accordance with SFAS No. 109, the benefit was
recorded as a reduction in the book value of the intangible assets.
Accordingly, the basis of the purchased software was reduced by $890,000 during
1997. Amortization expense for the year ended December 31, 1997 related to this
software was $265,000 and is included in the schedule above.

Income Taxes

Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets or
liabilities are recorded to reflect the tax consequences on future years of the
differences between the financial statement and income tax bases of assets and
liabilities, using presently enacted tax rates. Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period.

Foreign Currency Translation

The assets and liabilities of non-U.S. operations are translated into U.S.
dollars at exchange rates in effect as of the balance sheet date. Revenue and
expense accounts of these operations are translated at average exchange rates
prevailing during the month the transactions occur. Translation gains and losses
are included as an adjustment to stockholders' equity. Net transaction gains
(losses) for the years ended December 31, 1995, 1996 and 1997 were $3,000,
($22,839) and $6,588 respectively, and are included in the income (loss) from
continuing operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of time and demand deposits and short-
term repurchase agreements, which have original maturity dates of three months
or less. As of December 31, 1996 and 1997, the Company had experienced no losses
on these investments.

Marketable Securities

Marketable securities include short-term securities investments in
certificates of deposit and government securities as well as investments in
other equity securities.

The Company accounts for its marketable securities under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." In 1996,
pursuant to SFAS No. 115, the Company classified its short-term securities
investments as "available-for-sale" and, accordingly, carried such securities at
aggregate fair value with unrealized gains and losses included as a component of
stockholders' equity, net of tax. These securities all matured during 1997.
Securities purchased in 1997 were classified as "held-to-maturity" and are,
accordingly, carried at amortized cost. The Company's short-term investments
consist primarily of certificates of deposit and government securities, all with
maturities of one year or less. Gains and losses are determined based on the
specific identification method. During 1996 and 1997, the Company did not
realize significant gains or losses on short-term investments.

As part of the consideration for the sale of its storage management
products effective as of December 31, 1994, the Company received a warrant to
purchase 250,000 shares of common stock of MTI Technology Corporation ("MTI").
On October 15, 1997, the Company exchanged its warrant for 161,830 shares of
MTI common stock. These shares are considered to be available-for-sale as of
the exchange of the warrant. During 1997, AXENT received proceeds of $1.74
million ($1.04 million, net of taxes) from the sale of 131,380 shares of MTI
common stock. Based upon the closing price of $13.25 on December 31, 1997, the
market value of the remaining 30,000 unsold shares of MTI common stock was
$398,000. As of January 22, 1998, the remaining 30,000 shares of MTI common
stock had been sold.
<PAGE>

Marketable Securities as of December 31, 1996 and 1997, consisted of the
following:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Equities................. $ -- $ 398,000
Certificates of deposit.. 1,600,000 1,701,000
Government securities.... 17,029,000 13,001,000
----------- -----------
$18,629,000 $15,100,000
=========== ===========
</TABLE>
Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and cash equivalents,
short-term investments, accounts receivable, and to a lesser extent, currencies
denominated in other than U.S. dollars. The Company limits the amount of
investment exposure to any one financial instrument. The Company performs on-
going credit evaluations and maintains reserves for potential credit losses;
historically such losses have been immaterial. The Company minimizes the amount
of cash it maintains in local currencies by maintaining excess cash in U.S.
dollars.

There were no customers that accounted for more than 10% of revenue in 1997. One
customer accounted for 21% of revenue in 1996.

Recent Accounting Pronouncements

NOTE 2. RESTRUCTURING, DISPOSITIONS AND LIQUIDATIONS

In mid-1994, the Company made a strategic decision to focus its business on
the information security market and to divest itself of products and services
unrelated to such core business.

Effective December 31, 1995, in a transaction intended to qualify as a
tax-free reorganization, the Company transferred certain operations, assets,
liabilities and foreign subsidiaries to Raxco Software Inc. ("Raxco") and
approved the distribution of the preferred stock of such subsidiary to the
Company's stockholders resulting in the division of the Company's operations
into two separate companies (the "Spin-off"). The distributed operations
included the sales, marketing and support operations related to the OpenVMS
utility software business, leaving the Company with the sales, marketing,
development and support operations associated with the information security
business and ownership of the OpenVMS utility software products. The Company
elected to spin-off the distributed operations because of (i) the Company's
strategic focus on information security, (ii) the fundamental differences
between the information security business and the OpenVMS utility software
business and (iii) the capital requirements of multiple lines of businesses.

In connection with the Spin-off, the Company and Raxco entered into an
Exclusive Distributor License Agreement, an Administrative Services Agreement
and a Line of Credit Loan Agreement. Pursuant to the Exclusive Distributor
License Agreement, Raxco will distribute the Company's OpenVMS utility software
products and pay the Company a royalty through 2000, unless extended. The
Company will account for royalties as non-operating income from continuing
operations. Pursuant to the Administrative Services Agreement, Raxco will pay
the Company the greater of $750,000 or the actual cost of providing certain
operational and system support services including bookkeeping, personnel
processing, administrative support, facilities management and product packaging
and mailing. Pursuant to the Line of Credit Agreement, the Company provided a
line of credit to Raxco of up to $750,000 for general working capital needs for
a period of 12 months. This Line of Credit Loan Agreement expired at December
31, 1996.

For the periods ended December 31, 1996 and 1997, the Company recorded
royalty income of $3.32 million and $2.98 million, respectively, under the
Exclusive Distributor License Agreement and recorded $750,000 and $570,000,
respectively, as an offset to general and administrative expenses related to the
Administrative Services Agreement.

For the periods ended 1996 and 1997, Raxco reported to the Company gross
revenues of approximately $11.2 million (unaudited) and $11.7 million
(unaudited), respectively, which included approximately $11.1 million
<PAGE>

(unaudited) and $9.9 million (unaudited) of revenues from licensing of the
Company's OpenVMS utility products and a net loss of $621,000 (unaudited) and
$618,000 (unaudited) for the years ended December 31, 1996 and 1997,
respectively.

During 1996, one of the Company's foreign subsidiaries distributed the
Company's OpenVMS utility software product licensed to Raxco pursuant to the
Exclusive Distributor License Agreement, in order to ensure a smooth transition
of the operations and customer base to Raxco. Included in the Company's results
from discontinued operations are revenues of $932,000 and expenses of $349,000
related to this understanding. This arrangement was terminated in December 1996.

In February 1996, the Company disposed of its Helpdesk operations for
approximately $2.0 million, consisting of an initial cash payment of $150,000, a
non-interest bearing note of $150,000, assumption of approximately $400,000 in
obligations and liabilities, and the payment of a royalty up to a maximum of
$1.3 million on future gross revenues from all Helpdesk product license and
maintenance fees. The Company transferred to the buyer the Helpdesk products
and the related fixed assets and customer base. The buyer assumed all of the
Company's obligations related to the Helpdesk products including obligations
related to sales, marketing, support and development employees, telephone
support obligations for the existing customers and the facility lease
obligations. The Company recognized a $10,000 gain associated with the
transaction. During 1996, the Company received $150,000 in full payment of the
non-interest bearing note associated with the sale of the Helpdesk operations
and recorded royalties of $48,000. During 1997, the Company recorded royalties
of $60,537. In 1997, the Company and the buyer agreed to amend the purchase
agreement by terminating the relationship for $150,000 in final consideration.

On December 31, 1994, the Company sold its storage management products for
approximately $1.0 million in cash, $2.5 million in notes receivable and the
assumption of $1.5 million in certain liabilities, primarily related to customer
support obligations for the storage management products. In addition, the
purchaser assumed ongoing facility lease obligations of approximately $887,000,
and personnel obligations associated with approximately 28 employees. The
Company also received a warrant to purchase 250,000 shares of the purchaser's
common stock. The notes receivable have a stated interest rate of 8.5% and are
due quarterly over a two and one-half year period. Of the notes receivable,
$350,000 was contingent on the purchasers' successful completion of future
software deliverables to a specific customer. This transaction resulted in a
pre-tax gain of approximately $4.8 million ($4.3 million after tax), net of
costs incurred in connection with the sale. The Company recognized $2.3 million
of the gain in 1994 and deferred $2.5 million. The deferred gain was recognized
as the payments on the notes were received, which approximated the potential
exposure and time frame of certain contractual indemnification provisions
provided by the Company to the purchaser for third party claims related to
product ownership and performance prior to the sale or other related liabilities
incurred by the Company. The Company recognized $860,000 of the gain in both
1995 and 1996 and $430,000 of the gain in 1997.

During 1994 and 1995, the Company restructured, sold or put into
liquidation several wholly-owned subsidiaries and ceased direct operations in
France, Germany, Switzerland, Sweden and Norway. The Company subsequently
entered into distribution agreements with independent distributors to market the
Company's information security products in these countries.

For financial statement purposes, the foregoing discontinued operations
(the "Discontinued Operations") have been accounted for in accordance with APB
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," and classified as discontinued operations in
the Consolidated Statement of Operations. Prior to the Spin-off, the Company and
Raxco shared certain administrative functions including cash management,
payroll, purchasing, distribution, employee benefit plans, insurance and
administrative services. As a result, substantially all of the cash receipts of
the Company and Raxco were co-mingled. Similarly, operating expenses, capital
expenditures and other cash outlays were centrally disbursed and charged
directly or allocated, based on relative revenue or headcount percentages, to
Raxco. In the opinion of management, the Company's methods for allocating costs
are reasonable. However, such allocated costs are not necessarily indicative of
the costs that would have been incurred by the Company or Raxco if the
Discontinued Operations had been discontinued as of the beginning of 1994. It is
not practicable to determine what those costs would have been on a stand-alone
basis.
<PAGE>

The following table summarizes the results of Discontinued Operations for
the divested operations for the years ended December 31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1996 1997
----------- ---------- ---------
<S> <C> <C> <C>
Net revenues:
Open VMS utility................................ $14,313,000 $ 932,000 $103,000
Storage management.............................. 91,000 -- --
Helpdesk........................................ 2,359,000 -- --
----------- ---------- --------
Total net revenues............................. 16,763,000 932,000 103,000
----------- ---------- --------
Cost of net revenues............................. 1,537,000 81,000 --
----------- ---------- --------
Gross profit..................................... 15,226,000 851,000 103,000
----------- ---------- --------
Operating expenses:
Sales and marketing............................ 5,420,000 165,000 97,000
Research and development....................... 1,970,000 -- --
General and administrative..................... 1,850,000 103,000 --
----------- ---------- --------
Total operating expenses..................... 9,240,000 268,000 97,000
----------- ---------- --------
Income from operations........................... 5,986,000 583,000 6,000
Non-operating income............................. -- 1,737,000 9,000
Gain on sale of storage management
products........................................ 860,000 860,000 430,000
Interest income, net............................. 421,000 19,000 14,000
----------- ---------- --------
Income before income taxes....................... 7,267,000 3,199,000 459,000
Provision for income taxes....................... 2,217,000 804,000 204,000
----------- ---------- --------
Income from discontinued operations, net of tax.. $ 5,050,000 $2,395,000 $255,000
=========== ========== ========
</TABLE>

The following table summarizes the identifiable net assets and liabilities
related to the Discontinued Operations included in the accompanying Consolidated
Balance Sheets as of December 31, 1996 and 1997. Pursuant to the terms of the
Spin-off, the Company retained and has remaining the following identifiable
assets and liabilities of the Discontinued Operations at December 31, 1996 and
1997, respectively. The net identifiable liabilities have been included in
accrued liabilities and accounts payable as of December 31, 1996 and 1997.

<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
------------ ----------
<S> <C> <C>
Accounts receivable........................ $ 109,000 -
Notes receivable........................... 1,009,000 -
Other current assets....................... 55,000 -
----------- ---------
Total assets........................... $ 1,173,000 -
----------- ---------
Accrued liabilities and accounts payable... $ (356,000) $(141,000)
Deferred gain.............................. (780,000) -
Deferred revenue........................... (200,000) -
----------- ---------
Total liabilities...................... $(1,336,000) $(141,000)
----------- ---------
Net identifiable liabilities............... $ (163,000) $(141,000)
=========== =========

</TABLE>
<PAGE>

The following table summarizes the Statement of Cash Flows related to the
Discontinued Operations included in the accompanying Consolidated Statement of
Cash Flows for the years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Year Ended December, 31
--------------------------------------
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows from discontinued operating activities:
Income from discontinued operations........................ $ 5,050,000 $ 2,395,000 $ 255,000
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation and amortization................................ 900,000 -- --
Gain on sale of storage management products.................. (860,000) (860,000) (430,000)
Provision for income taxes................................... 2,146,000 -- --
Decrease in accounts receivable.............................. 3,038,000 2,949,000 109,000
Decrease in other assets..................................... 338,000 126,000 55,000
Decrease in accrued liabilities and accounts payable......... (2,091,000) (706,000) (215,000)
Decrease in deferred revenue................................. (781,000) (3,544,000) (200,000)
(Increase)decrease in interest accrued on note receivable.... (33,000) 19,000 14,000
----------- ----------- ---------
Net cash provided by (used in) operating activities............ $ 7,707,000 $ 379,000 $(412,000)
=========== =========== =========
Cash flows from discontinued operations investing activities:
Proceeds from sale of storage management products............ 1,570,000 $ 860,000 $ 645,000
Capital expenditures......................................... (286,000) -- --
----------- ----------- ---------
Net cash provided by investing activities...................... $ 1,284,000 $ 860,000 $ 645,000
=========== =========== =========
</TABLE>

NOTE 3. ACQUISITIONS

On March 25, 1997, the Company exchanged 1,550,000 shares of AXENT common
stock for all of the outstanding stock and options of AssureNet Pathways, Inc.
("AssureNet") in a transaction valued at $32.0 million, which was accounted for
using the purchase method of accounting. A portion of the purchase price was
allocated to the net assets acquired, based on their fair market value. The
fair market value of the tangible assets acquired was approximately $2.9
million, and purchased software was valued at approximately $1.5 million. The
remaining $27.6 million of the purchase price was allocated to in-process
research and development based on the determination of the products' net present
value using a discounted cash flow model. These products had not reached
technological feasibility and had no probable future uses, and, therefore, were
expensed at the date of the acquisition. The operating results of AssureNet have
been included in the Consolidated Statement of Operations since January 7, 1997.

The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of AssureNet had occurred at the beginning
of 1996 and assuming the hardware resale business had been discontinued as of
the beginning of 1996. The pro forma information is presented for information
purposes only and is not indicative of what would have occurred if the
acquisition had actually been made as of the beginning of 1996. In addition, the
pro forma information is not intended to be a projection of future results and
does not reflect synergies expected to result from the integration of AssureNet
and AXENT.

<TABLE>
<CAPTION>
Year Ended December 31,
1996
-----------
<S> <C>
Pro Forma Information (Unaudited):

Net revenues.............................................. $25,890,000
Net income from continuing operations..................... 1,809,000
Net income per common share from continuing operations
(basic).................................................. $ 0.19
Net income per common share from continuing operations
(diluted)................................................ $ 0.17
</TABLE>

On December 1, 1997, AXENT and Raptor jointly announced that both companies
had signed a definitive merger agreement (see Note 15).

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements.......................... $ 176,000 $ 281,000
Computer equipment.............................. 2,904,000 4,129,000
Furniture and fixtures.......................... 630,000 752,000
----------- -----------
3,710,000 5,162,000
Less accumulated depreciation and amortization.. (2,293,000) (2,922,000)
----------- -----------
Property and equipment, net..................... $ 1,417,000 $ 2,240,000
=========== ===========
</TABLE>

Property and equipment are stated at cost. Depreciation and amortization
are calculated using either straight-line or accelerated methods over the
estimated useful lives of the assets. Depreciation expense amounted to
approximately $212,000, $635,000 and $1,138,000 for 1995, 1996 and 1997,
respectively. The principal estimated
<PAGE>

useful lives range from three to five years for computer equipment and seven to
ten years for furniture and fixtures. Leasehold improvements are amortized over
the shorter of their economic useful life or the terms of the respective lease.

NOTE 5. LONG-TERM DEBT

During 1995, the Company had a revolving credit facility commitment with
the Bank of Boston ("the Bank") for up to $2.5 million with interest at the
Bank's base rate plus 0.25%. In 1996, the revolving credit facility commitment
with the Bank expired. There were no amounts outstanding under the revolving
credit facility at the time of expiration.

In January 1997, AssureNet entered into an agreement with a different bank
for a $2,500,000 revolving line of credit facility ("Line of Credit") and a
$750,000 non-revolving equipment line ("Equipment Line"). In 1997, the
Company paid all amounts outstanding under the Line of Credit and the Equipment
Line.

In connection with the acquisition of Datamedia Corporation ("Datamedia")
in 1994, the Company recorded two non-interest bearing $1.0 million
notes due to the former Datamedia stockholders on December 9, 1995 and December
9, 1996 at a discounted value. The discounted value reflected a 7.5% imputed
interest rate. The Datamedia notes were collateralized by substantially all of
the assets of the Company, subordinated to the interest of the Bank. The Company
paid former Datamedia stockholders $1,161,000 and $717,000 during 1995 and 1996,
respectively, related to the notes.

Total interest expense was $129,000, $51,000 and zero in 1995, 1996 and
1997, respectively. Interest expense in 1995 and 1996 related solely to the
imputed interest on the notes payable to former Datamedia stockholders.

NOTE 6. DEVELOPER ROYALTIES

The Company has royalty agreements with a developer for certain VMS
utility products. Following the Spin-off, Raxco became the exclusive distributor
for these products and has assumed full responsibility for the payment of
royalties due the developer. Accordingly, no royalty expense was incurred by the
Company in 1996 or 1997.

In 1996, the Company entered into an agreement with an unrelated third
party to purchase a nonexclusive license to the source code of a certain
technology. The Company paid a $400,000 non-refundable pre-payment against
future royalties. The Company may be required to pay up to an additional
$600,000 in royalties based on a percentage of the revenues derived from the
source code license over a three-year period. The Company incurred royalties of
zero and $91,000 in 1996 and 1997, respectively.

NOTE 7. ACCRUED LIABILITIES AND ACCOUNTS PAYABLE

Accrued liabilities and accounts payable consist of the following:

<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Accounts payable, accrued expenses........ $3,217,000 $4,662,000
Accrued payroll, bonus and vacation....... 2,127,000 2,688,000
Accrued royalties and commissions......... 863,000 1,117,000
Subsidiary liquidation and restructuring.. 154,000 --
Net identifiable liabilities.............. 163,000 141,000
---------- ----------
$6,524,000 $8,608,000
========== ==========
</TABLE>
<PAGE>

NOTE 8. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under operating leases expiring through
2005. A majority of the leases contain escalation clauses tied to Consumer Price
Index changes, which provide for increases in base rental to recover increases
in future operating costs. The future minimum rental payments shown below
include base rentals, exclusive of any future escalation. Rent expense is
recognized ratably over the period of occupancy for these leases. Rent expense
amounted to approximately $779,000, $872,000 and $1,267,000 for 1995, 1996 and
1997, respectively.

The future minimum payments under non-cancelable lease agreements as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1998..................... $1,375,000
1999..................... 976,000
2000..................... 696,000
2001..................... 259,000
2002..................... 205,000
Thereafter............... 546,000
----------
$4,057,000
==========
</TABLE>

The total of future minimum lease payments to be received under
non-cancellable sub-leases related to the above leases is $300,000.

Legal Proceedings

The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially effect the
financial position or results of operations of the Company.

NOTE 9. COMMON STOCK

In January 1996, the Board of Directors adopted an amended and restated
Certificate of Incorporation which increased the authorized capitalization of
the Company from 10,000,000 shares of common stock to 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock. The par value of each
class of stock remained at $0.02 per share. During 1996, warrants to purchase
30,000 shares were exercised.

In April 1996, the Company filed a registration statement with the
Securities and Exchange Commission and sold 2,000,000 shares of its common stock
to the public. Under that registration statement, certain non-officer
stockholders of the Company also sold 990,000 shares to the public, which
included 390,000 shares to cover over-allotments. After the registration
statement became effective, the initial public offering closed, resulting in
proceeds to the Company of approximately $25.08 million, net of approximately
$1.96 million and $960,000 in underwriting fees and offering expenses,
respectively. The Company received no proceeds from the sale of shares by
selling stockholders in the initial public offering.

On January 7, 1997, AXENT signed a definitive agreement to acquire
AssureNet. On March 26, 1997, AXENT successfully completed this acquisition
through the issuance of 1,550,000 shares of AXENT common stock to AssureNet
securityholders and the assumption of stock options and warrants to acquire up
to 54,977 shares of AXENT common stock.

On December 1, 1997, AXENT and Raptor jointly announced that both companies
had signed a definitive merger agreement (see Note 15).
<PAGE>

NOTE 10. STOCK OPTION PLANS

The Company has adopted certain fixed stock option plans. At the Company's
Annual Meeting of Stockholders on May 21, 1997, stockholders approved a proposal
to increase the number of shares of common stock reserved for issuance under
AXENT's Amended and Restated 1996 Stock Option Plan (the "Employee Plan") by
975,000 shares. The amended Employee Plan, together with a predecessor stock
option plan, provides for a total of 3,476,714 shares of common stock to be
issued. The Employee Plan and the predecessor plan provide for grants to
employees, consultants, directors and advisors. Of the authorized shares under
the Employee Plan and the predecessor plan, options for 1,943,411 shares are
outstanding; 1,003,594 shares have been issued; and 529,709 shares are available
for future grants. The 1996 Directors' Stock Option Plan (the "Director Plan")
allows for the granting of up to 200,000 options to directors of the Company who
are not employees of the Company. Of the authorized shares under the Director
Plan, options for 29,000 shares are outstanding, no shares have been issued, and
171,000 shares are available for future grants. The exercise price of each
option equals the market price of the Company's stock as determined on the date
of grant and the option's maximum term ranges from seven to ten years. Options
are granted throughout the year and vest over a period of four to five years,
except the options granted under the Director Plan which vest over a period of
one to three years. During 1997, the company exchanged 264,400 options with
exercise prices between $14.00 and $15.00 per share, for options with an
exercise price of $11.125 per share, which was the fair market value of the
Company's common stock on the date of the exchange.

Option activity for 1995, 1996 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
Of Options Price Range Exercise Price
----------- ------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1994.. 1,274,033 $ 1.40- 3.00 $ 2.13
Granted......................... 161,100 3.00- 4.00 3.63
Exercised....................... (9,075) 1.40- 3.00 2.00
Canceled........................ (142,358) 1.40- 4.00 2.93
--------- ------------- ------
Outstanding, December 31, 1995.. 1,283,700 1.40- 4.00 $ 2.23
--------- ------------- ------
Granted......................... 463,500 10.00- 15.00 11.82
Exercised....................... (146,600) 1.40- 4.00 2.04
Canceled........................ (44,700) 1.70- 12.00 6.87
--------- ------------- ------
Outstanding, December 31, 1996.. 1,555,900 1.40- 15.00 $ 4.97
--------- ------------- ------
Granted......................... 1,532,842 11.13-20.00 12.45
Exercised....................... (716,577) 1.40-12.00 2.68
Canceled........................ (399,754) 1.70-20.00 12.82
--------- ------------- ------
Outstanding, December 31, 1997.. 1,972,411 $ 1.40-20.00 $ 9.94
========= ============= ======
</TABLE>

Stock options for 909,713, 973,450, and 749,758 shares were vested and
exercisable as of December 31, 1995, 1996, and 1997, respectively. The weighted
average fair value of options granted for 1995, 1996 and 1997 were $0.69,
$6.11 and $8.14, respectively. The weighted average fair value of options
vested and exercisable as of December 31, 1995, 1996 and 1997 were $1.92, $2.27
and $6.89, respectively.

The following table summarizes information about fixed stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Avg.
Number Shares Remaining Number Shares
Outstanding At Contractual Weighted-Avg. Exercisable At Weighted-Avg.
Range Of Exercise Prices 12/31/97 Life Exer. Price 12/31/97 Exer. Price
- -------------------------- -------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$1.40 to 1.70 188,050 0.95 years $ 1.42 188,050 $ 1.42
$2.50 to 4.00 244,525 3.58 3.12 174,900 2.98
$10.00 to 15.00 1,399,636 6.19 11.33 371,933 11.10
$16.00 to 20.00 140,200 6.34 19.46 14,875 16.50
--------- ------------ ------ -------- ------
1,972,411 5.38 years $ 9.94 749,758 $ 6.89
========= ============ ====== ======== ======
</TABLE>
<PAGE>

During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has elected the disclosure-only alternative for
stock-based employee compensation which requires the disclosure of pro forma net
income or loss and per share amounts using the fair-value based method. The
Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Net income (loss)
As reported.................... $2,355,000 $5,680,000 ($19,441,000)
Pro forma...................... $2,342,000 $4,985,000 ($23,497,000)
Basic earnings (loss) per share
As reported.................... $0.30 $0.61 ($1.63)
Pro forma...................... $0.29 $0.53 ($1.97)
Diluted earnings (loss) per share
As reported.................... $0.28 $0.54 ($1.63)
Pro forma...................... $0.28 $0.47 ($1.97)
</TABLE>

For the purpose of SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes multiple option-pricing
model with the following weighted-average assumptions used for grants in 1995,
1996 and 1997, respectively: divided yield of 0% for all grants; expected
volatility of 65 percent; risk-free interest rates of 6.09, 6.14 and
6.20 percent; and expected lives of 3.5, 3.5 and 4.3 years for each grant.

NOTE 11. INCOME TAXES

The Company has adopted the asset and liability method of accounting for
income taxes as required by SFAS No. 109. In accordance with SFAS No. 109, the
Company previously determined that unrecognized tax benefits did not satisfy the
recognition criteria set forth in the standard. Accordingly, a valuation
allowance was recorded against the applicable deferred tax assets. During 1997,
a portion of the valuation allowance which was recorded against the deferred tax
assets was released. Management believes that it is more likely than not that
this deferred tax asset will be realized.

The Company files a consolidated tax return in the United States with its
U.S. subsidiaries. Deferred income taxes have been established by each entity
based upon the temporary differences, the reversal of which will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled.

The components of the provision (benefit) for income taxes included in
the Consolidated Statements of Operations are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1996 1997
------------ ----------- ----------
<S> <C> <C> <C>
Continuing Operations
Current provision (benefit)
Federal.............................................. $(1,999,000) $1,331,000 $3,583,000
State................................................ (147,000) 228,000 752,000
Foreign.............................................. -- -- 33,000
----------- ---------- ----------
Total current provision (benefit) from continuing operations... $(2,146,000) $1,559,000 $4,368,000
=========== ========== ==========
Deferred provision (benefit)
Federal.............................................. $ -- $ (370,000) $ 769,000
State................................................ -- (30,000) 162,000
Foreign.............................................. -- -- --
----------- ---------- ----------
Total deferred provision (benefit) from continuing operations.. $ -- $ (400,000) $ 931,000
=========== ========== ==========
Total provision (benefit) from continuing operations........... $(2,146,000) $1,159,000 $5,299,000
=========== ========== ==========
</TABLE>

<PAGE>

The Company's effective tax rate on pre-tax income (loss) from continuing
operations differs from the U.S. federal statutory tax rate as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
U.S. federal statutory rate.................................. (34.00)% 34.00% (34.00)%
Increase (decrease) in rates resulting from
State taxes................................................. (2.5) 4.4 (4.0)
Permanent differences....................................... 1.0 (0.6) 0.5
Write-off of purchased in process R&D....................... -- -- 72.9
Foreign losses not benefited................................ -- 16.0 4.8
Foreign income not subject to tax........................... (5.0) -- 0.2
Change in valuation allowance for deferred tax asset ....... (3.8) (27.7) (5.8)
Other....................................................... -- -- 2.2
--------- -------- -------
Effective tax rate.......................................... (44.30)% 26.10% 36.80%
========= ======== =======
</TABLE>

Deferred tax assets (liabilities) are included in other assets and are
comprised of the following:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997
--------------------------------- -------------------------------------
Federal State Foreign Federal State Foreign
---------- -------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current deferred assets
Accrued expenses.................................. $ 252,000 $ 31,000 $ -- $ 199,000 $ 37,000 --
Deferred revenue.................................. 157,000 20,000 -- -- -- --
Reserves.......................................... 242,000 30,000 -- 186,000 35,000 --
---------- -------- --------- ----------- --------- ----------
Total current deferred assets.................... 651,000 81,000 -- 385,000 72,000 --
---------- -------- --------- ----------- --------- ----------
Non-current deferred assets
Depreciation and amortization..................... 53,000 7,000 -- 135,000 25,000 --
Net operating loss................................ -- -- 632,000 2,283,000 428,000 1,171,000
State tax effect.................................. (30,000) -- -- -- -- --
Credits........................................... 471,000 -- -- 373,000 -- --
---------- -------- --------- ----------- --------- ----------
Total non-current deferred assets.............. 494,000 7,000 632,000 2,791,000 453,000 1,171,000
---------- -------- --------- ----------- --------- ----------
Gross deferred tax assets........................... 1,145,000 88,000 632,000 3,176,000 525,000 1,171,000
Valuation allowance................................. (775,000) (58,000) (632,000) (2,875,000) (468,000) (1,171,000)
---------- -------- --------- ----------- --------- ----------
Net deferred tax assets............................. $ 370,000 $ 30,000 $ -- $ 301,000 $ 57,000 --
========== ======== ========= =========== ========= ==========
</TABLE>

As of December 31, 1997, AXENT has a foreign loss carryover in the amount
of $3,000,000, which does not expire. In addition, AXENT's newly acquired
subsidiary, AssureNet, has net operating losses and credits that expire at
various dates through 2011. As of December 31, 1997, those net operating losses
were approximately $7,100,000 and the general business credit carryforwards were
approximately $369,000. Due to the greater than 50% change in AssureNet's
ownership, the annual utilization of the AssureNet net operating loss
carryforwards and credits is limited to the lesser of the future taxable income
of AssureNet or approximately $1,375,000. Approximately $3.3 million of the
remaining valuation allowance was recorded upon the acquisition of AssureNet. In
accordance with SFAS No. 109, a portion of the benefits relating to the reversal
of this valuation allowance will reduce the remaining intangible assets which
were recorded during the purchase price allocation.

NOTE 12. 401(K) RETIREMENT PLANS

The Company sponsors a 401(k) Retirement Plan (the "401(k) Plan") which is
qualified under section 401(k) of the Internal Revenue Code. Pursuant to the
401(k) Plan, eligible participants, which include all full-time U.S. employees
who have served for a requisite period, may elect to contribute a percentage of
their annual gross compensation to the 401(k) Plan. Contributions to the 401(k)
Plan by the Company are discretionary. For the years ended December 31, 1995,
1996 and 1997, the Company did not contribute to the 401(k) Plan. The Company
amended the terms of its existing 401(k) plan effective January 1, 1998, to
provide for a discretionary matching contribution by the Company of 25 percent
of the first 4 percent of qualified employee contributions.

In conjunction with the AssureNet acquisition (see Note 3), the Company
acquired a Savings and Retirement plan established for the benefit of the
AssureNet employees. Employer matching contributions are discretionary.
<PAGE>

Employer matching contributions are equal to 25% of the employee's contributions
to the Plan, up to 4% of their compensation. For the year ended December 31,
1997 the Company made contributions of $46,000.

In conjunction with the Datamedia acquisition (see note 5), the Company acquired
an additional 401(k) plan established for the benefit of the Datamedia
employees. All employee/employer contributions to such plan ceased effective
December 31, 1994. The Company is in the process of terminating this plan.

NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of certain tax and interest information as well
as non-cash investing and financing activities include the following:

1995

In connection with the Spin-off of the OpenVMS utility software business,
the Company made certain accruals and transferred certain identifiable assets
and foreign operations to Raxco in the amount of $1,387,000 (see note 2).

Cash paid for income taxes associated with discontinued operations was
$71,000.

1996

Cash paid for income taxes associated with continuing and discontinued
operations was $784,000 and $30,000, respectively. Cash paid for interest
associated with continuing operations was $114,000. During 1996, the Company's
current tax payable was reduced by approximately $397,000 due to tax benefits
associated with the exercise of employee stock options.

1997

Cash paid for income taxes associated with continuing and discontinued
operations was $298,000 and $289,000, respectively. During 1997, the Company's
current tax payable was reduced by approximately $3,053,000 due to tax benefits
associated with the exercise of employee stock options.

NOTE 14. FOREIGN OPERATIONS

The Company operates primarily in the United States and Europe. Summary
information related to these operations is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>

1995 1996 1997
----------- ----------- -----------
Net Revenues
United States... $10,687,000 $16,801,000 $32,083,000
International... 4,041,000 5,296,000 9,578,000
----------- ----------- -----------
$14,728,000 $22,097,000 $41,661,000
=========== =========== ===========
Total Assets
United States... $10,257,000 $42,820,000 $52,348,000
International... 2,389,000 1,181,000 4,127,000
----------- ----------- -----------
$12,646,000 $44,001,000 $56,475,000
=========== =========== ===========

</TABLE>
<PAGE>

NOTE 15. SUBSEQUENT EVENTS

On December 1, 1997, AXENT and Raptor jointly announced that both companies
had signed a definitive merger agreement. Under terms of the merger agreement,
AXENT offered 0.80 shares of its common stock for each outstanding share of
Raptor's common stock and agreed to exchange stock options for all Raptor Stock
options outstanding immediately prior to consummation of the merger. At special
meetings on February 5, 1998, the stockholders of AXENT and Raptor approved the
merger agreement. Based upon 13,690,521 shares of Raptor common stock, and stock
options covering a total of 2,158,127 shares of Raptor common stock, that were
outstanding immediately before the effective time of the merger, AXENT issued
approximately 10,952,380 shares of AXENT common stock and exchanged stock
options covering a total of 1,725,988 shares of AXENT common stock as a result
of the merger. The merger between AXENT and Raptor will be accounted for as a
"pooling-of-interests," and accordingly, historical financial data in future
reports will be restated to include Raptor. The following unaudited pro forma
data summarizes the combined results of operations of the Company and Raptor as
though the merger had occurred on January 1, 1995:

Years Ended December 31,
-----------------------------------------
1995 1996 1997
-----------------------------------------
<S> <C> <C> <C>
Net revenues........................... $18,630,000 $36,624,000 $ 69,821,000
Income (loss) from
continuing operations................ (5,381,000) 5,086,000 (18,870,000)
Income (loss) from continuing
operations per common share
Basic.............................. (0.56) 0.27 (0.83)
Diluted............................ (0.56) 0.24 (0.83)
</TABLE>

More detailed unaudited pro forma financial information restated to reflect
the combined operations of AXENT and Raptor is included in Item 7 of AXENT's
Form 10-K for the year ended December 31, 1997, under the caption "Unaudited Pro
Forma Combined Information of AXENT and Raptor."

In February 1998, the Company adopted the 1998 Incentive Stock Plan ("98
Plan") and the 1998 Employee Stock Purchase Plan ("Purchase Plan") and reserved
1,800,000 shares and 500,000 shares, respectively, for issuance thereunder. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, permits eligible employees of the Company to
purchase common stock of the Company, through payroll deductions of up to ten
percent of their compensation. The price of Common Stock purchased under the
Purchase Plan will be 85% of the lower of the fair market value of the Common
Stock on the first or last day of each three month purchase period. The Purchase
Plan will be administered by the Compensation Committee of the Board of
Directors.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Rockville,
Maryland, on the 30th day of March 1998.

AXENT TECHNOLOGIES, INC.

By: /S/ JOHN C. BECKER
------------------
John C. Becker
Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Company in the capacities and on the date indicated.

Each person whose signature appears below in so signing also makes,
constitutes and appoints John C. Becker, Gary M. Ford and Edwin M. Martin, Jr.,
and each of them acting alone, his true and lawful attorney-in-fact, with full
power of substitution, for him in any and all capacities, to execute and cause
to be filed with the Securities and Exchange Commission any and all amendments
and post-effective amendments to this Report, with exhibits thereto and other
documents in connection therewith, and hereby ratifies and confirms all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.

A Majority of the Board of Directors:
<TABLE>
<CAPTION>

SIGNATURE TITLE DATE
- --------- ----- ---------
<S> <C> <C>

/S/ JOHN C. BECKER President, Chief Executive March 30, 1998
- ---------------------------- Officer and Director (Principal
John C. Becker Executive Officer

/S/ ROBERT B. EDWARDS, JR. Vice President, Chief Financial March 30, 1998
- ---------------------------- Officer and Treasurer (Principal
Robert B. Edwards, Jr. Financial and Accounting Officer)

/S/ RICHARD A. LEFEBVRE Chairman of the Board and Director March 30, 1998
- ----------------------------
Richard A. Lefebvre

/S/ GABRIEL A. BATTISTA Director March 30, 1998
- ----------------------------
Gabriel A. Battista

/S/ JOHN F. BURTON Director March 30, 1998
- -----------------------------
John F. Burton

Director March 30, 1998
- -----------------------------
Shaun McConnon

/S/ ROBERT SCHECHTER Director March 30, 1998
- -----------------------------
Robert Schechter

/S/ ROBERT STEINKRAUSS Director March 30, 1998
- ---------------------------
Robert Steinkrauss
</TABLE>
<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of AXENT.
3.2(2) Amended and Restated Bylaws of AXENT.
4.1(1) Specimen stock certificate for shares of Common Stock of AXENT.
10.1(1) AXENT's 1991 Amended and Restated Stock Option Plan.
10.2(3) AXENT's 1996 Amended and Restated Stock Option Plan.
10.3(3) AXENT's 1996 Amended and Restated Directors' Stock Option Plan.
10.7(1) Registration Rights Agreement dated as of December 10, 1992, by and among AXENT and
the parties thereto.
10.7.1(3) Amendment No. 1 to Registration Rights Agreement dated as of February 26, 1997, by and among AXENT and
the parties thereto.
10.8(1) Settlement Agreement effective as of September 13, 1991, by and among AXENT and the
parties thereto.
10.9(1) Form of Indemnification Agreement between AXENT and its directors and executive
officers.
10.10(1) Agreement of Merger dated as of November 17, 1994, among AXENT, Datamedia Corporation and Raxco
Acquisition Corporation.
10.11(1) Lease Agreement dated as of September 6, 1995, by and between Research
Grove Associates and AXENT.
10.12(1) Lease of Real Property dated as of March 7, 1995, by and between TNK
Associates and AXENT.
10.13(1) Deed of Lease dated as of March 14, 1995 by and between Bill Harris
Music, Inc. and AXENT.
10.14(1) Agreement dated as of December 30, 1987, by and between AXENT and
William R. Davy.
10.15(1) Agreement dated as of September 20, 1990, by and between AXENT and
William R. Davy.
10.16(1) Agreement dated as of November 7, 1991, by and between AXENT and
William R. Davy.
10.18(1) Severance Arrangement for John C. Becker, dated October 16, 1992.
10.19(1) Severance Arrangement for Brett Jackson, dated October 16, 1992.
10.20(1) AXENT's Officer/Vice President Severance Policy.
10.21(1) Exclusive Distributor License Agreement, effective as of December 31,
1995, between AXENT and Raxco Software, Inc.
10.22(1) Administrative Services Agreement, effective as of December 31, 1995,
between the Company and Raxco Software, Inc.
10.24(1) Agreement and Plan of Separation, effective as of December 31, 1995,
between AXENT and Raxco Software, Inc.
10.29(3) Amended Agreement and Plan of Merger among AXENT, Axquisition, Inc.,
and AssureNet Pathways, Inc, dated as of January 6, 1997 and amended
February 26, 1997.
10.30(4) AXENT's 1998 Employee Stock Purchase Plan.
10.31(4) AXENT's 1998 Incentive Stock Plan.
10.32(4) AXENT's Exchange Option Plan for Optionees of Raptor Systems, Inc.
10.33(4) Agreement and Plan of Merger among AXENT, Axquisition Two, Inc. and
Raptor Systems, Inc. dated as of December 1, 1997.
21.1 * Subsidiaries of the Registrant.
23.1 * Consent of Coopers & Lybrand L.L.P.
23.1A * Opinion of Coopers & Lybrand L.L.P. on certain financial data schedules.
24.1 * Power of Attorney (included in signature pages).
</TABLE>
- ------------------
(1) Previously filed as an exhibit to AXENT's Registration Statement on
Form S-1 (File No. 333-01368) and incorporated herein by reference.
(2) Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1996.
(5) Previously filed as an exhibit to AXENT's Registration Statement on Form
S-4 (File No. 333-20207) and incorporated herein by reference.
(6) Previously filed as an exhibit to AXENT's Registration Statement on Form
S-4 (File No. 444-43265) and incorporated herein by reference.
* Filed herewith.

SCHEDULE DESCRIPTION
- -------- -----------
II.* Valuation and Qualifying Accounts All other schedules for which
provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the
related instructions or are applicable, and therefore have been
omitted.
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to End of
Description Period Expenses Deductions Period
- ------------------------------------------------------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 31, 1995............................................ $ 220,000 $ (18,000) $ 95,000 $ 297,000
December 31, 1996............................................ 297,000 233,000 (212,000) 318,000
December 31, 1997............................................ 318,000 392,000 (204,000) 506,000
DEFERRED TAX ASSET VALUATION ACCOUNT
December 31, 1995............................................ $2,526,000 -- $ 87,000 $2,613,000
December 31, 1996............................................ 2,613,000 -- (1,148,000) 1,465,000
December 31, 1997............................................ 1,465,000 3,975,000 (926,000) 4,514,000
</TABLE>

Note: Additions for 1997 include the beginning valuation allowance associated
with AssureNet.

<PAGE>

EXHIBIT 21.1
------------

SUBSIDIARIES OF AXENT TECHNOLOGIES, INC.
----------------------------------------

NAME ORGANIZED IN
- -------------------------- --------------------------

AssureNet Pathways, Inc. Delaware

AXENT Technologies Limited United Kingdom

AXENT B.V. Netherlands

Datamedia Corporation Delaware

Raptor Systems, Inc. Delaware

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements
of AXENT Technologies, Inc. on Form S-8 (File Nos.333-08827, 333-08829, 333-
08831, 333-24205, 333-47373, 333-47375 and 333-47379) of our reports, dated
January 27, 1998, on our audits of the balance sheets of AXENT Technologies,
Inc., as of December 31, 1996 and 1997, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1997 and the related financial statement
schedules, which reports are included in this Annual Report on Form 10-K. We
also consent to the reference to our firm under the caption "Selected
Consolidated Financial Data."

Coopers & Lybrand L.L.P.

Washington, D.C.
March 30, 1998

<PAGE>

EXHIBIT 23.1A

REPORT OF INDEPENDENT ACCOUNTANTS

In connection with our audits of the consolidated financial statements
of AXENT Technologies, Inc. and subsidiaries as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, which
financial statements are included in this Annual Report on Form 10-K, we have
also audited the financial statement schedule listed in Item 14 herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.

COOPERS & LYBRAND L.L.P.

Washington, D.C.
January 27, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated balance sheet and statement of operations of AXENT Technologies,
Inc. as of and for the year ended December 31, 1995, 1996 and 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 25,790,000 17,261,000 6,083,000
<SECURITIES> 15,100,000 18,629,000 0
<RECEIVABLES> 10,897,000 5,144,000 5,368,000
<ALLOWANCES> 506,000 318,000 297,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 52,867,000 41,284,000 11,492,000
<PP&E> 5,162,000 3,710,000 3,578,000
<DEPRECIATION> 2,922,000 2,293,000 2,481,000
<TOTAL-ASSETS> 56,475,000 44,001,000 12,646,000
<CURRENT-LIABILITIES> 13,416,000 9,553,000 9,544,000
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 248,000 203,000 159,000
<OTHER-SE> 42,811,000 34,245,000 2,817,000
<TOTAL-LIABILITY-AND-EQUITY> 56,475,000 44,001,000 12,646,000
<SALES> 0 0 0
<TOTAL-REVENUES> 41,661,000 22,097,000 14,728,000
<CGS> 0 0 0
<TOTAL-COSTS> 4,204,000 1,912,000 1,747,000
<OTHER-EXPENSES> 58,329,000 20,127,000 17,693,000
<LOSS-PROVISION> 392,000 233,000 (18,000)
<INTEREST-EXPENSE> 0 51,000 129,000
<INCOME-PRETAX> (20,872,000) 58,000 (4,712,000)
<INCOME-TAX> 5,299,000 1,159,000 (2,146,000)
<INCOME-CONTINUING> (19,696,000) 3,285,000 (2,695,000)
<DISCONTINUED> 255,000 2,395,000 5,050,000
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (19,441,000) 5,680,000 2,355,000
<EPS-PRIMARY> (1.63) 0.61 0.30
<EPS-DILUTED> (1.63) 0.54 0.26

</TABLE>