AXENT TECHNOLOGIES INC
10-Q, 2000-11-14
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                _______________

                                   FORM 10-Q
                                _______________


(Mark One)

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

For the quarterly period ended September 30, 2000

                                      OR

___  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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                      (I.R.S.Employer
     incorporation or organization)                     Identification No.)


                            2400 Research Boulevard
                                   Suite 200
                          Rockville, Maryland  20850
                   (Address of principal executive offices)


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

                               ________________

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes   X       No______
                                             -------


As of November 10, 2000, there were 29,042,894 shares outstanding of the
Registrant's Common Stock, par value $.02 per share.


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<PAGE>

                           AXENT TECHNOLOGIES, INC.
                           ------------------------

                                     INDEX
                                     -----
<TABLE>
<CAPTION>
                                                                                            Page
                                                                                           Number
                                                                                           ------
<S>                                                                                        <C>
PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements                                                                3

          Condensed Consolidated Balance Sheets as of                                         4
          September 30, 2000 (unaudited) and December 31, 1999

          Unaudited Condensed Consolidated Statements of Operations                           5
          for the three and nine months ended September 30, 2000 and 1999

          Unaudited Condensed Consolidated Statements of Cash Flows                           6
          for the nine months ended September 30, 2000 and 1999

          Unaudited Condensed Consolidated Statements of Comprehensive                        7
          Income (Loss) for the three and nine months ended September 30, 2000
          and 1999

          Notes to Unaudited Condensed Consolidated Financial Statements                      8

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                                      11

Item 3.   Qualitative and Quantitative Disclosures About Market Risk                         19

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                                  19

Item 6.   Exhibits and Reports on Form 8-K                                                   20

SIGNATURES                                                                                   22
</TABLE>

                                       2
<PAGE>

PART I.   FINANCIAL INFORMATION


Item 1.
-------

                             FINANCIAL STATEMENTS

The financial statements set forth below at September 30, 2000 and for the three
and nine month periods ended September 30, 2000 and 1999 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to those rules and regulations.

These financial statements should be read in conjunction with the latest audited
consolidated financial statements and the notes thereto for the fiscal year
ended December 31, 1999, which are included in the Company's Annual Report on
Form 10-K as filed with the SEC on April 4, 2000.

                                       3
<PAGE>

                           AXENT TECHNOLOGIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                   (amounts in thousands, except share data)



<TABLE>
<CAPTION>
                                                                              September 30,
                                                                                  2000                December 31,
                                                                               (unaudited)               1999
                                                                          -------------------     ------------------
<S>                                                                       <C>                     <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                         $ 48,041               $ 61,534
   Marketable securities                                                               77,067                 47,331
   Accounts receivable, net                                                            31,616                 35,954
   Other current assets                                                                 4,417                  3,696
                                                                          -------------------     ------------------
      Total current assets                                                            161,141                148,515

Property and equipment, net                                                            13,816                 12,427
Goodwill and other intangible assets                                                   24,836                 29,554
Other assets                                                                            8,459                  8,384
                                                                          -------------------     ------------------
      Total assets                                                                   $208,252               $198,880
                                                                          ===================     ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued liabilities                                          $ 18,653               $ 23,266
   Deferred revenue                                                                    19,385                 17,935
                                                                          -------------------     ------------------
      Total current liabilities                                                        38,038                 41,201

Long term debt, net of current maturities                                                 --                     620
                                                                          -------------------     ------------------
      Total liabilities                                                                38,038                 41,821
                                                                          -------------------     ------------------



Stockholders' equity:
    Preferred stock, $0.02 par value (5,000,000 shares authorized,                         --                     --
      none issued).
    Common stock, $0.02 par value (50,000,000 shares authorized,
      28,997,316 and 28,047,696 issued and outstanding for the
      nine months ended September 30, 2000 and year ended
      December 31, 1999, respectively).                                                   580                    561
    Additional paid-in capital                                                        203,384                191,272
    Comprehensive income and other                                                     (1,432)                  (623)
    Accumulated deficit                                                               (32,318)               (34,151)
                                                                          -------------------     ------------------
      Total stockholders' equity                                                      170,214                157,059
                                                                          -------------------     ------------------
      Total liabilities and stockholders' equity                                     $208,252               $198,880
                                                                          ===================     ==================
</TABLE>


   The accompanying notes are an integral part of these unaudited condensed
                      consolidated financial statements.

                                       4
<PAGE>

                           AXENT TECHNOLOGIES, INC.
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (amounts in thousands, except per share data)


<TABLE>
<CAPTION>
                                                              For the Three Months             For the Nine Months
                                                              Ended September 30,              Ended September 30,
                                                          ----------------------------      --------------------------
                                                             2000             1999             2000            1999
                                                          -----------      -----------      ----------      ----------
<S>                                                       <C>              <C>              <C>             <C>
Net revenues:
   Product licenses                                           $21,684          $19,129         $63,509         $51,860
   Services                                                    12,401            9,343          34,972          24,485
                                                          -----------      -----------      ----------      ----------
      Total net revenues                                       34,085           28,472          98,481          76,345

Cost of net revenues                                            5,774            4,173          15,858          11,037
                                                          -----------      -----------      ----------      ----------

Gross profit                                                   28,311           24,299          82,623          65,308

Operating expenses:
   Sales and marketing                                         17,361           15,115          49,149          44,430
   Research and development                                     6,872            6,647          20,696          19,863
   General and administrative                                   3,627            2,762          10,488           8,131
   Amortization of acquired intangible assets                   1,468            1,301           4,420           2,761
   Acquisition-related charges                                     --               --              --           3,753
                                                          -----------      -----------      ----------      ----------
       Total operating expenses                                29,328           25,825          84,753          78,938
                                                          -----------      -----------      ----------      ----------

Loss before interest and taxes                                 (1,017)          (1,526)         (2,130)        (13,630)

   Interest income                                              2,018            1,264           4,739           3,382
   Income tax (provision) benefit                                (370)            (329)           (776)          1,388
                                                          -----------      -----------      ----------      ----------

Net income (loss)                                             $   631          $  (591)        $ 1,833         $(8,860)
                                                          ===========      ===========      ==========      ==========

Net income (loss) per common share (basic)                    $  0.02          $ (0.02)        $  0.06         $ (0.32)
                                                          ===========      ===========      ==========      ==========
Number of shares used in computing net income (loss)
 per common share outstanding (basic)                          28,942           27,926          28,735          27,409
                                                          ===========      ===========      ==========      ==========


Net income (loss) per common share (diluted)                  $  0.02          $ (0.02)        $  0.06         $ (0.32)
                                                          ===========      ===========      ==========      ==========
Number of shares used in computing net income (loss)
 per common share outstanding (diluted)                        29,959           27,926          29,800          27,409
                                                          ===========      ===========      ==========      ==========
</TABLE>

   The accompanying notes are an integral part of these unaudited condensed
                      consolidated financial statements.

                                       5
<PAGE>

                           AXENT TECHNOLOGIES, INC.
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (amounts in thousands)

<TABLE>
<CAPTION>
                                                                                             For the Nine Months
                                                                                             Ended September 30,
                                                                                       -------------------------------
                                                                                           2000               1999
                                                                                       -------------      ------------
<S>                                                                                    <C>                <C>
Cash flow from operating activities:
  Net income (loss)                                                                        $   1,833          $ (8,860)
  Non-cash items:
    Depreciation and amortization                                                              8,683             5,967
    Deferred income taxes                                                                         --            (1,571)
    Write-off of in process research and development                                              --             2,000
  Change in assets and liabilities                                                              (836)            4,426
                                                                                       -------------      ------------

      Net cash provided by operating activities                                                9,680             1,962
                                                                                       -------------      ------------

Cash flow from investing activities:
  Capital expenditures                                                                        (5,348)           (4,676)
  Purchases of marketable securities                                                        (288,881)          (66,822)
  Maturity of marketable securities                                                          260,870            43,609
  Payments for business acquisitions, net of cash acquired                                      (516)           (3,915)
                                                                                       -------------      ------------

      Net cash used for investing activities                                                 (33,875)          (31,804)
                                                                                       -------------      ------------

Cash flow from financing activities:
 Proceeds from issuance of common stock                                                       12,131             2,933
 Principal payments on note payable                                                             (620)             (103)
                                                                                       -------------      ------------

      Net cash provided by financing activities                                               11,511             2,830
                                                                                       -------------      ------------


Effect of exchange rate changes on cash                                                         (809)             (532)
                                                                                       -------------      ------------

Net decrease in cash and cash equivalents                                                    (13,493)          (27,544)
Cash and cash equivalents, beginning of period                                                61,534            80,035
                                                                                       -------------      ------------
Cash and cash equivalents, end of period                                                   $  48,041          $ 52,491
                                                                                       =============      ============
</TABLE>

   The accompanying notes are an integral part of these unaudited condensed
                      consolidated financial statements.

                                       6
<PAGE>

                           AXENT TECHNOLOGIES, INC.
  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                            (amounts in thousands)

<TABLE>
<CAPTION>
                                                                  For the Three Months                   For the Nine Months
                                                                  Ended September 30,                    Ended September 30,
                                                         -----------------------------------   ------------------------------------
                                                             2000                 1999              2000                 1999
                                                         --------------      ---------------   ---------------      ---------------
<S>                                                      <C>                 <C>               <C>                  <C>
   Net income (loss)                                      $         631      $          (591)  $         1,833      $        (8,860)
      Currency translation effects                                 (185)                (219)             (809)                (532)
                                                         --------------      ---------------   ---------------      ---------------
   Comprehensive income (loss)                            $         446      $          (810)  $         1,024      $        (9,392)
                                                         ==============      ===============   ===============      ===============
</TABLE>

   The accompanying notes are an integral part of these unaudited condensed
                      consolidated financial statements.

                                       7
<PAGE>

                           AXENT TECHNOLOGIES, INC.
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 2000

Basis of Presentation

AXENT Technologies, Inc. in conjunction with its wholly owned subsidiaries
(collectively, the "Company" or "AXENT") is a global leader in information
security and provides e-security solutions that maximize our customers' business
advantage.  AXENT delivers integrated products and expert services to assess,
protect, enable and manage business processes and information assets.  Through
our unique Lifecycle Security methodology, combined with Smart Security
Architecture, we deliver the "right" level of security for customers.  Our
award-winning solutions offer assessment and policy compliance, firewall,
intrusion detection, authentication, VPN, Web-access, single sign-on and user
administration for the entire enterprise.

The accompanying unaudited condensed consolidated financial statements reflect
all the adjustments, consisting of normal recurring adjustments, that, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. The results for the three and nine month periods
ended September 30, 2000 may not necessarily be indicative of the results for
the entire year or any future period.  The December 31, 1999 condensed
consolidated balance sheet was derived from audited financial statements as of
the same date but does not include all disclosures required by accounting
principles generally accepted in the United States.

These financial statements should be read in conjunction with the Company's
annual audited financial statements and notes thereto for the year ended
December 31, 1999, which are included in the Company's Annual Report on Form 10-
K filed with the SEC on April 4, 2000.

Business Combinations

On July 26, 2000, AXENT entered into a definitive merger agreement which would
result in the Company being acquired by Symantec Corporation ("Symantec"), a
provider of broad range content and network security solutions to individuals
and enterprises.  The agreement has been approved by the Boards of Directors of
both companies, and provides that this acquisition will be treated as a stock-
for-stock transaction, which was valued at approximately $975 million when the
merger agreement was executed.  Under the terms of the agreement, AXENT
shareholders would receive 0.50 shares of Symantec common stock for each share
of AXENT common stock in a tax-free exchange.  Symantec would issue
approximately 15.3 million shares of common stock to AXENT shareholders to
complete the transaction.  The thirty-day waiting period imposed by the Hart-
Scott-Rodino Antitrust Improvements Act regarding the transaction expired on
September 3, 2000.  In addition, on October 27, 2000, AXENT and Symantec
received written notice from the SEC that the SEC would not review the
preliminary joint proxy statement/prospectus relating to the transaction.
Completion of the transaction, which is expected by the end of calendar year
2000, still requires satisfaction of certain conditions, including obtaining
stockholder approvals of both companies.  The transaction will be accounted for
using the purchase method of accounting whereby AXENT net assets and operating
results will be included in the consolidated financial statements of Symantec
from the date of acquisition.

On March 31, 1999, the Company completed the acquisition of United Kingdom-based
CKS Limited, the parent of PassGo Technologies Limited, a worldwide leader in
centralized user access and control, single sign-on and password synchronization
products. In conjunction with the acquisition, the Company issued 1,486,146
shares of common AXENT common stock to holders of shares and warrants of CKS
Limited and agreed to exchange stock options to purchase 64,157 AXENT shares for
all outstanding CKS Limited stock options. The transaction was accounted for
using the purchase method of accounting and accordingly, the net assets and
operating results of PassGo have been included in the accompanying consolidated
financial statements from the date of acquisition. The purchase price, including
transaction costs of $6.0 million, was approximately $30.96 million. The
allocation of the purchase price was based on the results of an independent
third party valuation and allocated to assets acquired and liabilities assumed,
based on their respective fair values at the acquisition date. The purchase
price allocation resulted in goodwill and other intangibles of approximately
$27.8 million, which is being amortized, on a straight-line basis over their
useful lives, of between three and seven years. During 1999, the Company
recorded a charge for

                                       8
<PAGE>

acquired in-process research and development of approximately $2.0 million
related to PassGo. The charge reflects technology acquired for which
technological feasibility had not been reached and for which there is no
alternative future use.

On January 12, 1999, the Company completed its merger with Internet Tools, Inc.
("ITI") in which it acquired 100% of the outstanding stock of ITI for 703,194
shares of AXENT common stock and assumed stock options covering a total of
46,806 shares of AXENT common stock. The Company incurred approximately $1.75
million in acquisition-related transaction and other related costs in connection
with the merger. The business combination was accounted for by the pooling of
interests method of accounting. Accordingly, the assets, liabilities, and
stockholders' equity of ITI were combined with the Company's respective accounts
at recorded values. This acquisition did not meet the criteria for a significant
business combination and, as such, pro forma disclosures are not included
herein.

Net Income Per Common 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. Potentially dilutive securities
consist of options and warrants to acquire common stock for a specified price
and their dilutive effect is measured using the treasury method. Potentially
dilutive securities are not included in the diluted earnings per share
calculations for the three and nine months ended September 30, 1999 as their
inclusion would be anti-dilutive to the basic loss per share calculations.

Recent Accounting Pronouncements

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"), which is effective  for fiscal
years beginning after December 15, 1999.  SAB 101 explains how the SEC staff
believes existing rules should be applied or analogized to for transactions not
addressed by existing rules.  In accordance with the revised requirements, the
Company will account for the change in accounting principles as a cumulative
effect adjustment in the fourth quarter of 2000 and believes that the adjustment
will not be material.

On January 1, 1999, the Company adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (the
"AICPA") Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities," issued by the Accounting Standards Executive Committee of
the AICPA. SOP No. 98-5 established standards on accounting for start-up and
organization costs and, in general, requires such costs to be expensed as
incurred. The adoption of SOP No. 98-5 did not impact the Company's financial
position or results of operations.

In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. SOP 98-9 is effective for the Company's
2000 financial statements. The Company adopted SOP 98-9 on January 1, 2000.

The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards ("'SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes a reporting standard for
derivative instruments which will require the Company to record all derivatives
as either assets or liabilities and requires that those instruments are recorded
at their fair value. During June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133."  This statement defers the effective date of
SFAS 133 to 2001. The Company plans to adopt SFAS No. 133 for the fiscal year
beginning January 1, 2001. The Company believes the adoption of SFAS 133 will
not have a material effect on the consolidated financial statements.

In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use".   SOP 98-1 became effective
January 1, 1999. The adoption of SOP 98-1 did not impact the Company's financial
position or results of operations.

                                       9
<PAGE>

Information Concerning Business Segments

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information."  SFAS No. 131 established standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders.  Operating segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.

The Company's approach to information security is to develop, market and support
security software products that perform a broad range of security functions and
to provide consulting services to address customers' security needs.  As such,
the Company has two reportable segments: a software product segment and a
consulting services segment.  The software product segment includes products
which provide security assessment and policy management, host and network based
intrusion detection, systems and network access control, data confidentiality,
user administration, activity monitoring, secure authentication solutions for
remote network access and virtual private networking capabilities for remote
users and remote sites.  The consulting services segment includes training and
"Lifecycle Security Services" designed to help organizations develop a framework
and roadmap for assessing potential vulnerabilities; developing security
policies, guidelines, practices and metrics; selecting and implementing
solutions; conducting training; and ensuring appropriate monitoring and
compliance.

The Company evaluates the performance of its operating segments based on income
before royalty, interest, taxes and gains on the sale of marketable securities.
Intersegment sales and transfers are not significant.

Summarized financial information concerning the Company's reportable segments is
shown in the following table.  The "Other" segment includes the consulting
services segment as it is below the quantitative thresholds, corporate related
items and, as it relates to segment profit (loss), income and expense not
allocated to reportable segments.

<TABLE>
<CAPTION>
                                                    For the Three Months                             For the Nine Months
(amounts in thousands)                              Ended September 30,                              Ended September 30,
                                        -----------------------------------------      --------------------------------------------
                                              2000                    1999                    2000                     1999
                                        ------------------      -----------------      -------------------      -------------------
<S>                                     <C>                     <C>                    <C>                      <C>
Net revenues:
  Software products                     $           31,444      $          26,334      $            91,077      $            71,089
  Other                                              2,641                  2,138                    7,404                    5,256
                                        ------------------      -----------------      -------------------      -------------------
      Total net revenues                $           34,085      $          28,472      $            98,481      $            76,345
                                        ==================      =================      ===================      ===================

Segment operating loss:
  Software products                     $              520      $            (749)     $             1,798      $            (8,451)
  Other                                             (1,537)                  (777)                  (3,928)                  (5,179)
                                        ------------------      -----------------      -------------------      -------------------
      Total segment operating loss      $           (1,017)     $          (1,526)     $            (2,130)     $           (13,630)
                                        ==================      =================      ===================      ===================

Total assets:
  Software products                                                                    $            45,241      $            43,503
  Other                                                                                            163,011                  147,712
                                                                                       -------------------      -------------------
      Total assets                                                                     $           208,252      $           191,215
                                                                                       ===================      ===================
</TABLE>

The Company's areas of operations are principally in the United States.
Operations outside of the United States are worldwide but primarily in the
United Kingdom, Europe and Asia. Foreign operations' revenue, profit and
identifiable assets are shown in the following table.

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                   For the Three Months                             For the Nine Months
(amounts in thousands)                              Ended September 30,                             Ended September 30,
                                        ----------------------------------------      --------------------------------------------
                                             2000                   1999                     2000                     1999
                                        -----------------      -----------------      -------------------     --------------------
<S>                                       <C>                    <C>                    <C>                     <C>
Net revenues:
  U.S.                                  $          23,103      $          18,777      $            69,509     $             53,448
  International                                    10,982                  9,695                   28,972                   22,897
                                        -----------------      -----------------      -------------------     --------------------
      Total net revenues                $          34,085      $          28,472      $            98,481     $             76,345
                                        =================      =================      ===================     ====================

Profit (loss):
  U.S.                                  $            (484)     $          (1,937)     $             1,246     $            (10,428)
  International                                     1,115                  1,346                      587                    1,568
                                        -----------------      -----------------      -------------------     --------------------
      Total profit (loss)               $             631      $            (591)     $             1,833     $             (8,860)
                                        =================      =================      ===================     ====================

Total assets:
  U.S.                                                                                $           184,712     $            170,420
  International                                                                                    23,540                   20,795
                                                                                      -------------------     --------------------
      Total assets                                                                    $           208,252     $            191,215
                                                                                      ===================     ====================
</TABLE>

Item 2.
-------

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Portions of this report contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933, which involve risk and uncertainties. These forward-
looking statements are identified by the use of the words "believes",
"expects", "anticipates", "will", "would" or similar expressions that
contemplate future events. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those identified below in
"Certain Factors Affecting Future Performance" and in AXENT's Form 10-K for the
year ended December 31, 1999 filed with the SEC on April 4, 2000 under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Certain Factors Affecting Future Performance" and
"Business--Certain Factors That May Affect Future Results." The Company assumes
no obligation to update or correct forward-looking statements due to events or
changes after the date of this report.

Overview

We are a global leader in information security and provides e-security solutions
that maximize our customers' business advantage.   We deliver integrated
products and expert services to assess, protect, enable and manage business
processes and information assets.  Through our unique Lifecycle Security
methodology, combined with our Smart Security Architecture, solutions are
provided that permit customers to select the right level of security for their
business needs.  Our award-winning solutions offer assessment and policy
compliance, firewall, intrusion detection, authentication, virtual private
network capabilities, Web-access security, single sign-on and user
administration for the entire enterprise.

                                       11
<PAGE>

Results of Operations

The following table sets forth certain unaudited condensed consolidated
statement of operations data expressed as a percentage of total revenues for the
periods indicated:

<TABLE>
<CAPTION>
                                                              Three Months                                Nine Months
                                                          Ended September 30,                         Ended September 30,
                                                -------------------------------------        ----------------------------------
                                                           2000                  1999                 2000                 1999
                                                ---------------        --------------        -------------        -------------
<S>                                             <C>                    <C>                   <C>                  <C>
Net revenues:
 Product licenses                                          63.6%                 67.2%                64.5%                67.9%
 Services                                                  36.4                  32.8                 35.5                 32.1
                                                ---------------        --------------        -------------        -------------
  Total net revenues                                      100.0                 100.0                100.0                100.0

Cost of net revenues                                       16.9                  14.7                 16.1                 14.5
                                                ---------------        --------------        -------------        -------------

Gross profit                                               83.1                  85.3                 83.9                 85.5

Operating expenses:
 Sales and marketing                                       50.9                  53.1                 49.9                 58.2
 Research and development                                  20.2                  23.3                 21.0                 26.0
 General and administrative                                10.6                   9.7                 10.6                 10.6
 Amortization of acquired intangible assets                 4.3                   4.5                  4.5                  3.6
 Acquisition-related charges                                 __                    __                   __                  4.9
                                                ---------------        --------------        -------------        -------------
  Total operating expenses                                 86.0                  90.6                 86.0                103.3
                                                ---------------        --------------        -------------        -------------

Loss before interest and taxes                             (2.9)                 (5.3)                (2.1)               (17.8)

 Interest income                                            5.9                   4.4                  4.8                  4.4
 Income tax benefit (provision)                            (1.1)                 (1.2)                (0.8)                 1.8
                                                ---------------        --------------        -------------        -------------

Net income (loss)                                           1.9%                 (2.1)%                1.9%               (11.6)%
                                                ===============        ==============        =============        =============
</TABLE>

               Three Months Ended September 30, 2000 Compared to
                     Three Months Ended September 30, 1999

Net Revenues

Our net revenues increased approximately 19.7%, or $5.61 million from $28.47
million for the three months ended September 30, 1999 to $34.08 million for the
three months ended September 30, 2000. Our revenues are subject to a number of
risks and uncertainties, including but not limited to, the level of demand for
our products; the volume and timing of customer orders, many of which come at
the end of a quarter; product and price competition; our ability to maintain and
expand our domestic and international sales and marketing organizations; our
ability to develop new and enhanced products; the availability of personnel and
our ability to attract and retain key personnel; the mix of distribution
channels through which our products are sold; the extent to which unauthorized
access and use of online information is perceived as a threat to information
security; customer budgets and priorities; seasonal trends in customer
purchasing; foreign currency exchange rates; general economic factors; and risks
associated with the rapid change in technology. In addition, the value of
individual transactions as a percentage of our actual or anticipated quarterly
revenues can be substantial and the failure to close such transactions may have
a material adverse impact on our operating results.

Our net revenues from product licenses increased approximately 13.4%, or $2.55
million, from $19.13 million for the three months ended September 30, 1999 to
$21.68 million for the three months ended September 30, 2000. For those three-
month periods ended September 30, 1999 and 2000, net revenues from product
licenses represented 67.2% and 63.6%, respectively, of total net revenues. The
increase in product licenses is primarily attributable to increases in the
number and size of transactions, multiple product transactions and growth in our
strategic product

                                       12
<PAGE>

areas (vulnerability assessment, intrusion detection and firewalls). The
decrease in net revenues from product licenses as a percent of total net
revenues is primarily due to an increase in services net revenues.

Our net revenues from services increased approximately 32.7%, or $3.06 million,
from $9.34 million for the three months ended September 30, 1999 to $12.40
million for the three months ended September 30, 2000, representing 32.8% and
36.4% of total net revenues for the three months ended September 30, 1999 and
2000, respectively. The increase in services revenues is primarily attributable
to the increases in consulting services, customer training courses and customers
under maintenance contracts.

Revenues derived from North American and international operations as a percent
of total revenues were 67.8% and 32.2%, respectively for the three months ended
September 30, 2000 as compared to 65.9% and 34.1%, respectively for the three
months ended September 30, 1999.

Cost of Net Revenues

Our cost of net revenues includes the cost of media, product packaging,
documentation and other production costs, product royalties, and the direct and
indirect costs of providing technical support, training, and consulting services
to our customers. Cost of net revenues increased approximately 38.4%, or $1.60
million, from $4.17 million for the three months ended September 30, 1999 to
$5.77 million for the three months ended September 30, 2000, representing 14.7%
and 16.9% of net revenues for the three months ended September 30, 1999 and
2000, respectively. The increase in the cost of net revenues is primarily
attributable to the increase in staff of our customer support operations
necessary to support a larger installed customer base as well as additional
products offered by our company in addition to the continued expansion of our
consulting services operations. The increase in the cost of net revenues as a
percentage of revenues is primarily attributable to the increased costs
associated with supporting a larger customer base and the increased percentage
of net revenues derived from consulting services, which typically have lower
margins. Cost of net revenues, as a percentage of revenues, may fluctuate from
period to period due, among other things, to a change in the mix of license
revenues and consulting service revenues, a change in the number or size of
transactions recorded in a quarter, integration of acquired operations or
products, or an increase or decrease in licenses of royalty-bearing products.

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 14.9%, or $2.25 million, from $15.11 million for the three
months ended September 30, 1999 to $17.36 million for the three months ended
September 30, 2000, representing 53.1% and 50.9% of total net revenues for 1999
and 2000, respectively. The increase in dollar amount is due to an increase in
staff and marketing programs to support our sales and marketing activities.
The decrease in sales and marketing as a percentage of total net revenues is
primarily due to a greater increase in the growth of total net revenues in the
three months ended September 30, 2000.  We currently anticipate that the dollar
amount of sales and marketing expenses will increase as we continue to hire
necessary staff and expand our sales and marketing activities to promote
expansion of our business.

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 are expensed as incurred. Research and development expenses
increased 3.4%, or $225,000, from $6.65 million for the three months ended
September 30, 1999 to $6.87 million for the three months ended September 30,
2000, representing 23.3% and 20.2% of total net revenues for the three months
ended September 30, 1999 and 2000, respectively. The increase in dollar amount
resulted from the addition of staff and the use of outside consultants needed to
develop, maintain and enhance our software products. The decrease in research
and development as a percentage of total net revenues is primarily due to a
greater increase in the growth of total net revenues.  We currently anticipate
that the dollar amount of research and development expenses will increase as we
continue to commit substantial resources to research and development in future
periods.

                                       13
<PAGE>

General and Administrative

General and administrative expenses consist primarily of personnel costs,
including salaries, benefits and bonuses, travel and related costs for
management, finance and accounting, legal and other professional services.
General and administrative expenses increased 31.3%, or $865,000, from $2.76
million for the three months ended September 30, 1999 to $3.63 million for the
three months ended September 30, 2000, representing 9.7% and 10.6% of total net
revenues for the three months ended September 30, 1999 and 2000, respectively.
The increase in dollar amount is primarily a result of additional staff and
investments in corporate infrastructure and information systems needed to
support our operations.    We currently anticipate that the dollar amount of
general and administrative expenses will increase as we continue to invest in
the corporate infrastructure.

Amortization of Acquired Intangible Assets

Amortization of intangible assets consists primarily of the amortization of
purchased goodwill and other purchased intangible assets. Amortization of
intangible assets expenses increased $167,000, from $1.30 million for the three
months ended September 30, 1999 to $1.47 million for the three months ended
September 30, 2000. The increase in dollar amount is primarily due to the
amortization of goodwill and intangibles resulting from the amortization of
technology purchased from Compaq Computer Corporation in the third quarter of
1999, which is being amortized ratably over three years.

Loss from Continuing Operations before Interest and Taxes

Loss from continuing operations before interest and taxes was $1.53 million and
$1.02 million for the three months ended September 30, 1999 and 2000,
respectively.  The smaller loss in the third quarter of 2000 as compared to 1999
is primarily attributable to total revenues growing in excess of the increase in
operating expenses.

Interest Income

Interest income increased 59.7%, or $754,000, from $1.26 million for the three
months ended September 30, 1999 to $2.02 million for the three months ended
September 30, 2000. The increase in interest income is primarily due to the
increase in cash and cash equivalents resulting in an increase of invested
funds, plus the general rise in interest rates.  Currently it is our policy to
hold securities until they mature. Interest income and other may fluctuate from
period to period due to changes in investment mix, varying cash balances and
fluctuations in interest rates.

Income Taxes

We account for income taxes under SFAS 109. Under SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the carrying amounts of existing assets and liabilities for
financial statement purposes and their respective tax basis. The Company records
a valuation allowance for deferred tax assets when in management's judgment it
is more likely than not that all or a portion of the deferred asset will not be
realized.

We recorded a tax provision of $329,000 and $370,000 for the three months ended
September 30, 1999 and 2000.  This provision is for foreign taxes on our
profitable foreign operations.

Net Income (Loss)

As a result of the above, we recorded a profit of $631,000 for the three months
ended September 30, 2000 compared to a loss of $591,000 for the three months
ended September 30, 1999. This increase is primarily attributable to the
growth of total revenues and the increase in our interest income.

                                       14
<PAGE>

               Nine Months Ended September 30, 2000 Compared to
                     Nine Months Ended September 30, 1999

Net Revenues

Our net revenues increased approximately 29.0%, or $22.14 million from $76.35
million for the nine months ended September 30, 1999 to $98.48 million for the
nine months ended September 30, 2000. Our revenues are subject to a number of
risks and uncertainties, including but not limited to, the level of demand for
our products; the volume and timing of customer orders, many of which come at
the end of a quarter; product and price competition; our ability to maintain and
expand our domestic and international sales and marketing organizations; our
ability to develop new and enhanced products; the availability of personnel and
our ability to attract and retain key personnel; the mix of distribution
channels through which our products are sold; the extent to which unauthorized
access and use of online information is perceived as a threat to information
security; customer budgets and priorities; seasonal trends in customer
purchasing; foreign currency exchange rates; general economic factors; and risks
associated with the rapid change in technology. In addition, the value of
individual transactions as a percentage of our actual or anticipated quarterly
revenues can be substantial and the failure to close such transactions may have
a material adverse impact on our operating results.

Our net revenues from product licenses increased approximately 22.5%, or $11.65
million, from $51.86 million for the nine months ended September 30, 1999 to
$63.51 million for the nine months ended September 30, 2000. For those nine-
month periods ended September 30, 1999 and 2000, net revenues from product
licenses represented 67.9% and 64.5%, respectively, of total net revenues. The
increase in product licenses is primarily attributable to the increase in the
number and size of transactions, multiple product transactions and growth in our
strategic product areas (vulnerability assessment, intrusion detection and
firewalls).   The decrease in net revenues from product licenses as a percentage
of total net revenues is primarily due to an increase in services net revenues.

Our net revenues from services increased approximately 42.8%, or $10.48 million,
from $24.49 million for the nine months ended September 30, 1999 to $34.97
million for the nine months ended September 30, 2000, representing 32.1% and
35.5% of total net revenues for the nine months ended September 30, 1999 and
2000, respectively. The increase in services revenues is primarily attributable
to the increases in consulting services, customer training courses and customers
under maintenance contracts.

Revenues derived from North American and international operations as a percent
of total revenues were 70.6% and 29.4%, respectively for the nine months ended
September 30, 2000 as compared to 70.0% and 30.0%, respectively for the nine
months ended September 30, 1999.

Cost of Net Revenues

Cost of net revenues increased approximately 43.7%, or $4.82 million, from
$11.04 million for the nine months ended September 30, 1999 to $15.86 million
for the nine months ended September 30, 2000, representing 14.5% and 16.1% of
net revenues for the nine months ended September 30, 1999 and 2000,
respectively. The increase in the cost of net revenues is primarily attributable
to the increase in staff of our customer support operations necessary to support
a larger installed customer base as well as additional products offered by our
company in addition to the continued expansion of our consulting services
operations. The increase in the cost of net revenues as a percentage of revenues
is primarily attributable to the increased costs associated with supporting a
larger customer base and the increased percentage of net revenues derived from
consulting services, which typically have lower margins. Cost of net revenues,
as a percentage of revenues, may fluctuate from period to period due, among
other things, to a change in the mix of license revenues and consulting service
revenues, a change in the number or size of transactions recorded in a quarter,
integration of acquired operations or products, or an increase or decrease in
licenses of royalty-bearing products.

Sales and Marketing

Sales and marketing expenses increased 10.6%, or $4.72 million, from $44.43
million for the nine months ended September 30, 1999 to $49.15 million for the
nine months ended September 30, 2000, representing 58.2% and 49.9% of total net
revenues for 1999 and 2000, respectively. The increase in dollar amount is due
to an increase in

                                       15
<PAGE>

staff and marketing programs to support our sales and marketing activities. The
decrease in sales and marketing as a percentage of total net revenues is
primarily due to a greater increase in the growth of total net revenues in the
first nine months of 2000. We currently anticipate that the dollar amount of
sales and marketing expenses will increase as we continue to hire necessary
staff and expand our sales and marketing activities to promote expansion of our
business.

Research and Development

Research and development expenses increased 4.2%, or $833,000, from $19.86
million for the nine months ended September 30, 1999 to $20.70 million for the
nine months ended September 30, 2000, representing 26.0% and 21.0% of total net
revenues for the nine months ended September 30, 1999 and 2000, respectively.
The increase in dollar amount resulted from the addition of staff and use of
outside consultants needed to develop, maintain and enhance our software
products. The decrease in research and development as a percentage of total net
revenues is primarily due to a greater increase in the growth of total net
revenues in the first nine months of 2000.  We currently anticipate that the
dollar amount of research and development expenses will increase as we continue
to commit substantial resources to research and development in future periods.

General and Administrative

General and administrative expenses increased 29.0%, or $2.36 million, from
$8.13 million for the nine months ended September 30, 1999 to $10.49 million for
the nine months ended September 30, 2000, representing 10.6% of total net
revenues for both 1999 and 2000, respectively. The increase in dollar amount is
primarily a result of additional staff and investments in corporate
infrastructure and information systems needed to support our operations.  We
currently anticipate that the dollar amount of general and administrative
expenses will increase as we continue to invest in the corporate infrastructure.

Amortization of Acquired Intangible Assets

Amortization of intangible assets expenses increased $1.66 million, from $2.76
million for the nine months ended September 30, 1999 to $4.42 million for the
nine months ended September 30, 2000. The increase in dollar amount is primarily
due to the amortization of goodwill and intangibles resulting from the
acquisition of PassGo as well as the amortization of technology purchased from
Compaq Computer Corporation in the third quarter of 1999, which are being
amortized ratably over three to seven years.

Acquisition-Related Charges

For the nine months ended September 30, 1999, we incurred charges of
approximately $1.75 million for severance, investment banking, legal and
accounting fees, and other costs related to the merger with Internet Tools, and
approximately $2.0 million of in-process research and development expense in
connection with the acquisition of PassGo.

Loss from Continuing Operations before Interest and Taxes

Loss from continuing operations before interest and taxes was $2.13 million and
$13.63 million for the nine months ended September 30, 2000 and 1999,
respectively.  The smaller loss in the nine months ended September 30, 2000 as
compared to 1999 is primarily attributable to the reduction of acquisition-
related charges in addition to total revenues growing in excess of the increase
in operating expenses.

Interest Income

Interest income increased 40.1%, or $1.36 million, from $3.38 million for the
nine months ended September 30, 1999 to $4.74 million for the nine months ended
September 30, 2000. The increase in interest income is primarily due to the
increase in cash and cash equivalents and resulting in an increase of invested
funds, plus the general rise in interest rates.  Currently it is our policy to
hold securities until they mature. Interest income and other may fluctuate from
period to period due to changes in investment mix, varying cash balances and
fluctuations in interest rates.

                                       16
<PAGE>

Income Taxes

We account for income taxes under SFAS 109. Under SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the carrying amounts of existing assets and liabilities for
financial statement purposes and their respective tax basis. The Company records
a valuation allowance for deferred tax assets when in management's judgment it
is more likely than not that all or a portion of the deferred asset will not be
realized.

We recorded a tax benefit of $1.39 million for the nine months ended September
30, 1999 related to our taxable loss from operations and a tax provision of
$776,000 for the nine months ended September 30, 2000 related to our taxable
income from operations.

Net Income (Loss)

As a result of the above, we recorded a profit of $1.83 million for the nine
months ended September 30, 2000 compared to a loss of $8.86 million for the nine
months ended September 30, 1999. This increase is primarily attributable to the
increase in total revenues, the reduction of acquisition-related charges and the
increase in interest income.

Certain Risks and Uncertainties
-------------------------------

Euro Currency

The European Union's adoption of the Euro currency raises a variety of issues
associated with our European operations. Although the transition from national
currencies to the Euro will be phased in over several years, the Euro became the
single currency for most European countries on January 1, 1999. We have assessed
Euro issues related to our treasury operations, product pricing, contracts and
accounting systems. We believe that our existing or planned hardware and
software systems have and will accommodate the transition to the Euro and any
future required operating changes will not have a material effect on future
results of operations or financial condition.

Financial Condition-Liquidity and Capital Resources
---------------------------------------------------

Our overall cash and cash equivalents were $48.04 million at September 30, 2000,
a decrease of approximately $13.49 million from $61.53 million at December 31,
1999.  Marketable securities increased $29.74 to $77.07 million at September 30,
2000 from $47.33 million at December 31, 1999.  During the nine month periods
ended September 30, 2000 and 1999, respectively, we financed our operations
primarily through cash reserves and available working capital.  Our operating
activities provided cash of  $9.68 million and $1.96 million for the nine month
period ended September 30, 2000 and 1999, respectively.   Net cash provided by
operating activities in the nine months ended September 30, 2000, consisted
primarily of net income, net of depreciation and amortization of intangible
assets.

We made capital expenditures of approximately $5.35 million and $4.68 million
for the nine month periods ended September 30, 2000 and 1999, respectively.
These purchases have generally consisted of computer workstations, networking
equipment, office equipment, office furniture and equipment and leasehold
improvements. We had no material firm commitments for capital expenditures at
September 30, 2000.

During the nine month period ended September 30, 2000, our financial position
was also affected by the following: 1) we received proceeds of $12.13 million
from the issuance of common stock for stock option exercises and employee stock
purchase plan; 2) we purchased $288.88 million of marketable securities; 3) we
received $260.87 million from the maturity of marketable securities; 4) we paid
off $827,000 of mortgage debt; and 5) we paid $516,000 for the PassGo
acquisition-related expenses.

We believe that our working capital at September 30, 2000 and cash generated
from operations will be sufficient to meet our capital expenditures, working
capital and other cash requirements both for the next twelve months and for the
foreseeable future.

                                       17
<PAGE>

Certain Factors Affecting Future Performance
--------------------------------------------

Factors Affecting Our Business and Prospects

Although we have experienced significant growth in revenues from our software
products and consulting services, we do not believe current or prior growth
rates are necessarily indicative of future operating results.  In addition, we
expect increased competition and intend to invest significantly in development
of products and services methodologies. As a result, there can be no assurance
that we will be profitable on a quarterly or annual basis. Due to our relatively
limited operating history with respect to many of our software products and
consulting services, predictions as to future operating results are difficult.
Future operating results may fluctuate due to factors such as: demand for our
products and consulting services; the volume, size and timing of customer
orders; the number of competitors and the breadth and functionality of their
product offerings and services; the introduction by us or our competitors of new
products, product enhancements and services offerings; 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 and perform vulnerability assessments
and managed services offerings; 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. Our future operating results also may be affected if we fail to
recognize the anticipated benefits of any future or potential mergers on the
timetable we project; those benefits include, among others, integration of
product and services offerings and coordination of their sales, marketing and
research, development and services teams without disruption or unanticipated
expense. Our future results of operations may also be adversely affected if the
anticipated integration of operations of merged companies 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 our software products is highly competitive, and one could
reasonably expect increasing pricing pressures from current competitors and new
market entrants. As a result of increasing consolidation in the information
security industry, we expect that the market 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 our financial condition and results of operations.
Any material reduction in the price of our software products and services
offerings would negatively affect gross margins and could have a material
adverse effect on our financial condition and results of operations.

The licensing of many of our software products generally involve 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 enterprise-wide licensing of our security software products
is typically long and subject to a number of significant risks over which we
have little or no control and, as a result, may expend significant resources
pursuing potential sales that will not be consummated.

Factors Affecting International Operations

We anticipate 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, import restrictions, tariffs and
other trade barriers, providing consulting services and customer support across
time zones and in different languages, 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 our financial condition and results of operations. Based upon
our overall currency rate exposure at September 30, 2000, a 10% change in
foreign exchange rates would have had an immaterial effect on our financial
position, results of operations and cash flows. On January 1, 1999 the Euro was
introduced as a common currency for members of the European Monetary Union. We
have not determined what impact, if any, the Euro will have on our foreign
exchange exposure. To date, we have not hedged the risks associated with foreign
exchange exposure. Although our 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

                                       18
<PAGE>

outlook in other developing countries, cannot be predicted. To date, our foreign
currency gains and losses have been immaterial.

Factors Affecting Marketable Securities

The fair value of our investments in marketable securities at September 30, 2000
was $77.07 million. Our investment policy is to manage our marketable securities
portfolio to preserve principal and liquidity while maximizing the return on the
investment portfolio through the full investment of available funds. We
diversify the marketable securities portfolio by investing in multiple types of
investment-grade securities. Our marketable securities portfolio is primarily
invested in short-term securities with at least an investment grade rating to
minimize interest rate and credit risk as well as to provide for an immediate
source of funds. If market interest rates were to increase immediately and
uniformly by 10% from the levels at September 30, 2000, the fair market value of
the portfolio would decline by an immaterial amount. We have the ability to hold
our fixed income investments until maturity, and therefore we do not expect our
operating results or cash flows to be materially affected by a sudden change in
market interest rates on our investment portfolio. Although changes in interest
rates may affect the fair value of the marketable securities portfolio and cause
unrealized gains or losses, such gains or losses would not be realized unless
the investments are sold.

Item 3.
-------

          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Response to this item is included in "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations  -- Certain Factors
Affecting Future Performance" above.

PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings.
-------    ------------------

As reported previously in our Form 10-Q for the quarterly period ended March 31,
1999 and in our Annual Report on Form 10-K for 1999, a venture capital entity
and a small former stockholder owning less than a majority share of CKS Limited,
which AXENT acquired in March 1999, commenced an action in the Suffolk County
Superior Court in Boston, Massachusetts against AXENT and its directors in May
1999. The action alleges violations of the Massachusetts Uniform Securities Act,
negligent misrepresentations, and unfair trade practices. AXENT believes the
claims are without merit and intends to vigorously defend the action.

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

                                       19
<PAGE>

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

(a)  The following exhibits are filed or incorporated by reference, as stated
     below:

   Exhibit
    Number                                     Description
--------------   --------------------------------------------------------------
    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.
   10.9(1)       Form of Indemnification Agreement between AXENT and its
                 directors and executive officers.
   10.11(1)      Lease Agreement dated as of September 6, 1995, by and between
                 Research Grove Associates and AXENT.
   10.11A(6)     Second Amendment dated September 18, 1998 to Lease Agreement 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.
   10.17(4)      Memorandum of Understanding regarding certain compensation and
                 severance matters relating to Richard A. Lefebvre, dated July
                 22, 1997.
   10.17A(8)     First Amendment to Memorandum of Understanding relating to
                 Richard Lefebvre.
   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(5)      AXENT's 1998 Employee Stock Purchase Plan.
   10.31(5)      AXENT's 1998 Incentive Stock Plan.
   10.32(5)      AXENT's Exchange Option Plan for Optionees of Raptor Systems,
                 Inc.
   10.33(5)      Agreement and Plan of Merger among AXENT, Axquisition Two, Inc.
                 and Raptor Systems, Inc. dated as of December 1, 1997.
   10.34(6)      AXENT's Executive Severance General Guidelines.
   10.35(6)      Lease Agreement dated as of April 23, 1998 by and between
                 Pracvest and AXENT.
   10.36(6)      Lease Agreement dated as of May 6, 1997 by and between CC&F
                 Second Avenue Trust and Raptor Systems, Inc.
   10.36A(6)     First Amendment to Lease dated as of December 15, 1997 by and
                 between CC&F Second Avenue Trust and Raptor Systems, Inc.
   10.37(7)      Share Exchange Agreement dated as of March 29, 1999 by and
                 during AXENT and the holders of all of the shares of capital
                 stock, share capital and warranty of CKS Limited.
   10.38(8)      Software Product Purchase and License Agreement dated as of
                 March 31, 1999 by and between AXENT and Raxco Software, Inc.
   10.39(9)      AXENT's 1999 Incentive Stock Plan.
   10.40(10)     AXENT's 1999 PassGo Technologies Exchange Option Plan.
   10.41(11)     Amendment to AXENT's 1999 Incentive Stock Plan.
   10.42(12)     AXENT's Internet Tools 1997 Equity Incentive Plan.
   10.43(13)     AssureNet Pathways, Inc. Restated 1982 Stock Option Plan
                 Assumed by AXENT.
   10.44(14)     Agreement and Plan of Merger by and among Symantec Corporation,
                 Apache Acquisition Corp. and AXENT, dated as of July 26, 2000.
   27.1*         Financial Data Schedule

--------------------------------------------------------------------------------
(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 Quarterly Report on Form 10-Q for
    the Quarter Ended September 30, 1997.

                                       20
<PAGE>

(5)  Previously filed as an exhibit to AXENT's Registration Statement on Form S-
     4 (File No. 444-43265) and incorporated herein by reference.
(6)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended September 30, 1998 and incorporated herein by reference.
(7)  Previously filed as an exhibit to AXENT's Current Report on Form 8-K filed
     in April 1999 and incorporated herein by reference.
(8)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended March 31, 1999 and incorporated herein by reference.
(9)  Previously filed as an appendix to AXENT's definitive proxy statement dated
     April 30, 1999 and incorporated herein by reference.
(10) Previously filed as an exhibit to AXENT's Registration Statement on Form S-
     8 (File No. 333-83329) and incorporated herein by reference.
(11) Previously filed as an appendix to AXENT's definitive proxy statement dated
     May 3, 2000 and incorporated herein by reference.
(12) Previously filed as an exhibit to AXENT's Registration Statement on Form S-
     8 (File No. 333-73029) and incorporated herein by reference.
(13) Previously filed as an exhibit to AXENT's Registration Statement on Form S-
     8 (File No. 333-40427) and incorporated herein by reference.
(14) Previously filed as an exhibit to AXENT's Current Report on Form 8-K filed
     with the Commission on August 3, 2000.

*      Filed herewith.

(b) Except for the Current Report on Form 8-K filed with the Commission on
August 3, 2000, AXENT did not file any reports on From 8-K during the quarterly
period ended September 30, 2000.

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<PAGE>

                                  SIGNATURES

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

                                           AXENT TECHNOLOGIES, INC.


Date: November 13, 2000              By: /s/ Phillip A. Salopek, Jr.
                                         --------------------------------------
                                         Phillip A. Salopek, Jr.
                                         Vice President of Finance and Treasurer
                                         (Principal Financial and Accounting
                                         Officer)

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