UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
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(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1997
( ) 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: 000-21067
TRUSTED INFORMATION SYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 51-0375640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3060 Washington Road (Rt. 97)
Glenwood, Maryland 21738
(Address of Principal Executive Offices and Zip Code)
(301) 854-6889
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
last 90 days.
Yes X No
Indicate the Number of shares of the issuer's classes of common stock
outstanding as of the latest practicable date: 11,536,025 shares of common
stock were outstanding as of April 30, 1997.
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TRUSTED INFORMATION SYSTEMS, INC.
FORM 10-Q
Index
Page
PART I FINANCIAL INFORMATION Number
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
December 27, 1996 and March 28, 1997 3
Condensed Consolidated Statements of Operations
for the three months ended March 29, 1996 and
March 28, 1997 4
Condensed Consolidated Statements of Cash Flows
for the three months ended
March 29, 1996 and March 28, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Trusted Information Systems, Inc.
Condensed Consolidated Balance Sheets
March 28,
December 27, 1997
1996 (unaudited)
--------------------- -----------------
Assets
Current assets
Cash and cash equivalents $1,838,787 $1,237,457
Marketable securities 39,127,069 37,303,468
Accounts receivable, net of allowance
of $174,592 and $276,349 for
December 27, 1996 and March 28, 1997,
respectively 5,803,361 4,823,771
Unbilled receivables 1,746,370 3,180,095
Prepaid expenses and other current assets 952,822 1,064,569
Refundable income taxes 1,507,121 2,169,540
--------------------- -----------------
Total current assets 50,975,530 49,778,900
--------------------- -----------------
Property and equipment, net 6,695,524 6,838,294
Other assets 332,539 314,128
--------------------- -----------------
===================== =================
Total assets $58,003,593 $56,931,322
===================== =================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 906,706 $ 279,259
Accrued payroll and related expenses 2,470,429 2,712,710
Other accrued expenses 1,861,648 3,282,294
Deferred income taxes 403,324 45,276
Deferred revenue 2,072,266 2,421,104
Short-term borrowings -- --
Notes payable, current portion 150,857 150,857
--------------------- -----------------
Total current liabilities 7,865,230 8,891,500
Notes payable, net of current portion 2,424,355 2,381,326
Other non-current liabilities 47,365 47,029
--------------------- -----------------
Total liabilities 10,336,950 11,319,855
Commitments
Shareholders' equity
Preferred Stock $.01 par value;
5,000,000 shares authorized:
no shares issued or outstanding --- ---
Common Stock, $.01 par value;
40,000,000 shares authorized;
11,489,704 and 11,524,771 shares
issued and outstanding at December 28,
1996 and March 28, 1997 respectively 114,897 115,248
Additional paid-in capital 6,809,343 46,834,406
Unrealized gains, net of income taxes of
$932,838 and $573,910 at 1,495,162 1,165,210
December 28, 1996 and March 28,1997,
respectively
Foreign currency translation adjustment 12,663 (37,008)
Retained earnings 178,861 (1,591,199)
Deferred stock compensation (944,283) (875,190)
--------------------- -----------------
Total shareholders' equity 47,666,643 45,611,467
===================== =================
Total liabilities and shareholders'
equity $58,003,593 $56,931,322
===================== =================
See notes to unaudited condensed consolidated financial statements.
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Trusted Information Systems, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months Ended
March 29, March 28,
1996 1997
------------------ ----------------
Revenues:
Government contracts....... $2,432,273 $2,566,280
Commercial products............... 1,496,455 5,110,090
Commercial consulting services... 247,150 797,185
------------------ ----------------
4,175,878 8,473,555
Cost of revenues:
Government contracts.............. 1,774,854 1,818,542
Commercial products............... 472,097 1,099,600
Commercial consulting services... 165,428 394,831
------------------ ----------------
2,412,379 3,312,973
------------------ ----------------
Gross profit......................... 1,763,499 5,160,582
Operating expenses:
Selling, general and
administrative.................... 2,043,859 6,288,239
Research and development.......... 375,187 1,915,235
------------------ ----------------
2,419,046 8,203,474
------------------ ----------------
Income (loss) from operations....... (655,547) (3,042,892)
Other income (expense):
Interest income..................... 4,980 486,914
Interest expense.................... (88,883) (50,573)
------------------ ----------------
(83,903) 436,341
------------------ ----------------
Income (loss) before income taxes (739,450) (2,606,551)
Income tax provision (benefit)........ (315,750) (836,491)
================== ================
Net loss........................ $(423,700) $(1,770,060)
================== ================
Net loss per share.......... $ (0.05) $ (0.15)
================== ================
Weighted average shares
outstanding......................... 7,852,938 11,507,743
================== ================
See notes to unaudited condensed consolidated financial statements.
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Trusted Information Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 29 March 28
1996 1997
------------------ -----------------
Operating activities
Net income (loss) $ (423,700) $(1,770,060)
Adjustments:
Depreciation 94,791 204,271
Deferred income taxes 40,405 --
Amortization of stock compensation -- 69,093
Changes in operating assets and liabilities:
Accounts receivable and unbilled 322,037 (454,135)
receivables
Prepaid expenses and other (246,951) (111,747)
current assets
Other assets 467 18,411
Accounts payable (166,624) (627,447)
Accrued payroll and related 501,102 242,281
expenses
Other accrued expenses (235,820) 1,420,173
Other non-current liabilities -- (336)
Income taxes refundable (487,155) (662,419)
Deferred revenues 55,701 348,838
------------------ -----------------
Net cash used in operating activities (545,747) (1,323,077)
Investing Activities
Purchases of property and equipment (1,259,053) (347,041)
Net (purchase)/redemption of (10,880) 1,135,601
marketable securities
Cash provided by (used in) ------------------ -----------------
investing activities (1,269,933) 788,560
Financing Activities
Proceeds from exercise of stock 266,152 25,889
options
Net short-term borrowings 841,000 --
Proceeds from issuance of note 1,080,829 --
payable
Repayments of notes payable (32,043) (43,029)
------------------ -----------------
Net cash provided by (used in)
financing activities 2,155,938 (17,140)
------------------ -----------------
Effect of foreign exchange rate
changes on cash (889) (49,673)
------------------ -----------------
Net change in cash and cash 339,369 (601,330)
equivalents
Cash and cash equivalents at
beginning of period 53,859 1,838,787
------ ---------
Cash and cash equivalents at
end of period $393,228 $1,237,457
======== ==========
Supplemental disclosures of
cash flow information
Interest paid during the period $91,031 $55,524
======= =======
Income Taxes paid during the period $ - $ -
=============== ==============
See notes to unaudited condensed consolidated financial statements.
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Trusted Information Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
March 28, 1997
Basis of Presentation
Trusted Information Systems, Inc. (the "Company" or "TIS") provides
comprehensive security solutions for the protection of computer networks,
including global Internet-based systems, internal networks and individual
workstations and laptops. The Company develops, markets, licenses, and supports
the Gauntlet family of firewall products and other network security
products as well as TIS' patented RecoverKey(TM) technology which is the
first and only key recovery system to meet current U.S. government
requirements for exporting of cryptography with key recovery technology.
In addition to providing leading edge information security products,
TIS performs an array of services in the areas of cryptography, security
consulting, training, and advanced research and engineering for commercial
and government customers on a worldwide basis.
The accompanying unaudited condensed consolidated financial statements
include the accounts of Trusted Information Systems, Inc. and its subsidiaries,
all of which are wholly owned (collectively, "TIS" or the "Company"). Such
financial statements, including comparative information for the three month
period ended March 29, 1996, where applicable, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. All material intercompany accounts and transactions have been
eliminated in consolidation.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
calculation of basic earnings per share and fully diluted earnings per share
for these quarters is not expected to be material.
These unaudited condensed consolidated financial statements should be read in
conjunction with Company's audited financial statements and footnotes thereto
which are included in the Company's report on form 10-K that was filed with the
SEC on March 27, 1997. The accompanying unaudited condensed consolidated
financial statements reflect all the adjustments that, in the opinion of
management, are necessary for a fair presentation of the results for the
interim periods presented. The results for interim periods are not necessarily
indicative of the results for the full year.
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Item 2. 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 which involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in forward-looking statements.
Overview
Trusted Information Systems, Inc., founded in 1983, provides comprehensive
security solutions for protection of computer networks, including global
Internet-based systems, internal networks and individual workstations and
laptops and is a leading provider of firewall products. The Company currently
has two operating divisions: the Commercial Division and the Advanced Research
and Engineering ("AR&E") Division.
The Commercial Division
The Commercial Division derives revenues from the Company's Gauntlet(TM)
family of firewall products, from its commercial consulting services and from
its RecoverKey(TM) exportable cryptography enabling products. Revenues from the
Commercial Division accounted for approximately 70% of total company revenues
for the three months ended March 28, 1997. The Company expects that the
Commercial Division will account for an increased percentage of total revenues
over the remainder of the current year and in future years.
Prior to 1996, the Company distributed its only revenue producing product,
the Gauntlet Internet Firewall which was introduced in 1994, exclusively through
resellers and a sales administration staff. The Company presently employs 96
persons to develop, promote, sell and deliver its network security products and
services, including the Gauntlet family of firewall products. The Company's
Gauntlet Internet Firewall is licensed as software or as software and hardware
on one platform and was previously frequently combined (or "bundled") with
installation for pricing purposes. Since April 15, 1996, installation for the
Gauntlet family of firewall products has been offered as a separate (or
"unbundled") optional service provided to customers.
During 1996 the Company began to incur and has continued to incur substantial
increases in its selling, general and administrative expenses as it builds its
commercial marketing and sales efforts to support sales of the Gauntlet
Internet Firewall product and of its other products introduced in
1996: the Gauntlet Intranet Firewall, the Gauntlet Net Extender, the Gauntlet
PC Extender, the Gauntlet Internet Firewall for Solaris, the Gauntlet Internet
Firewall for Windows NT, The Gauntlet Forcefield, and certain of its
RecoverKey(TM) exportable cryptography products. In addition, the Company
expects to continue to expand its research and development organization
and efforts, particularly with regards to its RecoverKey(TM) exportable
cryptography enabling products. The amount and timing of these additional
expenditures are likely to result in fluctuations in operating margins. Any
material reduction in gross or operating margins could materially adversely
affect the Company's operating results.
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The Company offers a full range of consulting in information security planning
and product support. The Company's commercial consulting practice offers expert
technology research services, consultation on security issues associated with
products and services, corporate information security policy development,
architectural and diagnostic security analysis services, firewall configuration
and maintenance support, and training for corporate network and security
administration personnel. These services are carried out by a staff of 24
persons who average more than 15 years of information security experience in
both commercial and government organizations.
The Advanced Research and Engineering Division
The Advanced Research and Engineering Division consists primarily of research,
development and consulting in computer and related security systems, currently
including major contracts with three agencies of the U.S. government: the
National Security Agency ("NSA"), Air Force Rome Laboratories ("RL") and
Defense Advanced Research Projects Agency ("DARPA"), formerly the Advanced
Research Projects Agency ("ARPA"). Revenues from the AR&E Division increased
slightly during the first quarter of 1997 versus the same period of 1996. The
aggregate award value of the Company's nine major active government contracts
is approximately $37.3 million as of March 28, 1997. Between October 1993 and
March 1997, the Company provided services under the largest of these current
contracts with the NSA, which is valued at approximately $14.8 million.
Revenues from this contract were $.8 million and $.9 million, for the quarters
ending March 28, 1997 and March 29, 1996, respectively. Of the five contracts
with DARPA, which range in value from $0.7 million to $9.1 million and have
all commenced in the preceding four years, one expires during 1997 and four
will expire during 1998. While the Company expects to continue to obtain
government contracts for its AR&E Division, it anticipates that excluding
amounts mentioned above for the contract from the NSA which ended on
March 31, 1997, revenues from such contracts will attain the level
realized in 1996. The Company was recently notified that a number of its
pending proposals with DARPA were selected for contract award. Specific
contract terms and values will be negotiated between the Company and DARPA
over the next several months and are subject to the successful completion of
such negotiations and the availability of funding.
Most of the Company's government contracts provide for compensation to the
Company in the form of reimbursement of costs plus a fee. Gross profit under
government contracts generally represents the fee plus recovered operating
expenses. Under these government contracts, the Company is entitled to
recover associated direct labor costs, overhead and selling, general and
administrative expenses, including allowable research and development expenses.
Selling, general and administrative expenses allowable under government
contracts include salaries and benefits, marketing, bid and proposal costs,
management, accounting, legal and contract administration and certain other
administrative expenses.
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Under its government contracts, the Company bears the risk that recoverable
expenses billed by the Company are subject to review and audit by the Defense
Contract Audit Agency (the "DCAA"). The DCAA has audited the Company's cost
accounting system through 1993 without any significant disallowances and is
currently performing a similar audit of the Company's cost accounting system
for the years 1994 and 1995. Pursuant to their terms, these contracts are
also subject to termination at the convenience of the applicable governmental
agency. If the contract is terminated, the Company would typically be
reimbursed for its costs to the date of termination plus the cost of any
orderly termination and would be paid a portion of the fee.
Results of Operations
The following table presents for the periods indicated certain unaudited
statement of operations data as a percentage of the Company's revenues:
Three months Three months
ended ended
March 29, March 28,
Consolidated Statement of 1996 1997
Operations (unaudited) (unaudited)
as a Percentage of Revenues:
----------------- ------------------
Revenues:
Government contracts............... 58.3% 30.3%
Commercial products.................. 35.8% 60.3%
Commercial consulting services... 5.9% 9.4%
----------------- ------------------
Total Revenues 100.0% 100.0%
----------------- ------------------
Cost of Revenues:
Government contracts.................. 42.5% 21.5%
Commercial products.................. 11.3% 13.0%
Commercial consulting services... 4.0% 4.6%
----------------- ------------------
Total Costs of revenues 57.8% 39.1%
----------------- ------------------
Gross profit................................. 42.2% 60.9%
Operating expenses:
Selling, general and 48.9% 74.2%
administrative...
Research and development.......... 9.0% 22.6%
----------------- ------------------
Total Operating expenses 57.9% 96.8%
----------------- ------------------
Income (loss) from operations....... -15.7% -35.9%
Interest and other income and -2.0% 5.1%
expense.....
----------------- ------------------
Income (loss) before income taxes -17.7% -30.8%
Income tax provision (benefit)......... -7.6% -9.9%
----------------- ------------------
Net income (loss)........................ -10.1% -20.9%
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Selected Information as a
Percentage of Related Revenues:
Gross profit by product line:
Government contracts.................. 27.0% 29.1%
Commercial products.................. 68.5% 78.5%
Commercial consulting services... 33.1% 50.5%
----- -----
Total Gross profit 42.2% 60.9%
===== =====
Three Months Ended March 28, 1997 Compared to Three Months Ended March 29, 1996
Revenues. The Company's total revenues increased 102.9% to $8,473,555 in the
three months ended March 28, 1997 ("the first quarter of 1997") from $4,175,878
in the three months ended March 29, 1996 ("the first quarter of 1996").
Commercial product revenues increased 241.5% to $5,110,090 in the first quarter
of 1997 from $1,496,455 in the first quarter of 1996, as a result of an
increase in shipments of the Company's Gauntlet firewall products and sales of
licenses of Gauntlet Internet Firewalls directly to customers and through the
Company's resellers. Commercial consulting services revenues increased 222.6%
to $797,185 in the first quarter of 1997 from $247,150 in the first quarter of
1996, primarily because of the Company's increased efforts in commercial
consulting and the completion of a substantial number of commercial consulting
contracts in the first quarter of 1997. Government contract revenues increased
5.5% to $2,566,280 in the first quarter of 1997 from $2,432,273 in the first
quarter of 1996.
Gross Profit. Gross profit increased 192.6% to $5,160,582 in the first quarter
of 1997 from $1,763,499 in the first quarter of 1996, due to the increase in
the Company's commercial product and consulting services sales. The gross
profit on commercial products increased 291.5% to $4,010,490 in the first
quarter of 1997 from $1,024,358 in the first quarter of 1996 because of the
increase in shipments of Gauntlet firewall products. Gross profit from the
Company's commercial consulting services increased 392.3% to $402,354 in the
first quarter of 1997 from $81,722 in the first quarter of 1996, because of
increased revenues and an increase in opportunities for contracts with higher
margins. Gross profit from the Company's government contracts increased 13.7%
to $747,738 in the first quarter of 1997 from $657,419 in the first quarter of
1996, primarily because of greater revenues received from contracts with
proportionately higher fees.
As a percentage of related revenues, gross profit on commercial products
increased to 78.5% in the first quarter of 1997 from 68.5 % in the first
quarter of 1996 primarily because of increased sales of licenses which are
higher margin products. As a percentage of related revenues, gross profit
on commercial consulting services increased to 50.5 % in the first quarter of
1997 from 33.1% in the first quarter of 1996, because of increases in the
volume of contracts and substantially higher-margin on a number of contracts
in the first quarter of 1997. As a percentage of related revenues, gross
profit on government contracts increased to 29.1% in the first quarter of
1997 from 27.0% in the first quarter of 1996, because of greater revenues
received in 1997 from contracts with proportionately higher fees.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 207.7% to $6,288,239 in the first quarter of
1997 from $2,043,859 in the first quarter of 1996, due primarily to the
substantial increase in personnel and related operating costs associated with
the increase in the Company's commercial products sales, as well as the
Company's efforts towards developing the infrastructure to support future
commercial product revenue growth.
Research and Development Expenses. The Company's research and development
expenses, which do not include such expenses directly reimbursed under
government contracts, increased 410.5% to $1,915,235 in the first quarter of
1997 from $375,187 in the first quarter of 1996. This increase primarily
resulted from the Company's efforts in developing the next generation of the
Gauntlet Firewall, Gauntlet Firewall Version 4.0, its RecoverKey exportable
cryptography enabling products and technology, and additional members of the
Gauntlet family of firewall products.
Other Income and Expense. Other income and expense increased 620.1% to
$436,341 of income in the first quarter of 1997 from ($83,903) of expense in
the first quarter of 1996, due primarily to the interest income generated from
the proceeds of the Company's initial public offering.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations and the purchase
of property and equipment through the issuance of common stock, borrowings
under short-term lines of credit, secured notes payable and stockholder loans
and the generation of cash from operations. Cash and cash equivalents were
$1,237,457 at March 28, 1997 and $1,838,787 at December 27, 1996 , and
marketable securities were $37,303,468 at March 28, 1997 and $39,127,069 at
December 27, 1996. The Company used cash in operating activities of ($545,747)
for the three months ended March 29, 1996 and ($1,323,077) for the three months
ended March 28, 1997. For the first quarter of 1996, the Company used cash
to fund its net loss of $423,700 and decreases in accrued expenses offset by
cash provided from a decrease in accounts receivable and unbilled receivables.
For the first quarter of 1997, the Company used cash to fund its net loss of
$1,770,060 and growth in accounts and unbilled receivables of $454,135,
offset by cash provided from increases in various accrued expenses. The
decline in cash provided from operations in the first fiscal quarter of 1997
as compared to the first quarter of 1996 was primarily the result of funds
consumed as the Company continues its expansion of its commercial activities
and introduction of new products.
During the three month periods ended March 28, 1997 and March 29, 1996, the
Company used cash in investing activities of $($347,041) and ($1,259,053),
respectively, to purchase property and equipment. The Company also provided
cash in investing activities during the three months ended March 28, 1997 of
$1,135,601 from net purchases and redemptions of marketable securities.
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The Company provided cash in financing activities for the three months ended
March 29, 1996 of $2,155,938 primarily from proceeds from the issuance of notes
payable and net borrowings of short-term debt. During the first quarter of
1997, the Company used cash of $17,140 in financing activities.
At December 29, 1995, the Company had various short-term line of credit
arrangements with Mercantile-Safe Deposit and Trust Company ("Mercantile Bank")
aggregating $2 million. During 1996, the Company arranged for additional
credit agreements and modified existing credit agreements with Mercantile
Bank to provide for additional borrowings to fund the Company prior to its
initial public offering. Subsequent to September 27, 1996, in conjunction
with the Company's initial public offering, the Company paid off and terminated
these line of credit arrangements.
As of March 28, 1997, the Company had no material commitments for capital
expenditures.
In 1995 the Company negotiated a construction loan in the amount of
$1.8 million to provide for the expansion of its facilities at its Glenwood,
Maryland location. At the end of May 1996, the Company had completed its
expansion and substantially drawn down the total amount of its construction
loan which was converted in December, 1996 into mortgage notes payable to
Mercantile Bank with a fixed interest rate. In conjunction with these mortgage
notes, the Company is required to meet a minimum liquidity level of $5 million
and a minimum tangible net worth of $20 million.
The Company intends from time to time to evaluate potential acquisitions of
businesses, products and technologies that could complement or expand the
Company's business. At the current time, the Company has no plans, agreements
or commitments for any such acquisitions and is not engaged in any
negotiations with respect thereto.
The Company has not engaged in any hedging activities to date.
While the Company may require additional financing to fund development of new
products and expansion of its domestic and international operations, it
believes that the net proceeds from its initial public offering, together with
existing cash and cash equivalents, cash generated from operations and cash
available through its credit and note payable arrangements, will be sufficient
to finance its product development and operating needs at least through
December 1997.
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TRUSTED INFORMATION SYSTEMS, INC.
FORM 10 - Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Certificate of Incorporation of the Company.
3.1.1* Certificate of Amendment to Certificate of Incorporation, as
filed with the Delaware Secretary of State on October 2, 1996.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen stock certificate for shares of Common Stock of the
Company.
10.1* Amended and Restated Employee Stock Option Plan.
10.2* Amended and Restated 1996 Stock Option Plan.
10.2.1* Form of Incentive Stock Option Agreement pursuant to 1996
Stock Option Plan.
10.2.2* Form of Non-Qualified Stock Option Agreement pursuant to 1996
Stock Option Plan.
10.3* Amended and Restated 1996 Directors' Stock Option Plan.
10.4* Form of Employee Agreement Regarding Confidentiality and
Inventions.
10.5* Form of Software License and Reseller Agreement.
10.6* Form of Consulting Services Agreement.
10.7* Form of Indemnification Agreement by and between the Company
and its directors and officers.
10.8* Construction Loan Agreement dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust
Company.
10.9* Construction Loan Promissory Note dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust
Company.
10.10* Deed of Trust and Security Agreement dated July 26, 1995, by
and between the Company and Mercantile-Safe Deposit and Trust
Company.
10.11* Security Agreement, dated July 26, 1995, by and among the
Company, Mercantile-Safe Deposit and Trust Company and
Stephen T. Walker.
10.12* Personal Guaranty Agreement dated July 26, 1995, by and
between Stephen T. Walker and Mercantile-Safe Deposit and
Trust Company.
10.13* Revolving Note issued by the Company on April 4, 1996, to
Mercantile-Safe Deposit and Trust Company.
10.14* Security Agreement dated April 4, 1996, by and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.15* Revolving Note issued by the Company on April 4, 1996, to
Mercantile-Safe Deposit and Trust Company.
10.16.1* Security Agreement as of August 27, 1996, by and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.16.2* Revolving Note issued by the Company as of August 27, 1996,
to Mercantile-Safe Deposit and Trust Company.
10.17* Office Building Lease dated February 1, 1990, by and between
the Company and Perini Investment Properties, Inc.
10.18* Lease Amendment I dated May 26, 1994, by and between the
Company and
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Robert R. Walker, Jr., Receiver (relating to
exhibit 10.17).
10.19* Standard Lease dated April 12, 1989, by and between the
Company and R&B Property Holding Company.
10.20* Amendment to Lease effective November 1, 1992, by and
between the Company and R&B Property Holding Company
(relating to exhibit 10.19).
10.21* Lease Agreement dated as of October 3, 1995, by and between
Trusted Information Systems (UK) Limited and Theale Estates
Limited.
10.22* Deed dated July 17, 1996, by and between the Company and
Glenwood Associates Limited Partnership.
10.22.1* Promissory Note issued by the Company on July 17, 1996, to
Glenwood Associates Limited Partnership.
10.22.2* Deed of Trust and Security Agreement dated December 1, 1993,
by and between Glenwood Associates Limited Partnership and
Mercantile-Safe Deposit and Trust Company.
10.22.3* Promissory Note issued by Glenwood Associates Limited
Partnership on December 1, 1993 to Mercantile-Safe Deposit
and Trust Company.
10.23* Deed and Confirmatory Deed dated July 26, 1995, by and
between the Company and Stephen T. Walker.
10.24* Agreement and Plan of Merger dated May 30, 1996.
10.25**+ Patent and Software License Agreement dated January 24,
1997, by and between the Company and International Business
Machines Corporation.
11.1 Statement of computation of earnings per share.
21.1* Subsidiaries of the Registrant.
27 Financial Data Schedule.
- -------------------
* Previously filed as an exhibit to the Company's Registration Statement
Number 333-5419 on Form S-1 and incorporated herein by reference.
** Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended December 27, 1996 and incorporated herein by
reference.
+ Portions of this Exhibit were omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended, filed on March 27, 1997.
(b) Reports on Form 8-K
None.
- 14 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRUSTED INFORMATION SYSTEMS, INC.
Date: May 12, 1997 By: /s/ Stephen T. Walker
-----------------------
Stephen T. Walker,
President and CEO
Date: May 12, 1997 By: /s/ Ronald W. Kaiser
----------------------
Ronald W. Kaiser,
Chief Financial Officer
- 15 -
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3.1* Certificate of Incorporation of the Company.
3.1.1* Certificate of Amendment to Certificate of Incorporation, as
filed with the Delaware Secretary of State on October 2, 1996.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen stock certificate for shares of Common Stock of the
Company.
10.1* Amended and Restated Employee Stock Option Plan.
10.2* Amended and Restated 1996 Stock Option Plan.
10.2.1* Form of Incentive Stock Option Agreement pursuant to 1996
Stock Option Plan.
10.2.2* Form of Non-Qualified Stock Option Agreement pursuant to 1996
Stock Option Plan.
10.3* Amended and Restated 1996 Directors' Stock Option Plan.
10.4* Form of Employee Agreement Regarding Confidentiality and
Inventions.
10.5* Form of Software License and Reseller Agreement.
10.6* Form of Consulting Services Agreement.
10.7* Form of Indemnification Agreement by and between the Company
and its directors and officers.
10.8* Construction Loan Agreement dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust
Company.
10.9* Construction Loan Promissory Note dated July 26, 1995, by and
between the Company and Mercantile-Safe Deposit and Trust
Company.
10.10* Deed of Trust and Security Agreement dated July 26, 1995, by
and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.11* Security Agreement, dated July 26, 1995, by and among the
Company, Mercantile-Safe Deposit and Trust Company and
Stephen T. Walker.
10.12* Personal Guaranty Agreement dated July 26, 1995, by and
between Stephen T. Walker and Mercantile-Safe Deposit and
Trust Company.
10.13* Revolving Note issued by the Company on April 4, 1996, to
Mercantile-Safe Deposit and Trust Company.
10.14* Security Agreement dated April 4, 1996, by and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.15* Revolving Note issued by the Company on April 4, 1996, to
Mercantile-Safe Deposit and Trust Company.
10.16.1* Security Agreement as of August 27, 1996, by and between the
Company and Mercantile-Safe Deposit and Trust Company.
10.16.2* Revolving Note issued by the Company as of August 27, 1996,
to Mercantile-Safe Deposit and Trust Company.
10.17* Office Building Lease dated February 1, 1990, by and between
the Company and Perini Investment Properties, Inc.
10.18* Lease Amendment I dated May 26, 1994, by and between the
Company and Robert R. Walker, Jr., Receiver (relating to
exhibit 10.17).
10.19* Standard Lease dated April 12, 1989, by and between the
Company and R&B Property Holding Company.
10.20* Amendment to Lease effective November 1, 1992, by and between
the Company and R&B Property Holding Company (relating to
exhibit 10.19).
10.21* Lease Agreement dated as of October 3, 1995, by and between
Trusted Information Systems (UK) Limited and Theale Estates
Limited.
10.22* Deed dated July 17, 1996, by and between the Company and
Glenwood
- 16 -
<PAGE>
Associates Limited Partnership.
10.22.1* Promissory Note issued by the Company on July 17, 1996, to
Glenwood Associates Limited Partnership.
10.22.2* Deed of Trust and Security Agreement dated December 1, 1993,
by and between Glenwood Associates Limited Partnership and
Mercantile-Safe Deposit and Trust Company.
10.22.3* Promissory Note issued by Glenwood Associates Limited
Partnership on December 1, 1993 to Mercantile-Safe Deposit
and Trust Company.
10.23* Deed and Confirmatory Deed dated July 26, 1995, by and
between the Company and Stephen T. Walker.
10.24* Agreement and Plan of Merger dated May 30, 1996.
10.25**+ Patent and Software Agreement dated January 24, 1997, by and
between the Company and International Business Machines
Corporation.
11.1 Statement of computation of earnings per share.
21.1* Subsidiaries of the Registrant.
27 Financial Data Schedule.
- -------------------
* Previously filed as an exhibit to the Company's Registration
Statement Number 333-5419 on Form S-1 and incorporated herein by
reference.
** Previously filed as an exhibit to the Company's form 10-K for the
fiscal year ended December 27, 1996 and incorporated herein by
reference.
+ Portions of this Exhibit were omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended, filed on March 27, 1997.
- 17 -
Exhibit 11.1
Trusted Information Systems, Inc.
Statement of Computation of Earnings (Loss) Per Share
For the Threee Months Ended
March 29, March 28,
1996 1997
---------------------------------------
Common Stock Outstanding 6,986,762 11,507,743
Issuance of Cheap Stock
866,176 --
Weighted average shares
outstanding 7,852,938 11,507,743
=================== =============
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD
ENDED MARCH 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-28-1997
<CASH> 1,237,457
<SECURITIES> 37,303,468
<RECEIVABLES> 5,100,120
<ALLOWANCES> 276,349
<INVENTORY> 0
<CURRENT-ASSETS> 49,778,900
<PP&E> 8,707,759
<DEPRECIATION> 1,869,465
<TOTAL-ASSETS> 56,931,322
<CURRENT-LIABILITIES> 8,946,870
<BONDS> 2,381,326
0
0
<COMMON> 115,248
<OTHER-SE> 45,440,849
<TOTAL-LIABILITY-AND-EQUITY> 56,931,322
<SALES> 8,473,555
<TOTAL-REVENUES> 8,473,555
<CGS> 3,312,973
<TOTAL-COSTS> 3,312,973
<OTHER-EXPENSES> 8,203,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,573
<INCOME-PRETAX> (2,606,551)
<INCOME-TAX> (836,491)
<INCOME-CONTINUING> (1,770,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,770,060)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
