<PAGE>
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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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _______________
COMMISSION FILE NUMBER: 000-23593
VERISIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3221585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1390 SHOREBIRD WAY, MOUNTAIN VIEW, CA 94043-1338
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 961-7500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Class July 31, 1998
----- -------------
Common stock, $.001 par value 22,511,430
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<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 19
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
Signatures............................................................. 21
Summary of Trademarks.................................................. 22
EXHIBIT
Exhibit 27.01 Financial Data Schedule (available in EDGAR format only).
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included under this item are as follows:
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
FINANCIAL STATEMENT DESCRIPTION PAGE
- --------------------------------------------------------------- ------------
<S> <C>
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1997.............. 4
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997............................ 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997........................ 6
Notes to Consolidated Financial Statements..................... 7
</TABLE>
3
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues........................... $ 5,301 $ 2,249 $ 9,303 $ 3,516
------- ------- -------- -------
Costs and expenses:
Cost of revenues.................. 2,939 1,733 5,771 3,152
Sales and marketing............... 4,769 2,686 8,886 4,940
Research and development.......... 1,931 1,222 3,537 2,251
General and administrative........ 1,489 864 2,927 1,817
------- ------- -------- -------
Total costs and expenses......... 11,128 6,505 21,121 12,160
------- ------- -------- -------
Operating loss................... (5,827) (4,256) (11,818) (8,644)
Other income....................... 637 166 1,013 635
------- ------- -------- -------
Loss before minority interest.... (5,190) (4,090) (10,805) (8,009)
Minority interest in net loss
of subsidiary..................... 325 482 713 787
------- ------- -------- -------
Net loss......................... $(4,865) $(3,608) $(10,092) $(7,222)
======= ======= ======== =======
Basic and diluted net loss
per share......................... $(.23) $(.56) $(.54) $(1.13)
======= ======= ======== =======
Shares used in per share
computations...................... 20,787 6,441 18,593 6,411
======= ======= ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 22,883 $ 3,943
Short-term investments.................................. 22,994 7,951
Receivables............................................. 4,328 2,274
Prepaid expenses and other current assets............... 1,067 750
-------- --------
Total current assets.................................. 51,272 14,918
Property and equipment, net.............................. 9,231 8,622
Other assets............................................. 880 866
-------- --------
$ 61,383 $ 24,406
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,865 $ 2,526
Accrued liabilities..................................... 3,830 2,346
Deferred revenue........................................ 7,618 4,819
-------- --------
Total current liabilities............................. 13,313 9,691
-------- --------
Minority interest in subsidiary.......................... 1,533 2,246
-------- --------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value;
5,000,000 shares authorized; none issued............... -- --
Convertible preferred stock, $.001 par value;
10,282,883 shares authorized in 1997;
10,031,006 shares issued and outstanding in 1997....... -- 10
Common stock, $.001 par value;
50,000,000 shares authorized;
20,838,304 and 7,120,238 shares issued
and outstanding, respectively.......................... 21 7
Additional paid-in capital.............................. 88,950 44,908
Notes receivable from stockholders...................... (582) (644)
Deferred compensation................................... (328) (380)
Accumulated deficit..................................... (41,524) (31,432)
-------- --------
Total stockholders' equity............................ 46,537 12,469
-------- --------
$ 61,383 $ 24,406
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $(10,092) $ (7,222)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................ 1,717 621
Minority interest in net loss of subsidiary.................. (713) (787)
Stock-based compensation..................................... 52 --
Loss on disposal of property and equipment................... 50 --
Changes in operating assets and liabilities:
Receivables................................................. (2,054) (451)
Prepaid expenses and other current assets................... (317) 148
Accounts payable............................................ (661) (926)
Accrued liabilities......................................... 1,484 18
Deferred revenue............................................ 2,799 254
-------- --------
Net cash used in operating activities....................... (7,735) (8,345)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments........................... (36,563) (9,716)
Maturities and sales of short-term investments................ 21,520 --
Purchases of property and equipment........................... (2,362) (4,107)
Other assets.................................................. (28) (610)
-------- --------
Net cash used in investing activities....................... (17,433) (14,433)
-------- --------
Cash flows from financing activities:
Proceeds from bank borrowings................................. -- 616
Collections on notes receivable from stockholders............. 62 --
Net proceeds from issuance of common stock.................... 44,046 --
-------- --------
Net cash provided by financing activities................... 44,108 616
-------- --------
Net change in cash and cash equivalents........................ 18,940 (22,162)
Cash and cash equivalents at beginning of period............... 3,943 29,983
-------- --------
Cash and cash equivalents at end of period..................... $ 22,883 $ 7,821
======== ========
Noncash financing and investing activities:
Conversion of convertible preferred stock
to common stock.............................................. -- --
======== ========
Issuance of notes receivable collateralized
by common stock.............................................. -- $ 115
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) BASIS OF PRESENTATION
The accompanying interim unaudited consolidated balance sheets and
statements of operations and cash flows reflect all normal recurring adjustments
that, in the opinion of management, are necessary for a fair presentation of the
financial position of VeriSign, Inc. ("VeriSign" or the "Company") at June 30,
1998, and the results of operations and cash flows for the interim periods ended
June 30, 1998 and 1997.
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and, therefore,
do not include all information and footnotes necessary for a complete
presentation of the Company's results of operations, financial position, and
cash flows. In conformity with generally accepted accounting principles, the
Company filed audited consolidated financial statements that included all
information and footnotes necessary for such a presentation for the period from
April 12, 1995 (inception) to December 31, 1995, and for each of the years in
the two-year period ended December 31, 1997, in the Company's Prospectus, dated
January 29, 1998, filed as part of a Registration Statement on Form S-1 (No.
333-40789), as amended, in connection with the Company's initial public offering
("IPO").
The results of operations for any interim period are not necessarily
indicative of the results of the Company's operations for any other future
interim period or for a full fiscal year.
(2) STOCKHOLDERS' EQUITY
On January 30, 1998, the Company completed its IPO issuing 3,450,000 shares
of its Common Stock (including 450,000 shares issued upon the exercise of the
underwriters' over-allotment option) at an initial public offering price of $14
per share. The net proceeds to the Company from the offering, after deducting
underwriting discounts and commissions and offering expenses incurred by the
Company, were approximately $43.7 million. Concurrently, with the IPO, each
outstanding share of the Company's Convertible Preferred Stock was automatically
converted into one share of Common Stock.
(3) REVENUE RECOGNITION
For software transactions entered into beginning January 1, 1998, the
Company adopted the American Institute of Certified Public Accountants'
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition. SOP No.
97-2 generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements. The fair value of the element must be based on objective
evidence that is specific to the vendor. If a vendor does not have objective
evidence of the fair value of all elements in a multiple-element arrangement,
all revenue from the arrangement must be deferred until such evidence exists or
until all elements have been delivered. The adoption of SOP No. 97-2 did not
have a material effect on the Company's operating results.
(4) NET LOSS PER SHARE
Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted-average number of common and common equivalent
shares outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is antidilutive. Antidilutive
common equivalent shares excluded from basic and diluted loss per share for the
three-month periods ending June 30, 1998 and 1997 were comprised of common stock
options, which totaled 2,207,066 and 448,879, respectively, and the weighted
average number of convertible preferred stock shares outstanding during the
three-month period ending June 30, 1997, which totaled 10,031,006. For the six-
month periods ending June 30, 1998 and 1997, the antidilutive common equivalent
shares excluded from basic and diluted loss per share were comprised
7
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NET LOSS PER SHARE (CONTINUED)
of common stock options, which totaled 2,209,434 and 561,123, respectively, and
the weighted average number of convertible preferred stock shares outstanding,
which totaled 1,607,148 and 10,031,006, respectively.
(5) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the display of comprehensive
income and its components in a full set of financial statements. Comprehensive
income includes all changes in equity during a period except those resulting
from the issuance of stock and distributions to stockholders. There were no
material differences between the Company's net loss and its comprehensive loss.
(6) RECENT ACCOUNTING PRONOUNCEMENT
In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software. SOP No. 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The Company does not expect the adoption of SOP No. 98-1 to
have a material impact on its results of operations.
(7) SUBSEQUENT EVENT
On July 6, 1998, the Company issued approximately 1,666,000 shares of its
common stock in exchange for all of the outstanding common stock of SecureIT,
Inc., a provider of Internet security products and services. The business
combination will be accounted for as a pooling-of-interests combination, and,
accordingly, the Company's historical consolidated financial statements
presented in future reports will be restated to include the accounts and results
of operations of SecureIT, Inc.
The following unaudited pro forma data summarize the combined results of
operations of VeriSign, Inc. and SecureIT, Inc. as if the combination had been
consummated on June 30, 1998, and reflect adjustments to conform the accounting
methods of SecureIT, Inc. to those of VeriSign, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues..................... $ 8,555 $ 2,931 $15,217 $ 4,520
======= ======= ======= =======
Net loss..................... $(4,774) $(3,508) $(9,477) $(7,054)
======= ======= ======= =======
Basic and diluted net loss
per share................... $ (.21) $ (.44) $ (.47) $ (.89)
======= ======= ======= =======
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the interim
unaudited consolidated financial statements and notes thereto.
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those in the forward-
looking statement. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in the section below entitled
"Factors That May Affect Future Results Of Operations." Readers should carefully
review the risks described in the other documents that the Company has filed
from time to time with the United States Securities and Exchange Commission,
including its Quarterly Reports on Form 10-Q and the Company's Prospectus dated
January 29, 1998. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-Q. The Company undertakes no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.
OVERVIEW
VeriSign, Inc. ("VeriSign" or the "Company") is the leading provider of
public key infrastructure ("PKI") and digital certificate solutions needed by
companies, government agencies, trading partners and individuals to conduct
trusted and secure communications and commerce over the Internet, and over
intranets and extranets using the Internet Protocol (collectively, "IP
networks"). Headquartered in Mountain View, California, the Company was
incorporated in April 1995 as a spin-out of RSA Data Security ("RSA"), a
subsidiary of Security Dynamics Technologies, Inc.. Since its founding, VeriSign
has issued more than 65,000 Digital IDs to Web sites and 3,000,000 IDs to
consumers, in partnership with leading companies including Acer, AT&T, British
Telecommunications, Lotus, Lucent Technologies, Microsoft, Netscape and Network
Associates. The Company has delivered enterprise certificate solutions to
companies and government agencies including Bank of America, Hewlett-Packard,
Kodak, NationsBank, Texas Instruments, United Parcel Service and US West.
VeriSign's service offerings target three main lines of business;
Enterprise PKI Solutions, Web-site IDs and Consumer IDs. VeriSign Web-site IDs
and Consumer IDs are delivered through the VeriSign Digital ID Center/SM/, an
online service that is open 24 hours a day, 7 days a week. VeriSign has been
first to market with Digital IDs for servers, browsers, e-mail applications, and
software content, and continues to hold a majority of the market share in these
areas.
VeriSign's Enterprise PKI Solution, VeriSign OnSite, is targeted at Fortune
10,000 companies in the financial services, publishing, legal, transportation
and other industries as well as government agencies and educational
institutions. VeriSign OnSite is comprised of a suite of software applications
and mission-critical processing services that enable enterprises to deploy a
full PKI to secure their intranets, extranets and Internet commerce applications
using digital certificates. The Company introduced VeriSign OnSite in the last
quarter of 1997. During 1997, the Company also began providing technology and
products for digital certificate management to OEMs.
The Company introduced its Web-site IDs product, the Secure Server ID for
Netscape Commerce Servers, in June 1995. In October 1995, the Company introduced
additional server Digital IDs for the Web server products of Microsoft, IBM,
Open Market and other vendors. In May 1996, the Company began providing online
enrollment and issuance of client Digital IDS, as part of the Consumer ID line
of business, for Netscape Navigator through its Digital ID Center and began
shipping another form of Digital ID known as a Software Developer Digital ID for
Microsoft's Authenticode Program. The Company began issuing Digital IDS for
Microsoft's Internet Explorer through the Company's Digital ID Center in August
1996. During 1997, the Company introduced its Universal Digital IDS and three
new types of server digital certificate products--its Global Server ID,
Financial Server ID and EDI Server ID.
9
<PAGE>
During the second quarter of 1998, the Company introduced VeriSign OnSite
for Secure Server IDs, a digital certificate solution that enables organizations
to secure Web servers used in intranets, extranets and Internet commerce
applications. Leveraging the Secure Sockets Layer (SSL) protocol, this solution
enables enterprises and organizations to control the issuance and administration
of multiple server digital certificates within a single domain name (e.g.,
www.yourcompany.com), issued either within the globally interoperable VeriSign
Trust Network or under a private certificate hierarchy.
Historically, the Company has derived substantially all of its revenues
from the sale of Digital IDs and from fees for services rendered in connection
with the Company's digital certificate solutions and digital certificate service
and product development agreements. The purchase of a Digital ID by a consumer
or for a Web-site allows the customer to use the Digital ID for a limited period
of time, generally 12 months. After this period, the Digital ID must be renewed
for continued usage by the customer. Renewal fees are typically lower than the
fees charged for the initial Digital ID. Revenues from the sale or renewal of
Digital IDs for consumers and Web-sites are deferred and recognized ratably over
the life of the digital certificate. Revenues from the Company's Enterprise PKI
Solutions consist of fees for the issuance of digital certificates, which are
recognizable ratably over the term of the particular license agreement relating
to the enterprise or electronic commerce solution; fees for software tool kits,
which are recognized upon delivery; and fees for set-up service, which are
recognized upon completion of the service. Revenues from other services are
recognized using the percentage-of-completion method for fixed-fee development
arrangements, on a time-and-materials basis for consulting and training services
or ratably over the term of the agreement for support and maintenance services.
The Company markets its products and services worldwide through multiple
distribution channels, including the Internet, direct sales, telesales, VARs,
systems integrators and OEMs. Although a significant portion of its revenues to
date has been generated through sales from the Company's Web-site, the Company
intends to continue increasing its direct sales force, both domestically and
internationally, and intends to continue to expand its other distribution
channels.
In connection with the formation of VeriSign Japan K.K. ("VeriSign Japan")
the Company licensed certain technology and contributed other assets to VeriSign
Japan. Subsequent to its formation, additional investors purchased minority
interests in VeriSign Japan, and, as of June 30, 1998, the Company owned 50.5%
of the outstanding capital stock of VeriSign Japan. Accordingly, the Company's
consolidated financial statements include the accounts of the Company and this
subsidiary and the Company's consolidated statements of operations reflect the
elimination of the minority shareholders' share of the net losses of the
subsidiary. Historically, VeriSign Japan has funded its net losses with
investments from its shareholders. However, to the extent VeriSign Japan is
unable to continue to fund its operations principally from investments by
minority shareholders, the Company may be required to fund the operations of
this subsidiary, which could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company has experienced substantial net losses in each fiscal period
since its inception and, as of June 30, 1998, had an accumulated deficit of
$41.5 million. Such net losses and accumulated deficit resulted from the
Company's lack of substantial revenues and the significant costs incurred in the
development and sale of the Company's products and services and in the
establishment and deployment of the Company's operations, infrastructure and
practices. The Company intends to increase its expenditures in all areas in
order to execute its business plan. As a result, the Company expects to incur
additional losses for the foreseeable future. Although the Company has
experienced revenue growth in recent periods, there can be no assurance that
such growth rates are sustainable and, therefore, they should not be considered
indicative of future operating results. There can be no assurance that the
Company will ever achieve significant revenues or profitability. A more complete
description of these and other risks relating to the Company's business is set
forth under the caption "Risk Factors" in the Company's Prospectus dated January
29, 1998.
10
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUES
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
Revenues........................... $5,301 $2,249 136%
(Dollars in thousands)
Six-month period:
Revenues........................... $9,303 $3,516 165%
(Dollars in thousands)
</TABLE>
Revenues increased significantly from the prior year due to increased
sales of VeriSign's products and services, particularly its Web-site IDs and
OnSite products. As a result of the continued acceptance of Digital IDs, the
number of digital certificates issued continued to grow on a quarterly basis.
The Company has seen year-to-year increases in the number of customers that are
buying Consumer and Web-site Digital IDs and the number of organizations and
government agencies beginning to deploy PKI and digital certificate solutions
and believes that such increases are attributable to the continued acceptance of
digital certificates as a mechanism for authentication, access control and
secure messaging. In addition, during the three and six months ended June 30,
1998, the Company completed certain work required under various contracts for
its enterprise and electronic commerce solutions and, therefore, recognized the
related portion of revenues.
For software transactions entered into beginning January 1, 1998, the
Company adopted the American Institute of Certified Public Accountants'
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition. SOP No.
97-2 generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements. The fair value of the element must be based on objective
evidence that is specific to the vendor. If a vendor does not have objective
evidence of the fair value of all elements in a multiple-element arrangement,
all revenue from the arrangement must be deferred until such evidence exists or
until all elements have been delivered. The adoption of SOP No. 97-2 did not
have a material effect on the Company's operating results.
No one customer accounted for 10% or more of revenues during the three
months ended June 30, 1998. Security Dynamics Technologies, Inc. accounted for
12% of revenues in the six months ended June 30, 1998. VISA International
accounted for 19% and 17% of revenues for the three months and six months ended
June 30, 1997, respectively. Revenues of VeriSign Japan and revenue from other
international customers accounted for 17% of revenues in the second quarters of
1998 and 1997 and 17% and 16% of revenues in the first half of 1998 and 1997,
respectively.
A portion of the Company's sales will be earned later than billed and
collected. Deferred revenue increased from $4.8 million at December 31, 1997 to
$7.6 million at June 30, 1998. In the future, the Company anticipates that it
may receive additional revenues from sales of software products, value-added
services and training, licensing and royalty fees from licenses of digital
certificates and related technology, maintenance, and fees for customer support.
<TABLE>
<CAPTION>
COSTS AND EXPENSES
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
Cost of revenues.................... $2,939 $1,733 70%
(Dollars in thousands)
Six-month period:
Cost of revenues.................... $5,771 $3,152 83%
(Dollars in thousands)
</TABLE>
Cost of Revenues. Cost of revenues consists primarily of costs related to
personnel providing digital
11
<PAGE>
certificate enrollment and issuance services, customer support and training,
consulting and development services and facilities and computer equipment used
in such activities. Cost of revenues also includes fees paid to third parties to
verify certificate applicants' identities and insurance premiums for the
Company's NetSure warranty plan and errors and omission insurance.
The increase in cost of revenues from 1997 to 1998 was due primarily to
hiring personnel to support the additional volume of issuances of Digital IDs,
the cost of the Company's NetSure warranty plan (which was not in effect in the
first three months of 1997), increased expenses for access to third-party
databases and support charges for the Company's external disaster recovery
program.
The Company anticipates that cost of revenues will vary for the remainder
of 1998 depending on the product mix sold during that period, as cost of service
revenues is typically higher than cost of product revenues due to the relatively
high personnel costs associated with providing services.
<TABLE>
<CAPTION>
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
Sales and marketing................ $4,769 $2,686 78%
(Dollars in thousands)
Percentage of revenues 90% 119%
Six-month period:
Sales and marketing................ $8,886 $4,940 80%
(Dollars in thousands)
Percentage of revenues 96% 141%
</TABLE>
Sales and Marketing. Sales and marketing expenses consist primarily of
costs related to sales, marketing, and practices and external affairs personnel,
including salaries, sales commissions and other personnel-related expenses,
travel and related expenses, computer equipment and support services used in
such activities, facilities costs, consulting fees and costs of marketing
programs.
Sales and marketing expenses increased from 1997 to 1998 as a result of the
continued growth of the Company's direct sales force and an expansion of the
Company's marketing efforts during 1998, particularly in lead and demand
generation activities. The decrease in sales and marketing expenses as a
percentage of revenues from 1997 to 1998 is primarily due to the increase in
revenues.
The Company anticipates that sales and marketing expenses will continue to
increase in absolute dollars as it expands its direct sales force, hires
additional marketing personnel and increases its marketing and promotional
activities during 1998.
<TABLE>
<CAPTION>
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
Research and development............ $1,931 $1,222 58%
(Dollars in thousands)
Percentage of revenues 36% 54%
Six-month period:
Research and development............ $3,537 $2,251 57%
(Dollars in thousands)
Percentage of revenues 38% 64%
</TABLE>
Research and Development. Research and development expenses consist
primarily of costs related to research and development personnel, including
salaries and other personnel-related expenses, consulting fees, facilities, and
computer equipment and support services used in product and technology
development.
12
<PAGE>
Research and development expenses increased in absolute dollars as the
Company invested in the design, testing and deployment of, and technical support
for, the Company's expanded product offerings and technology. The increase
reflects the expansion of the Company's engineering staff and related costs
required to support its continued emphasis on developing new products and
enhancing existing products. During 1998, the Company continued to make
significant investments in development of all of its software products and
related platforms supported, including those targeted for the enterprise and
electronic commerce market.
The Company believes that timely development of new and enhanced products
and technology are necessary to remain competitive in the marketplace.
Accordingly, the Company intends to continue recruiting experienced research and
development personnel and make other investments in research and development.
Therefore, the Company expects research and development expenses will continue
to increase in absolute dollars.
<TABLE>
<CAPTION>
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
General and administrative.......... $1,489 $ 864 72%
(Dollars in thousands)
Percentage of revenues 28% 38%
Six-month period:
General and administrative.......... $2,927 $1,817 61%
(Dollars in thousands)
Percentage of revenues 31% 52%
</TABLE>
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses for the Company's
administrative, finance and human relations personnel, facilities and computer
equipment, support services and professional services fees.
During 1998, the Company incurred increased costs due primarily to
increased staffing levels required to support the Company's expanded operations
and to implement additional management information systems and related
procedures. In addition, the Company has incurred additional costs related to
being a public company, including investor relations programs and professional
services fees.
The Company also expects to continue to invest in an expanded and more
comprehensive executive and administrative infrastructure. Accordingly, the
Company anticipates that general and administrative expenses will continue to
increase in absolute dollars.
<TABLE>
<CAPTION>
OTHER INCOME
1998 1997 CHANGE
------ ------ ------
<S> <C> <C> <C>
Three-month period:
Other income........................ $ 637 $166 284%
(Dollars in thousands)
Percentage of revenues 12% 7%
Six-month period:
Other income........................ $1,013 $635 60%
(Dollars in thousands)
Percentage of revenues 11% 18%
</TABLE>
Other income consists primarily of interest earned on the Company's cash,
cash equivalents and short-term investments, less interest expense on bank
borrowings of VeriSign Japan and the effect of foreign currency transaction
gains and losses.
13
<PAGE>
The increase in other income from 1997 to 1998 is primarily due to a higher
cash and short-term investment base as a result of the proceeds from the
Company's initial public offering on January 30, 1998.
PROVISION FOR INCOME TAXES
No provision for federal and California income taxes has been recorded
because the Company has experienced net losses since inception. As of December
31, 1997, the Company had federal and California net operating loss
carryforwards of approximately $26.9 million and $27.1 million, respectively.
These federal and California net operating loss carryforwards will expire, if
not utilized, in years 2010 through 2014 and in 2003, respectively.
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY
Minority interest in the net losses of VeriSign Japan was $325,000 and
$482,000 during the second quarters of 1998 and 1997, respectively, and $713,000
and $787,000 during the first halves of 1998 and 1997, respectively. The
decrease from 1997 to 1998 was primarily due to increased revenue from VeriSign
Japan as compared to the prior year. VeriSign Japan is still in the early stage
of operations, and, therefore, the Company expects that the minority interest in
net loss of subsidiary will continue to fluctuate in future periods.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND ANTICIPATION OF FUTURE
LOSSES
The Company was incorporated in April 1995 and began introducing its
products and services in June 1995. Accordingly, the Company has only a limited
operating history on which to base an evaluation of its business and prospects.
The Company's prospects must be considered in light of the risks and
uncertainties encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets. The Company's
success will depend on many factors, including, but not limited to, the
following: the rate and timing of the growth and use of IP networks for
communications and commerce and the extent to which digital certificates are
used for such communications and commerce; the demand for the Company's products
and services; the levels of competition; the perceived security of
communications and commerce over IP networks, and of the Company's
infrastructure, products and services in particular; and the Company's continued
ability to maintain its current, and enter into additional, strategic
relationships. To address these risks the Company must, among other things:
attract and retain qualified personnel; respond to competitive developments;
successfully introduce new products and services; successfully introduce
enhancements to its existing products and services to address new technologies
and standards; and successfully market its digital certificates and its
enterprise and electronic commerce solutions. There can be no assurance that the
Company will succeed in addressing any or all of these risks, and the failure to
do so would have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company has experienced
substantial net losses in each fiscal period since its inception and, as of June
30, 1998, had an accumulated deficit of $41.5 million. Such net losses and
accumulated deficit resulted from the Company's lack of substantial revenues and
the significant costs incurred in the development and sale of the Company's
products and services and in the establishment and deployment of the Company's
operations, infrastructure and practices. The Company's limited operating
history, the emerging nature of its market and the factors described under "--
Adoption of IP Networks", among other factors, make prediction of the Company's
future operating results difficult. In addition, the Company intends to increase
its expenditures in all areas in order to execute its business plan. As a
result, the Company expects to incur substantial additional losses for the
foreseeable future. Furthermore, to the extent the Company's majority-owned
subsidiary, VeriSign Japan, is unable to continue to fund its operations with
investments from minority shareholders, the Company may be required to fund the
operations of VeriSign Japan, which could have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company has experienced revenue growth in recent periods, there can be no
assurance that such growth rates are sustainable and, therefore, they should not
be considered indicative of future operating results. There can also be no
assurance that the Company will ever achieve significant revenues or
profitability or, if significant revenues and profitability are achieved, that
they could be sustained.
14
<PAGE>
ADOPTION OF IP NETWORKS
In order for the Company to be successful, IP networks must be adopted as a
means of trusted and secure communications and commerce to a sufficient extent
and within an adequate time frame. Because trusted and secure communications and
commerce over IP networks is new and evolving, it is difficult to predict with
any assurance the size of this market and its growth rate, if any. To date, many
businesses and consumers have been deterred from utilizing IP networks for a
number of reasons, including, but not limited to, potentially inadequate
development of network infrastructure, security concerns, inconsistent quality
of service, lack of availability of cost-effective, high-speed service, limited
numbers of local access points for corporate users, inability to integrate
business applications on IP networks, the need to interoperate with multiple and
frequently incompatible products, inadequate protection of the confidentiality
of stored data and information moving across IP networks and a lack of tools to
simplify access to and use of IP networks. The adoption of IP networks for
trusted and secure communications and commerce, particularly by individuals and
entities that historically have relied upon traditional means of communications
and commerce, will require a broad acceptance of new methods of conducting
business and exchanging information. Companies and government agencies that
already have invested substantial resources in other methods of conducting
business may be reluctant to adopt a new strategy that may limit or compete with
their existing efforts. Furthermore, individuals with established patterns of
purchasing goods and services and effecting payments may be reluctant to alter
those patterns.
The use of IP networks for trusted and secure communications and commerce
may not increase or may increase more slowly than expected because the
infrastructure required to support widespread trusted and secure communications
and commerce on such networks may not develop. For example, the Internet has
experienced, and may continue to experience, significant growth in its number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to support the demands placed on it by this
continued growth or that the performance or reliability of the Internet will not
be adversely affected by this continued growth. In addition, IP networks could
lose their viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity or due to
increased governmental regulation. Changes in, or insufficient availability of,
communications services to support IP networks could result in slower response
times and also adversely affect usage of IP networks. If the market for trusted
and secure communications and commerce over IP networks fails to develop or
develops more slowly than expected, or if the Internet infrastructure does not
adequately support any continued growth, the Company's business, operating
results and financial condition would be materially adversely affected.
NO ASSURANCE OF MARKET ACCEPTANCE FOR DIGITAL CERTIFICATES AND THE
COMPANY'S PRODUCTS AND SERVICES
The Company's products and services are targeted at the market for trusted
and secure communications and commerce over IP networks, a market that is at an
early stage of development and is rapidly evolving. Accordingly, demand for and
market acceptance of digital certificate solutions are subject to a high level
of uncertainty. There can be no assurance that digital certificates will gain
market acceptance as a necessary element of trusted and secure communications
and commerce over IP networks. In addition, there can be no assurance that the
market for the Company's products and services will develop in a timely manner,
or at all, or that demand for the Company's products and services will emerge or
be sustainable. The factors that may affect the level of market acceptance of
digital certificates and, consequently, the Company's products and services,
include the following: market acceptance of products and services based upon
authentication technologies other than those used by the Company; public
perception of the security of digital certificates and of the inherent security
levels of IP networks; the ability of the Internet infrastructure to accommodate
increased levels of usage; and the enactment of government regulations affecting
communications and commerce over IP networks. Even if digital certificates
achieve market acceptance, there can be no assurance that the Company's products
and services will adequately address the market's requirements. If digital
certificates do not achieve market acceptance in a timely manner and sustain
such acceptance, or if the Company's products and services in particular do not
achieve or sustain market acceptance, the Company's business, operating results
and financial condition would be materially adversely affected.
15
<PAGE>
SYSTEM INTERRUPTION AND SECURITY BREACHES
The Company's success is largely dependent on the uninterrupted operation
of its Digital ID Centers and its other computer and communications systems,
which is dependent on the Company's ability to protect such systems from loss,
damage or interruption caused by fire, earthquake, power loss,
telecommunications failure or other events beyond the Company's control. Most of
the Company's systems are located at, and most of its customer information is
stored in, its facilities in Mountain View, California and Kawasaki, Japan,
areas susceptible to earthquakes. Although the Company believes that its
existing and planned precautions are adequate to prevent any significant loss of
information or system outage, there can be no assurance that unanticipated
problems will not cause such loss or failure. Any damage or failure that causes
interruptions in the Company's Digital ID Centers and its other computer and
communications systems could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the ability of
the Company to issue digital certificates is also dependent on the efficient
operation of the Internet connections from customers to its Digital ID Centers.
Such connections, in turn, are dependent upon efficient operation of Web
browsers, Internet Service Providers and Internet backbone service providers,
all of which have had periodic operational problems or experienced outages in
the past. Any such problems or outages could adversely affect customer
satisfaction with the Company's products and services, which could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's success also depends in large part upon the
scaleability of its systems, which have not been tested at high volumes. As
such, it is possible that a substantial increase in demand for the Company's
products and services could cause interruptions in the Company's systems that
could adversely affect the Company's ability to deliver its products and
services. Any such interruptions could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company retains confidential customer information in its Digital ID
Centers. It is critical to the Company's business strategy that the Company's
facilities and infrastructure remain secure and that such facilities and
infrastructure are perceived by the marketplace to be secure. Despite the
implementation of security measures, the Company's infrastructure may be
vulnerable to physical break-ins, computer viruses, attacks by hackers or
similar disruptive problems, and it is possible that in the future the Company
may have to expend additional financial and other resources to further address
such problems. Any physical or electronic break-ins or other security breaches
or compromises of the private root keys stored at the Company's Digital ID
Centers may jeopardize the security of information stored on the Company's
premises or stored in and transmitted through the computer systems and networks
of the businesses and individuals utilizing the Company's products and services,
which could result in significant liability to the Company and could deter
existing and potential customers from using the Company's products and services.
Such an occurrence could result in adverse publicity and therefore adversely
affect the market's perception of the security of communications and commerce
over IP networks as well as of the security or reliability of the Company's
products and services, which would have a material adverse effect on the
Company's business, operating results and financial condition.
COMPETITION
The Company's digital certificate solutions are targeted at the new and
rapidly evolving market for trusted and secure communications and commerce over
IP networks. Although the competitive environment in this market has yet to
develop fully, the Company anticipates that it will be intensely competitive
subject to rapid change and significantly affected by new product and service
introductions and other market activities of industry participants.
The Company's primary competitors are Entrust Technologies, Inc., GTE
CyberTrust Solutions Incorporated and International Business Machines
Corporation. The Company also experiences competition from a number of smaller
companies that provide digital certificate solutions. The Company expects that
competition from established and emerging companies in the financial and
telecommunications industries will increase in the near term, and that the
Company's primary long-term competitors may not yet have entered the market.
Netscape Communications Corporation has introduced software products that enable
the issuance and management of digital certificates, and the Company believes
that other companies could introduce such products. There can be no assurance
that additional companies will not offer digital certificate solutions that are
competitive with those of the Company. Increased competition could result in
pricing pressures, reduced margins or the failure of the Company's products and
services to achieve or
16
<PAGE>
maintain market acceptance, any of which could have a material adverse effect on
the Company's business, operating results and financial condition.
Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have broader
and more established distribution channels that may be used to deliver competing
products or services directly to customers through bundling or other means. If
such competitors were to bundle with their products competing products or
services for their customers, the demand for the Company's products and services
might be substantially reduced and the ability of the Company to distribute its
products successfully and the utilization of its services would be substantially
diminished. In addition, browser companies that embed the Company's root keys or
otherwise feature the Company as a provider of digital certificate solutions in
their Web browsers or on their Web sites could also promote competitors of the
Company or charge the Company substantial fees for such promotions in the
future. New technologies and the expansion of existing technologies may increase
the competitive pressures on the Company. There can be no assurance that
competing technologies developed by others or the emergence of new industry
standards will not adversely affect the Company's competitive position or render
its products or technologies noncompetitive or obsolete. In addition, the market
for digital certificates is nascent and is characterized by announcements of
collaborative relationships involving competitors of the Company. The existence
or announcement of such relationships could adversely affect the Company's
ability to attract and retain customers. As a result of the foregoing and other
factors, there can be no assurance that the Company will compete effectively
with current or future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on the Company's business,
operating results and financial condition.
In connection with the Company's first round of financing, RSA contributed
certain technology to the Company and entered into a noncompetition agreement
with the Company pursuant to which RSA agreed that it would not compete with the
Company's certificate authority business for a period of five years. This
noncompetition agreement will expire in April 2000. The Company believes that,
because RSA (which is now a wholly-owned subsidiary of Security Dynamics
Technologies, Inc.) has already developed expertise in the area of cryptography,
its barriers to entry would be lower than those that would be encountered by
other potential competitors of the Company should it choose to enter any of the
Company's markets. If RSA were to enter into the digital certificate market, the
Company's business, operating results and financial condition could be
materially adversely affected.
MANAGEMENT OF GROWTH AND EXPANSION
The Company is currently experiencing a period of significant expansion.
The Company's historical growth has placed, and such growth and any further
growth is likely to continue to place, a significant strain on the Company's
managerial, operational, financial and other resources. The Company has grown
from 149 employees at June 30, 1997 to 230 employees at June 30, 1998. In
addition, the Company has opened additional sales offices and has significantly
expanded its operations during this time period. The Company's future success
will depend, in part, upon the ability of its senior management to manage growth
effectively, which will require the Company to implement additional management
information systems, to develop further its operating, administrative, financial
and accounting systems and controls and to maintain close coordination among its
engineering, accounting, finance, marketing, sales and operations organizations.
Any failure to implement or improve systems or controls or to manage any future
growth and expansion effectively could have a material adverse effect on the
Company's business, operating results and financial condition.
17
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
Many computer programs have been written using two digits rather than four
to determine the applicable year. The Company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000 or may be otherwise be unable to distinguish 21st century
dates. This failure could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has initiated a comprehensive study of its computer systems to
review and test for year 2000 issues. The Company is also assessing the
capability of its products sold to customers to handle the year 2000 and has a
plan in place to address product issues during 1998. Management believes that
the likelihood of a material adverse impact due to problems with internal
systems or products sold to customers is remote and expects that the cost of
these projects over the next two years will not have a material effect on the
Company's business, results of operations or financial condition. In addition,
the Company will be contacting significant suppliers of products and services to
determine whether the supplier's operations and their products and services are
year 2000 compliant. There can be no assurance that another company's failure to
ensure year 2000 capability would not have a material adverse effect on the
Company's business, results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company and its Japanese
subsidiary financed their operations primarily through private sales of equity
securities raising approximately $45.6 million. The Company's initial public
offering, which closed in February 1998, yielded net proceeds of approximately
$43.7 million. At June 30, 1998, the Company had approximately $45.9 million in
cash, cash equivalents and short-term investments.
The Company also has an equipment loan agreement under which it may borrow
up to $3.0 million for purchases of equipment. This equipment loan agreement
expires on March 31, 1999. Any amounts borrowed under this equipment loan
agreement would bear interest at the rate of 7.5 percent per annum and would be
secured by the equipment purchased with the loan proceeds. In the event that the
Company borrows under this loan agreement, it would be obligated to issue to the
lender a warrant to purchase 17,500 shares of Common Stock. The Company
currently has no plans to borrow any amounts under this loan agreement.
The Company has had significant negative cash flows from operating
activities in each fiscal period to date. Net cash used in operating activities
during the first half of 1998 was $7.7 million as compared to $8.3 million
during the first half of 1997. The decrease was primarily the result of an
increase in both deferred revenue and accrued liabilities, offset in part by
increases in the Company's net loss and receivables.
Net cash used in investing activities in the first half of 1998 was $17.4
million as compared with $14.4 in the first half of 1997. Cash was used for
capital expenditures for computer equipment, purchased software, office
equipment, furniture, fixtures and leasehold improvements. The Company has
planned capital expenditures for the remainder of 1998 of approximately $1.0
million to $2.0 for computer systems for development, sales and marketing,
product support and administrative staff. Also during the first half of 1998,
the Company purchased net short-term investments totaling $15.0 million. The
Company's principal commitments as of June 30, 1998 consisted of obligations
under noncancelable operating leases.
On July 6, 1998, the Company issued approximately 1,666,000 shares of its
common stock in exchange for all of the outstanding common stock of SecureIT,
Inc., a provider of Internet security products and services. The business
combination will be accounted for as a pooling-of-interests combination, and the
Company expects to incur approximately $5.0 million in additional costs related
to the transaction.
Net cash provided by financing activities in the first half of 1998 was
$44.1 million as compared to $616,000 in the first half of 1997. The increase
was primarily attributable to the $43.8 million in net
18
<PAGE>
proceeds from the Company's initial public offering.
The Company believes that its existing cash, cash equivalents and short-
term investments will be sufficient to meet its working capital and capital
expenditure requirements for the next twelve months. After that time, the
Company may need to raise additional funds through public or private financing,
strategic relationships or other arrangements. There can be no assurance that
such additional funding, if needed, will be available on terms attractive to the
Company, or at all. Strategic relationships, if necessary to raise additional
funds, may require the Company to relinquish rights to certain of its
technologies or products. The failure of the Company to raise capital when
needed could have a material adverse affect on the Company's business, operating
results and financial condition. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company of its
then-current stockholders would be reduced. Furthermore, such equity securities
might have rights, preferences or privileges senior to those of the Company's
Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
19
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds.
On January 30, 1998, the Company completed an initial public offering of
its Common Stock, $.001 par value (the "Offering"). The managing underwriters in
the Offering were Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC and
Wessels, Arnold & Henderson, L.L.C. (the "Underwriters"). The shares of Common
Stock sold in the Offering were registered under the Securities Act of 1933, as
amended, on a Registration Statement on Form S-1 (No. 333-40789) (the
"Registration Statement"). The Registration Statement was declared effective by
the Securities and Exchange Commission (the "SEC") on January 29, 1998.
On January 30, 1998, the Company commenced the Offering. The Offering
terminated on January 30, 1998 after the Company had sold all of the 3,450,000
shares of Common Stock registered under the Registration Statement (including
450,000 shares sold pursuant to the exercise of the Underwriters' over-allotment
option). The initial public offering price was $14 per share for an aggregate
initial public offering of $48,300,000. After deducting the underwriting
discounts and commissions and the Offering expenses, the net proceeds to the
Company from the Offering were approximately $43,742,455.
During the six months ended June 30, 1998, the Company used approximately
$7.7 million of the net proceeds from the Company's initial public offering to
fund operating expenses and increase working capital and $2.1 million to
purchase and install computers and peripheral equipment. The remaining $33.9
million has been invested in short-term, interest-bearing, investment grade
securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------------
27.01 Financial Data Schedule (available in EDGAR format only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the three months ended June 30, 1998.
20
<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.
VERISIGN, INC.
Date: August 14, 1998 By: /s/ Stratton D. Sclavos
------------------------------------
Stratton D. Sclavos
President
and
Chief Executive Officer
Date: August 14, 1998 By: /s/ Dana L. Evan
-------------------------------------
Dana L. Evan
Vice President of Finance
and Administration
and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
<PAGE>
SUMMARY OF TRADEMARKS
The following trademarks and service marks of VeriSign, Inc., which may be
registered in certain jurisdictions, may be referenced in this Form 10-Q:
TRADEMARKS
VeriSign Logo
VeriSign is a registered trademark exclusively licensed to VeriSign, Inc.
SERVICE MARKS
Authentic Site/SM/
Digital ID/SM/
Digital ID Center/SM/
Electronic Credentials for the Internet/SM/
NetSure/SM/ Protection Plan
The Sign of Trust on the Internet/SM/
VeriSign OnSite/SM/
VeriSign Trust Network/SM/
VeriSign V-Commerce/SM/
WebPass/SM/ ID
WorldTrust/SM/ Services
WorldTrust/SM/ Architecture
All other brand or product names are trademarks or registered trademarks of
their respective holders.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1998, and the Consolidated Statement of
Operations for the six months ended June 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,883
<SECURITIES> 22,994
<RECEIVABLES> 4,630
<ALLOWANCES> 302
<INVENTORY> 0
<CURRENT-ASSETS> 51,272
<PP&E> 14,119
<DEPRECIATION> 4,888
<TOTAL-ASSETS> 61,383
<CURRENT-LIABILITIES> 13,313
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 46,516
<TOTAL-LIABILITY-AND-EQUITY> 61,383
<SALES> 9,303
<TOTAL-REVENUES> 9,303
<CGS> 5,771
<TOTAL-COSTS> 21,121
<OTHER-EXPENSES> (1,013)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,092)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,092)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
