-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HTSNShAPlEFUTrrHYpKuCTKLRpO+9D07t0k6Wm7c0H3DuYCC/FwLkv35Fszl7hPs HdfsjjdkeqGwbXaEOPaW6w== 0000930661-99-001921.txt : 19990816 0000930661-99-001921.hdr.sgml : 19990816 ACCESSION NUMBER: 0000930661-99-001921 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTRUST TECHNOLOGIES INC CENTRAL INDEX KEY: 0001031283 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 621670648 FISCAL YEAR END: 0123 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24733 FILM NUMBER: 99688631 BUSINESS ADDRESS: STREET 1: 2323 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9729948000 MAIL ADDRESS: STREET 1: 2323 NORTH CENTR4AL EXPWY STREET 2: 2323 NORTH CENTR4AL EXPWY CITY: RICHARDSON STATE: TX ZIP: 75080 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- 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 QUARTER ENDED JUNE 30, 1999 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER 000-24733 ________________________________ ENTRUST TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) MARYLAND 62-1670648 (State or other jurisdiction of (IRS employer identification no.) incorporation or organization) ONE PRESTON PARK SOUTH 4975 PRESTON PARK BLVD, SUITE 400 PLANO, TX 75093 (Address of principal executive offices & zip code) Registrant's telephone number, including area code: (972) 943-7300 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 [ ] There were 44,350,126 shares of the registrant's $.01 par value Common stock outstanding as of August 10, 1999. There were also 5,157,289 shares of the registrant's $.01 par value Special voting stock outstanding as of August 10, 1999. - ------------------------------------------------------------------------------- ENTRUST TECHNOLOGIES INC. TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets....................................................... 3 Condensed Consolidated Statements of Operations............................................. 4 Condensed Consolidated Statements of Cash Flows............................................. 5 Notes to Condensed Consolidated Financial Statements........................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................. 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................................................... 19 Item 2. Changes in Securities and Use of Proceeds................................................... 20 Item 4. Submission of Matters to a Vote of Security Holders......................................... 20 Item 6. Exhibits and Reports on Form 8-K............................................................ 20 SIGNATURES............................................................................................. 21 INDEX TO EXHIBITS...................................................................................... 22
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENTRUST TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) DECEMBER 31, JUNE 30, ------------ -------- 1998 1999 ---- ---- (In thousands) ASSETS Current assets: Cash and cash equivalents................... $ 3,712 $ 16,654 Short-term investments...................... 77,355 69,951 Accounts receivable, net.................... 14,013 12,795 Prepaid expenses and other.................. 3,096 4,337 -------- -------- Total current assets.................... 98,176 103,737 Property and equipment, net.................... 4,874 6,067 Other long-term assets......................... 4,779 5,132 -------- -------- Total assets............................ $107,829 $114,936 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................ $ 7,187 $ 7,084 Accrued liabilities......................... 4,981 5,811 Deferred income............................. 7,791 9,410 Due to related party........................ 768 677 -------- -------- Total current liabilities............... 20,727 22,982 Long-term liabilities.......................... 43 18 -------- -------- Total liabilities....................... 20,770 23,000 -------- -------- Shareholders' equity: Common and special voting stock and additional paid-in capital................ 112,960 116,505 Unearned deferred compensation and other.... (724) (597) Accumulated deficit......................... (25,177) (23,972) -------- -------- Total shareholders' equity.............. 87,059 91,936 -------- -------- Total liabilities and shareholders' equity............................... $107,829 $114,936 ======== ========
See accompanying notes to condensed consolidated financial statements 3 ENTRUST TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------- ------- 1998 1999 1998 1999 ---- ---- ---- ---- (In thousands, except per share data) Revenues: License................................... $ 8,164 $13,915 $ 15,845 $25,541 Services and maintenance.................. 2,850 5,840 5,093 11,039 -------- ------- -------- ------- Total revenues..................... 11,014 19,755 20,938 36,580 -------- ------- -------- ------- Cost of revenues: License................................... 470 414 812 809 Services and maintenance.................. 1,620 3,244 3,098 6,091 -------- ------- -------- ------- Total cost of revenues.............. 2,090 3,658 3,910 6,900 -------- ------- -------- ------- Gross profit................................ 8,924 16,097 17,028 29,680 -------- ------- -------- ------- Operating expenses: Sales and marketing....................... 6,072 9,769 11,008 18,379 Research and development.................. 3,072 4,005 5,357 7,886 General and administrative................ 1,207 1,882 2,271 3,376 Acquired in-process research and development and goodwill amortization... 20,208 178 20,208 356 -------- ------- -------- ------- Total operating expenses............ 30,559 15,834 38,844 29,997 -------- ------- -------- ------- Income (loss) from operations............... (21,635) 263 (21,816) (317) Interest income............................. 71 853 217 1,767 -------- ------- -------- ------- Income (loss) before provision (benefit) for income taxes........................... (21,564) 1,116 (21,599) 1,450 Provision (benefit) for income taxes........ -- 245 (160) 245 -------- ------- -------- ------- Net income (loss)........................... $(21,564) $ 871 $(21,439) $ 1,205 ======== ======= ======== ======= Net income (loss) per share: Basic............................... $(0.70) $0.02 $(0.69) $0.03 Diluted............................. $(0.70) $0.02 $(0.69) $0.02 Weighted average common shares used in per share computations: Basic............................... 30,997 43,496 30,849 43,203 Diluted............................. 30,997 54,463 30,849 54,552
See accompanying notes to condensed consolidated financial statements 4 ENTRUST TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) SIX MONTHS ENDED JUNE 30, -------- 1998 1999 ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................. $ (21,439) $ 1,205 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................................... 400 1,452 Adjustment to cumulative translation account.................... (33) 29 Deferred income taxes........................................... (288) (32) Deferred compensation earned.................................... 51 98 Acquired in-process research and development.................... 20,208 -- Changes in operating assets and liabilities: (Increase) decrease in accounts receivable...................... (2,805) 1,218 (Increase) decrease in prepaid expenses and other............... 582 (484) Increase (decrease) in accounts payable......................... 1,674 (103) Increase in accrued liabilities................................. 270 830 Increase in deferred income..................................... 1,451 1,619 Decrease due to related party................................... (1,561) (91) -------- -------- Net cash provided by (used in) operating activities........... (1,490) 5,741 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment............................... (995) (2,289) Increase in other long-term assets................................ -- (1,453) Purchases of short-term investments............................... (5,052) (66,293) Dispositions of short-term investments............................ 11,878 73,697 Payment on purchase of r3 Security Engineering AG................. (4,391) -- -------- -------- Net cash provided by investing activities..................... 1,440 3,662 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt....................................... (1,419) (6) Proceeds from exercise of stock options........................... 26 3,545 -------- -------- Net cash provided by (used in) financing activities........... (1,393) 3,539 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................................. (1,443) 12,942 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 4,025 3,712 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 2,582 $ 16,654 ======== ========
See accompanying notes to condensed consolidated financial statements 5 ENTRUST TECHNOLOGIES INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except share data) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows. The results of operations for the six months ended June 30, 1999, are not necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements for the year ended December 31, 1998 contained in Entrust Technologies Inc.'s Form 10-K. NOTE 2. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of Common stock of all classes outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of Common stock and potential Common stock outstanding, and when dilutive, exchangeable Special Voting stock on an as-if exchanged basis, and options to purchase Common stock using the treasury stock method. The dilutive effect of the exchangeable Special Voting stock and the options to purchase Common stock are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive. On August 21, 1998, the Company closed its initial public offering, issuing 5,400,000 shares of its Common stock at an initial public offering price of $16 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 $79.1 million. Concurrent with the closing of the initial public offering, each of the 20,314,346 outstanding shares of the Company's Series A Common stock and each of the 1,167,288 outstanding shares of the Company's Redeemable Series A Common stock were automatically converted into one share of Common stock. Also, the 260,000 outstanding shares of the Company's Series B (including non-voting) Common stock were automatically converted into 13,063,836 shares of Common stock. Furthermore, the majority shareholder of the Company exercised its option to exchange 2,542,711 shares of the Company's Special Voting stock into the equivalent number of shares of Common stock. After this exchange, the remaining number of issued and outstanding Special Voting shares was 5,157,289. In addition, 1,171,156 shares of Common stock were issued in the six months ended June 30,1999 related to the exercise of employee stock options and the sale of shares under the employee stock purchase plan. NOTE 3. SHORT-TERM INVESTMENTS Short-term investments consist of investments in a strategic cash management account. This account is invested primarily in highly rated corporate securities, in securities guaranteed by the U.S. government or its agencies and highly rated municipal bonds. The Company has the intent and ability to hold all investments until maturity. Therefore, all such investments are classified as "held to maturity" investments and stated at amortized cost. At June 30, 1999, the amortized cost of the Company's investments approximated fair value. 6 NOTE 4. SEGMENT AND GEOGRAPHIC INFORMATION Segment information The Company conducts business in one operating segment; namely, the design, production and sale of software products and related services for encryption and digital signature. The nature of the Company's different products and services is similar and, in general, the type of customers for those products and services is not distinguishable. The Company does, however, prepare information for internal use by the Chief Operating Decision Maker ("CODM"), the President and Chief Executive Officer, on a geographic basis. Accordingly, the Company has included a summary of the segment financial information reported to the CODM as follows in the next section regarding geographic information. Geographic information Revenues are attributed to specific geographical areas based on where the sales order originated. Company assets are identified with operations in the respective geographic areas. The Company operates in three main geographic areas as follows:
(Unaudited) (Unaudited) Three Months Ended Six Months Ended --------------------------- --------------------------- June 30, June 30, ------- ------- 1998 1999 1998 1999 ----- ---- ---- ---- Revenues: United States......................................... $ 4,963 $15,351 $ 10,516 $ 25,884 Canada................................................ 2,548 1,933 5,067 5,733 Europe and Asia....................................... 3,503 2,471 5,355 4,963 -------- ------- -------- -------- Total revenues.................................... $ 11,014 $19,755 $ 20,938 $ 36,580 ======== ======= ======== ======== Net income (loss) before income taxes: United States......................................... $(21,290) $ 768 $(21,388) $ 885 Canada................................................ (365) (77) (398) (179) Europe and Asia....................................... 91 425 187 744 -------- ------- -------- -------- Total net income (loss) before income taxes....... $(21,564) $ 1,116 $(21,599) $ 1,450 ======== ======= ======== ======== (Unaudited) December 31, June 30, ------------ -------- 1998 1999 ---- ---- Total assets: United States................................................................................ $ 95,110 $100,639 Canada....................................................................................... 8,244 8,013 Europe and Asia.............................................................................. 4,475 6,284 -------- -------- Total.................................................................................... $107,829 $114,936 ======== ========
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this report are based on information available to us, up to and including, the date of this document, and we assume no obligation to update any such forward-looking statements. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below, under "Overview", "Certain Factors that May Affect Our Business" and elsewhere in this report. OVERVIEW Entrust develops, markets and sells products and services that allow enterprises to manage trusted, secure electronic communications and transactions over today's advanced networks, including the Internet, extranets and intranets. Our solution automates the management of digital certificates, which are similar to electronic passports, through public key infrastructure ("PKI") technology designed to assure the privacy and authenticity of internal and external electronic communications. The Entrust PKI is an integrated, open and scalable software framework that operates across multiple platforms, network devices and applications, including e-mail, browsers, electronic commerce, electronic forms, remote access and other product offerings from leading vendors. Our quarterly operating results have varied substantially in the past and are likely to vary substantially from quarter to quarter in the future due to a variety of factors. In particular, our period-to-period operating results are significantly dependent upon the completion date of large license agreements. In this regard, the purchase of our products often requires a significant capital investment which the customer may view as a discretionary cost and, therefore, a purchase that can be deferred or canceled due to budgetary or other business reasons. Estimating future revenues is also difficult because we ship our products soon after an order is received and, therefore, we do not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, we have historically recorded a significant portion of our total quarterly revenues in the third month of a quarter, with a concentration of these revenues in the last half of that third month. This concentration of revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. We expect these revenue patterns to continue for the foreseeable future. In addition, quarterly license revenues are dependent on the timing of revenue recognition, which can be affected by many factors, including the timing of customer installations and acceptance. In this regard, we have from time to time experienced delays in recognizing revenues with respect to certain orders. In any period a significant portion of our revenue may be derived from large sales to a limited number of customers. Despite the uncertainties in our revenue patterns, our operating expenses are based upon anticipated revenue levels and such expenses are incurred on an approximately ratable basis throughout the quarter. As a result, if expected revenues are delayed or otherwise not realized in a quarter for any reason, our business, operating results and financial condition would be significantly adversely affected. See "Certain Factors That May Affect Our Business." 8 RESULTS OF OPERATIONS The following table sets forth certain condensed consolidated statement of operations data expressed as a percentage of total revenues for the periods indicated:
(Unaudited) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------- ------- 1998 1999 1998 1999 ---- ---- ---- ---- Revenues: License..................................... 74.1% 70.4% 75.7% 69.8% Services and maintenance.................... 25.9 29.6 24.3 30.2 ------- ----- ------ ----- Total revenues............................ 100.0 100.0 100.0 100.0 ------- ----- ------ ----- Cost of revenues: License..................................... 4.3 2.1 3.9 2.2 Services and maintenance.................... 14.7 16.4 14.8 16.7 ------- ----- ------ ----- Total cost of revenues.................... 19.0 18.5 18.7 18.9 ------- ----- ------ ----- Gross profit.................................. 81.0 81.5 81.3 81.1 ------- ----- ------ ----- Operating expenses: Sales and marketing......................... 55.1 49.5 52.6 50.2 Research and development.................... 27.9 20.3 25.6 21.6 General and administrative.................. 11.0 9.5 10.8 9.2 Acquired in-process research and development and goodwill amortization..... 183.4 0.9 96.5 1.0 ------- ----- ------ ----- Total operating expenses.................. 277.4 80.2 185.5 82.0 ------- ----- ------ ----- Income (loss) from operations................. (196.4) 1.3 (104.2) (0.9) Interest income............................... 0.6 4.3 1.0 4.8 ------- ----- ------ ----- Income (loss) before provision (benefit) for income taxes............................... (195.8) 5.6 (103.2) 3.9 Provision (benefit) for income taxes.......... -- 1.2 (0.8) 0.6 ------- ----- ------ ----- Net income (loss)............................. (195.8)% 4.4% (102.4)% 3.3% ======= ===== ====== =====
REVENUES We recognize revenues in accordance with the provisions of the American Institute of Certified Public Accountants' Statement of Position 97-2 "Software Revenue Recognition." We generate revenues primarily from licensing the rights to our software products to end-users and, to a lesser extent, from sublicense fees from resellers. We also generate revenues from consulting, training and post-contract support ("maintenance") performed for customers who license our products. Accordingly, revenues from perpetual software license agreements are recognized as revenues upon receipt of an executed license agreement, or an unconditional order under an existing license agreement, and shipment of the software, if there are no significant remaining vendor obligations and collection of the receivable is probable. 9 Revenues from maintenance services are recognized ratably over the term of the maintenance period, which is typically one year. If maintenance services are included free of charge or discounted in a license agreement, such amounts are unbundled from the license fee at their fair market value based upon the value established by independent sales of such maintenance services to customers. We use the percentage of completion method to account for large custom development contracts. Under this method, we recognize revenues and profit as the work on the contract progresses. Revenues are recognized by applying the percentage of the total cost incurred to date divided by the total estimated contract cost to the total contract value, and any projected loss is recognized immediately. The project cost estimates in each case are reviewed on a regular basis. Consulting and training revenues are generally recognized as the services are performed. Consulting services are typically performed under separate service agreements and are usually performed on a time and materials basis. Such services primarily consist of implementation services related to the installation and deployment of our products and do not include significant customization or development of the underlying software code. Total Revenues Total revenues increased 80% from $11.0 million for the three months ended June 30, 1998 to $19.8 million for the three months ended June 30, 1999. Total revenues increased 75% from $20.9 million for the six months ended June 30, 1998 to $36.6 million for the six months ended June 30, 1999. We continue to execute our strategy of expanding our direct sales and marketing organization while focusing on targeted customers and vertical market segments. However, there can be no assurance that sales will continue to grow at the rate experienced in prior periods. License Revenues License revenues increased 70% from $8.2 million for the three months ended June 30, 1998 to $13.9 million for the three months ended June 30, 1999, representing 74% and 70% of total revenues in the respective periods. License revenues increased 61% from $15.8 million for the six months ended June 30, 1998 to $25.5 million for the six months ended June 30, 1999, representing 76% and 70% of total revenues in the respective periods. The increase in license revenues in absolute dollars was primarily due to increasing market awareness and acceptance of our product offerings, continued enhancement and increasing breadth of our product offerings, expansion of our sales and marketing organization and sales to new industry segments. The decrease in license revenues as a percentage of total revenues was primarily a result of the increasing support revenue stream and increased demand for consulting services. Services and Maintenance Revenues Services and maintenance revenues increased 103% from $2.9 million for the three months ended June 30, 1998 to $5.9 million for the three months ended June 30, 1999, representing 26% and 30% of total revenues in the respective periods. Services and maintenance revenues increased 116% from $5.1 million for the six months ended June 30, 1998 to $11.0 million for the six months ended June 30, 1999, representing 24% and 30% of total revenues in the respective periods. Services and maintenance revenues have continued to increase in absolute dollars and as a percentage of total revenues as our installed customer base has grown and as these customers continue to renew their maintenance agreements. In addition, our increasing customer base has resulted in an acceleration of demand for consulting services to assist these customers as they deploy our solutions. We continue to focus on building our relationships with outside service providers to ensure that we have adequate resources available to meet the demand of our customers. 10 COST OF REVENUES Cost of License Revenues Cost of license revenues consists primarily of costs associated with product media, documentation, packaging and royalties to third-party software vendors. Cost of license revenues decreased from $470,000 for the three months ended June 30, 1998 to $414,000 for the three months ended June 30, 1999, representing 4% and 2% of total revenues for the respective periods. Cost of license revenues decreased from $812,000 for the six months ended June 30, 1998 to $809,000 for the six months ended June 30, 1999, representing 4% and 2% of total revenues for the respective periods. While the cost of license revenues was relatively flat for the first half of 1999 compared to the first half of 1998, the decrease in cost of license revenues as a percentage of total revenues for the three and six months ended June 30, 1999 was primarily the result of a shift in the mix of third-party software vendor products sold in the first half of 1999 compared to the same period in 1998. The mix of third-party products may vary from period-to-period and our gross margins and, therefore, our results of operations could be adversely affected. Cost of Services and Maintenance Revenues Cost of services and maintenance revenues consists primarily of personnel costs associated with customer support, training and consulting services, as well as amounts paid to third-party consulting firms for those services. Cost of services and maintenance revenues increased 100% from $1.6 million for the three months ended June 30, 1998 to $3.2 million for the three months ended June 30, 1999, representing 15% and 16% of total revenues for the respective periods. Cost of services and maintenance revenues increased 97% from $3.1 million for the six months ended June 30, 1998 to $6.1 million for the six months ended June 30, 1999, representing 15% and 17% of total revenues for the respective periods. The increase in absolute dollars and as a percentage of total revenues reflected the increased costs associated with the increased levels of services and maintenance revenues experienced during the three and six months ended June 30, 1999. The gross margin on services and maintenance revenues was 43% and 44% for the three months ended June 30, 1998 and 1999, respectively. The services and maintenance gross margin was 39% and 45% for the six months ended June 30, 1998 and 1999, respectively. This increase in the services and maintenance margin reflects the shift in the mix of services revenue toward higher-margin maintenance revenues. In addition, the services personnel hired in 1998 are now achieving higher productivity levels. OPERATING EXPENSES Sales and Marketing Sales and marketing expenses increased from $6.1 million and $11.0 million for the three and six months ended June 30, 1998 to $9.8 million and $18.4 million for the comparable periods in 1999. Sales and marketing expenses represented 55% and 53% of total revenues for the three and six months ended June 30, 1998, compared to 50% for each of the comparable periods in 1999. The increase in absolute dollars was primarily the result of costs associated with the expansion of our sales and marketing organization, both domestically and internationally, as well as significant investments in marketing during the first half of 1999 as we launched a number of new products and marketing programs. We have continued our strategy of investing in hiring and training our direct sales organization in anticipation of future market growth, and investing in marketing efforts in support of new products launches. Failure of these investments to generate future revenues could have a significant adverse effect on our operations. The decrease as a percentage of total revenues reflects the higher revenue base and improvements achieved in productivity and efficiencies gained. Research and Development Research and development expenses increased from $3.1 million and $5.4 million for the three and six months ended June 30, 1998 to $4.0 million and $7.9 million for the comparable periods in 1999. Research and development expenses represented 28% and 26% of total revenues for the three and six months ended June 30, 11 1998, compared to 20% and 22% for the comparable periods in 1999. The increased investment in research and development expenses in absolute dollars reflects expenses related to increased staffing of software developers. These employees were added primarily in the second half of 1998 in connection with the continuing expansion and enhancement of our product offerings and our commitment to quality assurance and testing, and as a result of our acquisition of r3 Security Engineering AG ("r3") in June 1998. The investment in research and development as a percentage of total revenues decreased for the six months ended June 30, 1999 compared to the same period in 1998, as a result of growth of revenues outpacing our expansion of the development team in 1999. However, we believe that we must continue to invest in research and development in order to maintain our technological leadership position and, thus, expect research and development expenses to continue to increase in absolute dollars as we hire additional experienced security experts and software engineers. General and Administrative General and administrative expenses increased from $1.2 million and $2.3 million for the three and six months ended June 30, 1998 to $1.9 million and $3.4 million for the comparable periods in 1999. General and administrative expenses represented 11% of total revenues for the three and six months ended June 30, 1998, compared to 10% and 9% for the comparable periods in 1999. The increase in general and administrative expenses in absolute dollars reflected our continued investment in increased staffing and related expenses for the enhancement of the infrastructure necessary to support our growing business, including improved management information systems and outside professional service firms. The decrease as a percentage of total revenues reflected efficiencies gained throughout our administrative processes as we have grown as a company. Acquired In-process Research and Development and Goodwill Amortization On June 8, 1998, we completed the acquisition of r3, a company based in Zurich, Switzerland, which provides consulting, applied research and product development services related to commercial security and encryption solutions. In connection with the acquisition in 1998, an appraisal was done of the intangible assets, resulting in $20.2 million of the purchase price being allocated to in-process research and development that has not yet reached technological feasibility and has no alternative future use. This in-process research and development was expensed in the six months ended June 30, 1998. We have recorded $178,000 of amortization with respect to the goodwill that arose as a result of this acquisition in the three months ended June 30, 1999, with total amortization of $356,000 for the six months ended June 30, 1999. Interest Income Interest income increased from $71,000 and $217,000 for the three and six months ended June 30, 1998 to $853,000 and $1.8 million for the comparable periods in 1999. This increase reflects the investment income earned on the net proceeds of our initial public offering in August 1998. Provision for Income Taxes We have recorded an income tax provision of $245,000 for the three and six months ended June 30, 1999 compared with an income tax benefit of $160,000 recognized for the six months ended June 30, 1998. We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109. Accordingly, the effective income tax rates differed from statutory rates due to an adjustment to the valuation allowance for net operating loss carry forwards from prior periods in the first half of 1999, which resulted in the tax provision of $245,000 for the three and six months ended June 30, 1999. For the six months ended June 30, 1998, the tax benefit of $160,000 arose primarily from Canadian research and development tax credits. 12 LIQUIDITY AND CAPITAL RESOURCES Entrust generated cash of $5.7 million from operating activities during the six months ended June 30, 1999. This cash inflow was primarily a result of a decrease in accounts receivable, and an increase in accrued liabilities and deferred income and the net income achieved over the period. Our average days sales outstanding this quarter was 58 days, which represents a reduction over the 84 days that we reported over the last three quarters. The reduction in days sales outstanding reflects improved quarterly revenue linearity and enhanced collection efforts. For purposes of calculating average days sales outstanding, we divide ending accounts receivable by the current quarter's revenues and multiply this amount by 90 days. The level of accounts receivable at each quarter end will be affected by the concentration of revenues in the final weeks of each quarter and may be negatively affected by expanded international revenues in relation to total revenues as licenses to international customers often have longer payment terms. During the six months ended June 30, 1999, cash was provided by the reduction of our short-term investments by $7.4 million (net of $66.3 million of short-term investment purchases) while we invested $2.3 million in property and equipment and $1.5 million in other long-term assets. The property and equipment investments were primarily computer hardware and leasehold improvements to support the growing organization. Cash provided by financing activities for the six months ended June 30, 1999 was $3.5 million, primarily due to the exercise of employee stock options and the sale of shares under our employee stock purchase plan. As of June 30, 1999, our principal sources of liquidity were our cash and short-term investments of $86.6 million. It is our belief that cash flows from operations, existing cash and cash equivalents and short-term investments will be sufficient to meet our needs for at least the next twelve months. CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS We Have a Limited Operating History We have only a limited operating history on which to base an evaluation of our business and prospects. Our quarterly revenues and operating results have varied substantially and may continue to fluctuate due to a number of factors, including, but not limited to, the following: . The timing, size and nature of our licensing transactions; . The market acceptance of new products or product enhancements by us or our competitors; . Product and price competition; . The relative proportions of revenues derived from licenses and services and maintenance; . Changes in our operating expenses; . Personnel changes; . Fluctuations in foreign currency exchange rates; and . Fluctuations in economic and financial market conditions. To address these risks we must, among other things: . Successfully market our products to our new and existing customers; . Attract, integrate, train, retain and motivate qualified personnel; . Respond to competitive developments; . Successfully introduce new products; and . Successfully introduce enhancements to our product line to address new technologies and standards. We cannot be certain that we will successfully address any of these risks. 13 Certain of Our PKI Solution Transactions Have Lengthy Sales and Implementation Cycles The timing, size and nature of individual licensing transactions are important factors in our quarterly results of operations. Transactions for the Entrust PKI solution often involve large expenditures, and the sales cycles for these transactions are often lengthy and unpredictable. In addition, the sales cycle associated with these transactions is subject to a number of uncertainties, including, but not limited to: . customers' budgetary constraints; . the timing of customers' budget cycles; and . customers' internal approval processes. There can be no assurance that we will be successful in closing such large transactions on a timely basis or at all. Estimating future revenues is difficult because we ship our products soon after an order is received and as such we do not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, we historically have recorded 60% to 80% of our total quarterly revenues in the third month of the quarter, with a concentration of revenues in the second half of that month. We expect that this concentration of revenues which is, in part, attributable to the tendency of certain customers to make significant capital expenditures at the end of a fiscal quarter and to sales patterns within the software industry, will continue for the foreseeable future. Our expense levels are based, in significant part, on our expectations as to future revenues and are largely fixed in the short term. Therefore, the following uncertainties exist: . we may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenues; . any significant shortfall of revenues in relation to our expectations would have an immediate and significantly adverse effect on our financial condition and results of operations for that quarter; . we plan to increase operating expenses to expand our research and development, managerial, finance, sales and marketing and service and support organization; and . the timing of such expansion and the rate at which new personnel become productive could cause significant fluctuations in quarterly and annual results of operations. Due to all of the foregoing factors, we believe that: . period-to-period comparisons of our results of operations are not necessarily meaningful; . results in any particular quarter are not necessarily indicative of future performance; . future revenues and results of operations may vary substantially from quarter to quarter; and . in future quarters, our results of operations may be below the expectations of public market analysts and investors. In any case, the price of our common stock could be adversely affected in a serious manner. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Business Success Depends on Risks Associated with the Information Security Market The market for Entrust's PKI solution is at an early stage of development. A decline in demand for our products could result from: . competition; . technology change; . the public's perception of the need for security products; . developments in the hardware and software environments in which these products operate; and . general economic conditions. 14 Any such decline could have a significant adverse effect on our business, financial condition or results of operations. Continued growth of this market will depend, in large part, on the following: . the continued expansion of Internet usage and in the number of organizations adopting or expanding intranets and extranets; . the ability of their respective infrastructures to support an increasing number of users and services; . the public recognition of the potential threat posed by computer hackers and other unauthorized users; and . the continued development of new and improved services for implementation across private and public networks. In addition, a well-publicized actual or perceived breach of network or computer security at one of our customers, regardless of whether such breach is attributable to our products, or any significant advance in techniques for decoding or "cracking" encrypted information could adversely affect the market's perception of us and our products, and could have an adverse effect on our business, financial condition or results of operations. We Face Intense Competition in Our Market Our products are targeted at the new and rapidly evolving market for PKI solutions. Although the competitive environment in this market has yet to develop fully, we anticipate 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. Because of the broad functionality of our PKI solution, we compete with vendors offering a wide range of security products and services, as follows: . we compete with companies offering commercial certification authority products and services, such as VeriSign, Security Dynamics, GTE Cybertrust Solutions, Baltimore Technologies and IBM; . we compete with established companies, such as Network Associates, which has introduced PKI products that will eventually be integrated with their other security offerings, as well as Microsoft, which has announced its intention to offer a certificate server product building on its existing security framework in the near future; . other major networking vendors could, in the future, bundle digital certificates with their product offerings; . we expect that competition from established and emerging companies in the financial and telecommunications industries will also increase in the near term; and . certain of our primary long-term competitors may not yet have entered the market. Increased competition could result in pricing pressures, reduced margins or the failure of our products and services to achieve or maintain market acceptance, any of which could have a serious adverse effect on our business, financial condition and results of operations. Our Industry is Subject to Rapid Technological Change The emerging market for network security products and related services is characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging nature of this market and its rapid evolution will require us to improve the performance, features and reliability of our products and services, particularly in response to competitive offerings, and to be first to market with new products and services or enhancements to existing products and services. Our failure to develop and introduce new products and services successfully on a timely basis and to achieve market acceptance for such products and services could have a significant adverse effect on our business, financial condition and results of operations. 15 Our Industry Faces Strict Regulation Certain of our products are subject to export controls under laws of the U.S., Canada and other countries, and we believe that we have obtained all necessary export approvals. There can be no assurance, however, that the list of products and countries for which exports are restricted, and the regulatory policies with respect thereto, will not be revised from time to time. Our inability to obtain required government approvals under these regulations could adversely affect our ability to sell products abroad or make products available for sale via international computer networks such as the Internet. Furthermore, U.S. governmental controls on the exportation of encryption products and technology may in the future restrict our ability to freely export some of our products with the most powerful information security encryption technology. We are currently authorized under exemptions contained in an interim U.S. export procedure to export products with encryption technology that is more powerful than would be permitted in the absence of such authorization. There can be no assurance that the interim regulations will not be modified, and that we will continue to meet the qualifications for exemption thereunder. Furthermore, there can be no assurance that foreign customers will seek export versions of our products. As a result, foreign competitors subject to less stringent export controls on their products may be able to compete more effectively than us in the global information security market. There can be no assurance that these factors will not have a material adverse effect on our business, financial condition or results of operations. We Must Manage Our Growth We are currently experiencing rapid growth that places a significant strain on our management and other resources. Our business has grown significantly in size and complexity over the past three years. The growth in the size and complexity of our business as well as its customer base has placed, and is expected to continue to place, a significant strain on our management and operations. In addition, certain of our senior management have had limited experience in managing publicly traded companies. We anticipate that continued growth, if any, will require us to recruit and hire a substantial number of new development, managerial, finance, sales and marketing and support personnel. We may not be successful at hiring or retaining such personnel. Our ability to compete effectively and to manage future growth, if any, will depend on, among other things: . our ability to continue to implement and improve operational, financial and management information systems on a timely basis; and . to expand, train, motivate and manage our work force. Our personnel, systems, procedures and controls may not be adequate to support our operations. The geographic dispersal of our operations, including the separation of our headquarters in Plano, Texas, from our research and development facility in Ottawa, Canada, may make it more difficult to manage our growth. Possible Future Acquisitions Could Impact Our Expected Results It is possible, as part of our future growth strategy, that we will from time-to-time acquire or make investments in companies, technologies, product solutions, or professional services offerings. With respect to these acquisitions, we would face the difficulties of assimilating their personnel and operations with our present business, and the problems of retaining and motivating key personnel from acquired businesses. In addition, these acquisitions may disrupt ongoing operations, divert management from day-to-day business, and adversely impact our results of operations. Certainly, these types of transactions often result in charges to earnings for such things as amortization of goodwill, that might arise under purchase accounting, or in- process research and development expenses. We are a Global Company Entrust has experienced a degree of success in expanding sales outside of the U.S. and Canada in the past. In 1998, 23% of our sales were derived from outside North America compared to 5% in 1997. In the future, we may establish additional foreign operations, hire additional personnel and establish relationships with 16 additional partners. This expansion would require significant management attention and financial resources and could have an adverse effect on our business, financial condition and results of operations. In addition, there can be no assurance that we will be able to maintain or increase international market demand for our products and services. Although our international sales are primarily denominated in U.S. dollars, we may increasingly denominate sales in local foreign currencies in the future. Also, we expect to incur an increasing amount of payroll and other obligations in foreign currencies. A change in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and, therefore, potentially less competitive in those markets and could otherwise impact on our ability to meet our foreign currency denominated obligations. In addition, our international business may be subject to a variety of other risks, including: . difficulties in collecting international accounts receivable; . difficulties in obtaining U.S. export licenses, especially for products containing encryption technology; . potentially longer payment cycles for customer payments; . increased costs associated with maintaining international marketing efforts; . introduction of non-tariff barriers and higher duty rates; . difficulties in enforcement of contractual obligations and intellectual property rights; . difficulties managing personnel and operations in remote locations; . increased complexity in corporate tax structure globally; and . potential adverse impact resulting from introduction of Euro dollar currency. There can be no assurance that we will be able to resolve all these risks without adverse effects on our future international sales and, consequently, on our business, financial condition or results of operations. Our Stock Price May be Volatile in Future The trading price of our common stock has been, and is expected to continue to be, highly volatile and may be significantly and adversely affected by factors such as: . actual or anticipated fluctuations in our operating results; . announcements of technological innovations; . new products or new contracts by us or our competitors; . developments with respect to patents, copyrights or propriety rights; . conditions and trends in the software industry; . changes in financial estimates by securities analysts; and . general market conditions and other factors. The public equity markets have from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the stock of technology companies as a group but have been unrelated to the performance of particular companies. The market price of our Common stock may be adversely affected by these broad market fluctuations, as well as: . shortfalls in sales or earnings as compared with securities analysts' expectations; . changes in such analysts' recommendations or projections; and . general economic and market conditions. YEAR 2000 COMPLIANCE The "Year 2000 Issue" refers generally to the problems that some software may have in determining the correct century for a given year. For example, software with date-sensitive functions that is not Year 2000 Compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in failures or the creation of erroneous results. We have developed a Year 2000 readiness plan for the current versions of our products. The plan includes assessment, implementation, validation testing, and contingency planning. We have assessed the capability of the current versions of our products sold to handle the Year 2000 and have identified, completed 17 and tested the code changes (if any) required to make each of these products Year 2000 Compliant. The costs of this effort were not significant and were included in our operating costs. We believe that our products and systems are Year 2000 Compliant and, therefore, that the likelihood of a significant impact due to problems is remote. In addition, we expect that the cost of these projects over the next twelve months will not have a significant effect on our business, results of operations or financial condition. We continue to maintain an up-to-date listing of the Year 2000 readiness of our various products on our Web site and we plan to respond to customer concerns about prior versions of our products on a case-by-case basis. In addition, we have completed a contingency plan for providing customer support during the period immediately surrounding January 1, 2000 to address any unforeseen customer issues that may arise. This plan will be communicated to our customers during the third quarter of 1999. We have defined "Year 2000 Compliant" to mean the ability to perform date and time dependent operations between December 31, 1999, and January 1, 2000, without any significant, service affecting non-conformances to the accompanying user documentation. This does not, however, mean that the software will be free of all defects, errors or inaccuracies. The definition of Year 2000 Compliant assumes that our software products receive accurate and correctly formatted date and time information from the underlying operating system, firmware, hardware and any other software with which our products interact. Year 2000 Compliance also assumes that our customers continue to contract for maintenance and support of our products. We have not specifically tested software obtained from third parties (licensed software, shareware, and freeware) that is incorporated into our products, but we are seeking assurances from our vendors that licensed software is Year 2000 Compliant. We believe that due to the relatively small third-party component, the likelihood of a significant impact is remote. We also have not tested our products on all platforms or all versions of operating systems that we currently support and have advised our customers to verify that their platforms and operating systems support the transition to the year 2000. We have prepared a contingency plan for unanticipated product failures. We will be communicating this plan to our customers during the third quarter of 1999. Our internal systems include both our information technology ("IT") and non-IT systems. We completed an assessment of our material internal IT systems during 1998 and completed an assessment of our non-IT systems during the first half of 1999. With respect to the IT systems, we have applied available software updates and "patches" as required by our vendors to make their software Year 2000 Compliant. Certain vendors have yet to provide such updates to their software. However, these updates will be made as the software is available or an alternate source will be found for the required functionality. In addition, we plan to test our internal computing environment for Year 2000 Compliance in the third quarter of 1999. To the extent that we are not able to test certain technology provided by third-party vendors, we have sought assurances from our vendors that their systems are Year 2000 Compliant. Although we are not currently aware of any significant operational issues or costs associated with preparing our internal IT and non-IT systems for the Year 2000, we may experience unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal IT and non-IT systems. We are preparing a contingency plan for unanticipated system failures which we anticipate completing during the third quarter of 1999. We do not have any information concerning the Year 2000 Compliance status of our customers. As is the case with other similarly situated software companies, if our current or future customers fail to achieve Year 2000 Compliance, our business, results of operations or financial condition could be significantly adversely affected. Furthermore, the purchasing patterns of our customers or potential customers may be affected by Year 2000 issues as companies expend significant resources to correct their current systems for Year 2000 Compliance. These expenditures may result in reduced funds being available to our customers to implement or to purchase our products. This would have a significant adverse effect on our business, financial condition and results of operations. 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Risk Associated with Interest Rates Our investment policy states that we will invest our cash reserves, including cash, cash equivalents and short-term investments, in investments that are designed to preserve principal, maintain liquidity and maximize return. We actively manage our investments in accordance with the objectives above. Accordingly, some of these investments are subject to market risk, whereby a change in market interest rates will cause the principal amount of the underlying investment to fluctuate. Therefore, a depreciation in principal value of an investment is possible in situations where the investment is made at a fixed interest rate and the market interest rate then subsequently increases. We try to manage this risk by maintaining our cash and cash equivalents, and short-term investments with high quality financial institutions and investment managers. We also restrict the investments to securities with short-term maturities, such that, at June 30, 1999, the majority of our short-term investments had maturities of less than six-months from that date. As a result, we believe that our exposure to market risk related to interest rates is minimal. The following table presents the cash and cash equivalents and short-term investments that we held at June 30, 1999, that would have been subject to market risk, and the related ranges of maturities as of that date:
MATURITY (in thousands) Greater than Within 3 Months 3-6 Months 6 Months --------------- ---------- ---------- Investments classified as cash and cash equivalents........... $12,755 -- -- Investments classified as short-term investments.............. $16,565 $18,792 $34,594 ------- ------- ------- Total....................................................... $29,320 $18,792 $34,594 ======= ======= ======= Fair value.................................................... $29,320 $18,792 $34,594 ======= ======= =======
Risk Associated with Exchange Rates We are subject to foreign currency exchange risk as a result of exposures to changes in currency exchange rates, specifically between the United States and Canada, the United Kingdom, Germany and Switzerland. However, this exposure is considered to be minimal due to the fact that the United Kingdom, German and Swiss operations are not significant, and the Canadian operations are naturally hedged against exchange rate fluctuations since both revenues and expenses are denominated in Canadian dollars. Therefore, an unfavorable change in the exchange rate for the Canadian subsidiary would result in lower revenues when translated into U.S. dollars, but the expenses would be lowered in a corresponding fashion. As a result, we do not engage in formal hedging activities, but we do periodically review the potential impact of this risk to ensure that the risk of significant potential losses remains minimal. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Entrust is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a significant adverse effect on our consolidated results of operations or consolidated financial position. On February 19, 1999, Surety Technologies Inc. and Bell Communications Research, Inc. filed a complaint against Entrust Technologies Inc. in the United States District Court for the Eastern District of Virginia alleging that the Entrust/Timestamp product and services infringe U.S. Patent No. 5,136,647 (reissued as Re 34,954). The plaintiffs have requested that Entrust be enjoined from further infringement and pay 19 damages for infringement, treble damages for willful infringement and costs. We believe that the allegations are without merit and are vigorously defending ourselves against this lawsuit. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (d) Use of Proceeds. On August 21, 1998, Entrust closed an initial public offering of our Common Stock, $.01 par value (the "Offering"). The Registration Statement on Form S-1 (No. 333-57275) was declared effective by the Securities and Exchange Commission (the "SEC") on August 17, 1998 and we commenced the offering on that date. After deducting the underwriting discounts and commissions and the Offering expenses, the net proceeds to Entrust from the Offering were approximately $79,097,515. As of June 30, 1999, approximately $7.5 million of the net proceeds of the Offering had been used to fund working capital, expansion of our facilities and our investments in other long-term assets. The remaining net proceeds are invested in short-term, interest-bearing, investment grade securities. The entire amount of the net proceeds has been allocated for general corporate purposes and working capital, including product development and the possible acquisition of additional businesses and technologies that are complementary to our current or future business. None of the proceed amounts were paid directly or indirectly to any director, officer, or general partner of Entrust or our associates, persons owning 10 percent or more of any class of equity securities of Entrust, or an affiliate of Entrust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 5, 1999, the Company held its Annual Meeting of Stockholders. Shares of stock with 29,302,968 votes were represented at the meeting out of a total of 48,484,445 shares entitled to vote. There were no broker non-votes cast at the meeting. The following sets forth a description of each matter voted on and the votes cast. 1) A proposal to elect Directors of the Company. (i) Butler C. Derrick, Jr. (Class I Director) (ii) James A. Thomson (Class I Director) (iii) Michael P. Ressner (Class III Director) For the above-referenced individuals (i) through (iii), 29,302,968 votes were cast in favor and no votes were withheld. The other directors of the Company, whose terms of office as directors continued after the Annual Meeting, are F. William Connor, John A. Ryan and Terrell B. Jones. 2) A proposal to ratify the appointment of Deloitte & Touche LLP as the Company's independent public accountants for the current year. For the above-referenced matter (2), 29,302,968 votes were cast in favor, no votes were cast against and no votes abstained from voting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K List of Exhibits 27 Financial Data Schedule (available in EDGAR format only) Reports on Form 8-K: None 20 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. ENTRUST TECHNOLOGIES INC. ------------------------- (Registrant) Dated: August 13, 1999 /s/ Michele L. Axelson ------------------------- Michele L. Axelson Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 21 ENTRUST TECHNOLOGIES INC. INDEX TO EXHIBITS EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 27 Financial Data Schedule 22 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 16,654 69,951 13,310 (515) 0 103,737 8,986 (2,919) 114,936 22,982 0 0 0 436 91,500 114,936 36,580 36,580 6,900 36,897 0 (204) 0 1,450 245 1,205 0 0 0 1,205 0.03 0.02
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