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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 MARCH 31, 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 April 30, 1998
----- --------------
Common stock, $.001 par value 20,738,324
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TABLE OF CONTENTS
PAGE
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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 . 18
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds .................. 19
Item 4. Submission of Matters to a Vote of Security Holders ........ 20
Item 6. Exhibits and Reports on Form 8-K ........................... 21
Signatures .......................................................... 22
Summary of Trademarks ............................................... 23
EXHIBIT
Exhibit 27.01 Financial Data Schedule (available in EDGAR format only).
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements included under this item are as follows:
SEQUENTIALLY
NUMBERED
FINANCIAL STATEMENT DESCRIPTION PAGE
- ---------------------------------------------- ----
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997...................... 4
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997............................ 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997...................... 6
Notes to Consolidated Financial Statements...................... 7
3
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
------- -------
(UNAUDITED) (UNAUDITED)
Revenues........................................... $ 4,002 $ 1,267
------- -------
Costs and expenses:
Cost of revenues.................................. 2,832 1,419
Sales and marketing............................... 4,116 2,254
Research and development.......................... 1,606 1,029
General and administrative........................ 1,438 953
------- -------
Total costs and expenses......................... 9,992 5,655
------- -------
Operating loss................................... (5,990) (4,388)
Other income....................................... 375 469
------- -------
Loss before minority interest.................... (5,615) (3,919)
Minority interest in net loss of subsidiary........ 388 305
------- -------
Net loss......................................... $(5,227) $(3,614)
======= =======
Basic and diluted net loss per share:
Historical........................................ $ (.32) $ (.57)
======= =======
Pro forma......................................... $ (.27) $ (.21)
======= =======
Shares used in basic and diluted per share
computations:
Historical........................................ 16,362 6,382
======= =======
Pro forma......................................... 19,594 17,036
======= =======
See accompanying Notes to Consolidated Financial Statements
4
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1998 1997
-------- --------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12,195 $ 3,943
Short-term investments.................................. 37,043 7,951
Accounts receivable..................................... 4,117 2,274
Prepaid expenses and other current assets............... 882 750
-------- --------
Total current assets.................................. 54,237 14,918
Property and equipment, net.............................. 8,794 8,622
Other assets............................................. 883 866
-------- --------
$ 63,914 $ 24,406
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,238 $ 2,526
Accrued liabilities..................................... 3,458 2,346
Deferred revenue........................................ 6,162 4,819
-------- --------
Total current liabilities............................. 10,858 9,691
-------- --------
Minority interest in subsidiary.......................... 1,858 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;
20,742,627 and 7,120,238 shares issued
and outstanding, respectively.......................... 21 7
Additional paid-in capital.............................. 88,834 44,908
Notes receivable from stockholders...................... (644) (644)
Deferred compensation................................... (354) (380)
Accumulated deficit..................................... (36,659) (31,432)
-------- --------
Total stockholders' equity............................ 51,198 12,469
-------- --------
$ 63,914 $ 24,406
======== ========
See accompanying Notes to Consolidated Financial Statements
5
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss................................................................... $ (5,227) $ (3,614)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............................................. 844 451
Minority interest in net loss of subsidiary................................ (388) (305)
Changes in operating assets and liabilities:
Accounts receivable...................................................... (1,843) (143)
Prepaid expenses and other current assets................................ (133) 284
Accounts payable......................................................... (1,288) (93)
Accrued liabilities...................................................... 1,112 (250)
Deferred revenue......................................................... 1,343 333
-------- --------
Net cash used in operating activities.................................... (5,580) (3,337)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments........................................ (65,655) --
Maturities and sales of short-term investments............................. 36,563 (7,014)
Purchases of property and equipment........................................ (1,005) (2,969)
Other assets............................................................... (27) (607)
-------- --------
Net cash used in investing activities.................................... (30,124) (10,590)
-------- --------
Cash flows from financing activities:
Proceeds from bank borrowings.............................................. -- 307
Net proceeds from issuance of common stock................................. 43,956 10
-------- --------
Net cash provided by financing activities................................ 43,956 317
-------- --------
Net change in cash and cash equivalents..................................... 8,252 (13,610)
Cash and cash equivalents at beginning of period............................ 3,943 29,983
-------- --------
Cash and cash equivalents at end of period.................................. $ 12,195 $ 16,373
======== ========
Noncash financing and investing activities:
Conversion of convertible preferred stock
to common stock........................................................... $ --
========
See accompanying Notes to Consolidated Financial Statements
6
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
which are, in the opinion of management, necessary for a fair presentation of
the financial position of VeriSign, Inc. ("VeriSign" or the "Company") at March
31, 1998, and the results of operations and cash flows for the interim periods
ended March 31, 1998 and 1997.
The accompanying 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 which 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
(including 450,000 shares issued upon the exercise of the underwriters' over-
allotment option) of its Common Stock 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 $43.8 million. Concurrent with the initial public
offering, 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 is deferred until such evidence
exists or until all elements are delivered. The adoption of SOP No. 97-2 did not
have a material effect on the Company's operating results.
7
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 stock equivalent
shares outstanding during the period. Common equivalent shares are excluded from
the computation if their effect is antidilutive; that is, they are excluded if
such common equivalent shares increase earnings per share or decrease net loss
per common share. Antidilutive common equivalent shares excluded from historical
diluted loss per share for the three month periods ending March 31, 1998 and
1997 were comprised of the weighted average number of convertible preferred
stock shares outstanding, which totaled 3,232,213 and 10,031,006, respectively,
and common stock options, which totaled 2,308,828 and 673,367, respectively.
Subsequent to the Company's IPO, Staff Accounting Bulletin ("SAB") No. 98 was
issued, which required that shares previously included in the net loss per share
calculations under the guidance of SAB No. 83 be omitted from basic and diluted
per share amounts for all periods presented. In addition to the historical basic
and diluted net loss per share information, which has been presented in
accordance with SAB No. 98, the Company has also provided pro forma basic and
diluted net loss per share consistent with the disclosures set forth in the
Company's Prospectus for the IPO. The principal difference between the pro forma
and the historical net loss per share computations is that the pro forma
computation includes preferred stock on an as if converted basis for all periods
presented prior to its actual conversion whereas the historical computation
includes preferred stock only after its conversion on the effective date of the
IPO (January 29, 1998). In future quarters, the Company intends to omit the
presentation of pro forma net loss per share.
(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 net loss and 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.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 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. 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 the Company files 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
digital certificate solutions and infrastructure 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 50,000
Digital IDs to Web sites and 2,500,000 IDs to consumers, in partnership with
leading companies including AT&T, British Telecommunications, Microsoft, and
Netscape. The Company is also delivering enterprise certificate solutions to
companies and government agencies including Hewlett-Packard, Texas Instruments
and NationsBank.
VeriSign's digital certificate offerings target three main lines of business,
Consumer IDs, Web-site IDs and E-Commerce Solutions. VeriSign Consumer IDs and
Web-site 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 marketshare in these areas.
VeriSign E-Commerce Solutions are targeted at Fortune 10,000 companies in the
financial services, publishing, government agencies, legal, transportation and
other industries, and are comprised of a suite of software and mission-critical
processing services that enable enterprises to secure their intranets, extranets
and Internet commerce applications using digital certificates. Leveraging
VeriSign's E-Commerce Solutions, enterprises and organizations can issue digital
certificates to employees, business partners and customers to secure
confidential data and electronic communications over private and public IP-based
networks.
As part of the line of business supporting Web-site IDs, the Company
introduced its first 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.
In April 1996, the Company entered the enterprise and electronic commerce
markets by introducing custom SET digital certificate solutions targeted at
certified banks, payment processors and major card brands. During 1997, the
Company introduced VeriSign OnSite and VeriSign V-Commerce, which are
9
enterprise and electronic commerce digital certificate solutions that are
targeted at mid-sized to large companies, managed intranets and extranets, and
Web sites with large customer or user bases. During 1997, the Company began
providing technology and products for digital certificate management to OEMs.
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. Sales of Digital IDs and fees for services
resulted in approximately one-half of the Company's revenues in 1997. The
purchase of a Digital ID 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 are deferred and recognized ratably over the life of the
digital certificate. Revenues from the Company's enterprise and electronic
commerce 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-competion 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 increase 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 March 31, 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 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 March 31, 1998, had an accumulated deficit of
$36.7 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
substantial 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
RESULTS OF OPERATIONS
REVENUES
1998 1997 Change
------ ------ ------
First quarter period:
Revenues ...................... $4,002 $1,267 216%
(Dollars in thousands)
Revenues increased significantly from last year due to increased sales of
VeriSign's products and services, particularly its Web-site IDs. 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 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
first quarter of 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 during the first quarter of 1998.
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 is deferred until such evidence exists or until all elements are
delivered. The adoption of SOP No. 97-2 did not have a material effect on the
Company's operating results.
In the first quarter of 1998, Security Dynamics Technologies, Inc. accounted
for 14% of revenues, and in the first quarter of 1997 VISA International
accounted for 13% of revenues. Revenues of VeriSign Japan and revenue from other
international customers accounted for 17% and 19% in the first quarters 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
$6.2 million at March 31, 1998. In the future, the Company anticipates that it
may receive additional revenues from sales of software products, value-added
services, licensing and royalty fees from licenses of digital certificates and
related technology, maintenance, and fees for customer support.
COSTS AND EXPENSES
1998 1997 Change
------ ------ ------
First quarter period:
Cost of Revenues .............. $2,832 $1,419 100%
(Dollars in thousands)
Cost of Revenues. Cost of revenues consists primarily of costs related to
personnel providing digital 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 in the first quarter of 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 program (which was not
in effect in the first quarter of 1997), increased expenses for access to third-
party databases and support charges for the Company's external disaster recovery
program.
11
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. Given the Company's
limited operating history, limited history of issuing Digital IDs and evolving
industry and business model, the Company believes that analysis of cost of
revenues as a percentage of revenues is not yet meaningful.
1998 1997 Change
------- ------- -------
First quarter period:
Sales and Marketing ..... $4,116 $2,254 83%
(Dollars in thousands)
Percentage of revenues 103% 178%
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 during the first quarter of 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 the first quarter of 1998,
particularly in lead and demand generation activities.
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.
1998 1997 Change
------- ------- -------
First quarter period:
Research and Development .. $1,606 $1,029 56%
(Dollars in thousands)
Percentage of revenues 40% 81%
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.
Research and development expense 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 the first quarter of 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 expenditures will continue to increase
in absolute dollars.
12
1998 1997 Change
------- ------ -------
First quarter period:
General and Administrative... $1,438 $ 953 51%
(Dollars in thousands)
Percentage of revenues 36% 75%
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 the first quarter of 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.
The Company anticipates hiring additional personnel and incurring 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.
OTHER INCOME
1998 1997 Change
------- ------ -------
First quarter period:
Other Income ........... $375 $ 469 (20)%
(Dollars in thousands)
Percentage of revenues 9% 37%
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.
In the first quarter of 1998, other income was lower than the first quarter
of 1997 as a result of a higher cash and short-term investment base throughout
the first quarter of 1997.
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. The Tax
Reform Act of 1986 imposes substantial restrictions on the utilization of net
operating losses and tax credits in the event of an "ownership change" of a
corporation. The Company's ability to utilize net operating loss carryforwards
may be limited as a result of an "ownership change" as defined in the Internal
Revenue Code. The Company does not anticipate that a material limitation on its
ability to use such carryforwards and credits will result from this offering.
The Company has provided a full valuation allowance on the deferred tax asset
because of the uncertainty regarding its realization.
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY
Minority interest in the net losses of VeriSign Japan was $388,000 and
$305,000 during the first quarter of 1998 and 1997, respectively. The increase
during the first quarter of 1998 was due to increased expenses incurred in
establishing and expanding the operations of VeriSign Japan prior to recognizing
significant revenues. 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.
13
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 March 31, 1998, had an accumulated deficit of $36.7
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.
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.
14
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.
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
15
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 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
16
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 131 employees at March 31, 1997 to 211 employees at March 31, 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.
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. 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.
17
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 $43.8
million. At March 31, 1998, the Company had approximately $49.2 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. VeriSign
Japan has available a revolving line of credit of up to $500,000 with a bank
that bears interest at 1.625 percent per annum and expires in May 1998. The line
of credit is secured by a letter of credit from the Company in the same amount.
There were no borrowings outstanding under this line of credit as of March 31,
1998.
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 quarter of 1998 was $5.6 million as compared to $3.3 million during the
first quarter of 1997. The increase was primarily the result of an increase in
the Company's net loss, offset in part by increases in both accrued liabilities
and deferred revenue.
Net cash used in investing activities in the first quarter of 1998 was $30.1
million as compared with $10.6 in the first quarter 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 $4.0
million to $5.0 million for computer systems for development, sales and
marketing, product support and administrative staff. Also during the quarter,
the Company purchased short-term investments totaling $65.7 million. The
Company's principal commitments as of March 31, 1998 consisted of obligations
under noncancelable operating leases.
Net cash provided by financing activities in the first quarter of 1998 was
$44.0 million as compared to $317,000 in the first quarter of 1997. The increase
was primarily attributable to the $43.8 million in net 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.
18
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.
The Company paid an aggregate of $3,381,000 in underwriting discounts and
commissions. In addition, the following table sets forth the expenses incurred
in connection with the Offering, other than underwriting discounts and
commissions. None of the amounts shown was paid directly or indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10 percent or more of any class of equity securities of the Company, or
an affiliate of the Company, other than legal fees totaling $40,546 paid to
Tomlinson Zisko Morosoli & Maser LLP of which Timothy Tomlinson, a director of
the Company, is a partner.
SEC Registration Fee.................... $ 12,122
NASD Filing Fee......................... 4,500
Nasdaq National Market Application Fee.. 50,000
Printing................................ 232,815
Legal Fees and Expenses................. 452,308
Accounting Fees and Expenses............ 276,300
Road Show Expenses...................... 140,523
Transfer Agent and Registrar Fees....... 2,500
Miscellaneous........................... 5,477
----------
$1,176,545
==========
After deducting the underwriting discounts and commissions and the Offering
expenses described above, the net proceeds to the Company from the Offering were
approximately $43,742,455. As of March 31, 1998, the net proceeds, totaling
$43,742,455, have been invested in short-term, interest-bearing, investment
grade securities. The entire amount of the net proceeds has been allocated for
general corporate purposes, including working capital and capital expenditure
requirements of the Company resulting from its growth. The Company may also use
a portion of the net proceeds of the Offering to acquire or invest in
businesses, technologies and product lines that are complementary to the
Company's business. The Company has no present plans or commitments and is not
currently engaged in any negotiations with respect to such transactions.
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January 1998, the Company submitted to its stockholders for action by
written consent each of the following proposals:
1. Approval of the adoption by the Company of a 1998 Equity Incentive
Plan and the reservation for issuance thereunder of: (a) 2,000,000
shares of Common Stock; plus (b) any authorized shares not issued or
subject to outstanding grants under the Company's 1995 Stock Option Plan
and 1997 Stock Option Plan (the "Prior Plans") on the effective date of
-----------
the 1998 Equity Incentive Plan; plus (c) any shares issuable upon
exercise of options granted pursuant to the Prior Plans that expire or
become unexercisable for any reason without having been exercised in
full.
2. Approval of the adoption by the Company of a 1998 Directors Stock
Option Plan and the reservation of 125,000 shares of Common Stock for
issuance thereunder.
3. Approval of the adoption by the Company of a 1998 Employee Stock
Purchase Plan and the reservation of 500,000 shares of Common Stock for
issuance thereunder.
4. Approval of the amendment of the Second Amended and Restated
Certificate of Incorporation of the Company to increase the number of
shares of Common Stock authorized for issuance to 50,000,000 shares.
5. Approval of the amendment and restatement of the Second Amended and
Restated Certificate of Incorporation of the Company upon the closing of
the Company's initial public offering to, among other things, reduce the
number of shares of preferred stock authorized for issuance to 5,000,000
shares, provide for a classified Board of Directors and authorize the
issuance of "blank check" preferred stock.
The approval of Proposals No. 1, 2 and 3 required the affirmative vote of a
majority of the Company's outstanding shares of Common Stock and preferred
stock, voting together as a single class on an as-converted into Common Stock
basis. The approval of Proposals No. 4 and 5 required the affirmative vote of a
majority of the Company's outstanding shares of Common Stock and preferred
stock, voting together as a single class on an as-converted into Common Stock
basis, as well as the affirmative vote of at least sixty-six and two-thirds
percent (66 2/3%) of all shares of the Company's preferred stock then
outstanding, voting together as a single class.
Each of the proposals was approved by the Company's stockholders. Of the
17,133,239 shares of Common Stock and preferred stock outstanding as of December
19, 1997 (the record date for the action by written consent), 14,610,633 shares
were affirmatively voted in favor of Proposal No. 1, 14,850,321 shares were
affirmatively voted in favor of Proposal No. 2, 14,860,633 shares were
affirmatively voted in favor of each of Proposals No. 3 and 4, and 14,610,305
shares were affirmatively voted in favor of Proposal No. 5. In addition, of the
10,031,006 shares of preferred stock that were outstanding as of the record
date, 8,786,954 shares were affirmatively voted in favor of Proposal No. 4 and
8,536,954 shares were affirmatively voted in favor of Proposal No. 5.
20
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 quarter ended March 31, 1998.
21
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: May 11, 1998 By: /s/ Stratton D. Sclavos
---------------------------------------
Stratton D. Sclavos
President
and
Chief Executive Officer
Date: May 11, 1998 By: /s/ Dana L. Evan
---------------------------------------
Dana L. Evan
Vice President of Finance and Administration
and
Chief Financial Officer
(Principal Financial and Accounting Officer)
22
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
Digital ID/SM/
Digital ID Center/SM/
NetSure/SM/ Protection Plan
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.
23
5
1,000
1
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
1
12,195
37,043
4,404
287
0
54,237
12,812
4,018
63,914
10,858
0
0
0
21
51,177
63,914
4,002
4,002
2,832
9,992
(375)
0
0
(5,227)
0
(5,227)
0
0
0
(5,227)
(0.32)
(0.32)
