PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. As used herein, the terms "Company" and
"TIS," unless otherwise indicated, refer to Trusted Information Systems, Inc.
and its subsidiary. Except as otherwise noted or the context otherwise requires,
all information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option and (ii) reflects a 40-for-1 stock split of the Common
Stock effected as of May 31, 1996 in connection with the reincorporation of the
Company in Delaware.
THE COMPANY
Trusted Information Systems, Inc., founded in 1983, is a leading provider of
comprehensive security solutions for protection of computer networks, including
global Internet-based systems, internal networks and individual workstations and
laptops. The Company develops, markets, licenses and supports the Gauntlet
family of firewall products. These products allow customers to create "trusted"
networks that are protected from access, theft and damage by unauthorized users
from "untrusted" networks such as the Internet and also enable the creation of
virtual private networks ("VPNs") through the encrypted transmission of
information across untrusted networks. The Company emphasizes the robustness of
its security solutions, its long experience with computer security and
cryptography issues and its ability to provide comprehensive solutions to
customers. The Company also emphasizes its strong reputation with corporate and
government computer security professionals in the United States and abroad as a
pioneer in the field of computer network security.
The Company's Gauntlet Internet Firewall, introduced in 1994, was derived from
the TIS Internet Firewall Toolkit which has been available on the Internet since
1993 and has been downloaded more than 27,000 times to more than 15,000 discrete
locations worldwide. To date, more than 1,500 Gauntlet Internet Firewalls have
been licensed to customers, including the following or subsidiaries thereof:
Chevron Corporation, Chrysler Corporation, NationsBank Corporation and Swiss
Bank Corporation. In January 1996, the Company initiated a telemarketing program
to upgrade TIS Internet Firewall Toolkit users to the Gauntlet family of
firewall products. These products use a proxy-based application gateway system
rather than a filtering gateway system, thus assuring a higher level of security
by prohibiting direct connections between networks and by permitting only
specifically approved application data to flow into and out of the trusted
network. Additionally, the Gauntlet family of firewall products is built on an
operating system that has been modified or "hardened" for greater system
security. TIS employs a "Crystal Box" approach in which source code is
distributed to allow for assurance reviews by the Company's customers, resellers
and other experts. The Gauntlet Internet Firewall is available on an Intel
Pentium-based platform as well as other platforms such as Hewlett-Packard,
Silicon Graphics and Sun Microsystems workstations. The Company expects that its
Gauntlet Internet Firewall versions supporting Sun Microsystems' Solaris and
Microsoft's Windows NT Server will be commercially available by the end of 1996.
The Gauntlet family of firewall products also includes the recently introduced
Gauntlet Intranet Firewall for internal networks, Gauntlet Net Extender for
remote sites and Gauntlet PC Extender for desktop or mobile computer users.
Initially, the Company focused on consulting to major corporations such as
Digital Equipment Corporation, International Business Machines Corporation and
MCI Communications Corporation, and it has continued to provide computer
security consulting to major corporations throughout its history. The Company's
commercial consulting practice offers expert technology research services,
consultation on security issues associated with products and services, corporate
information security policy development, architectural and diagnostic security
analysis, firewall configuration and maintenance support and training for
corporate network and security administration personnel. These services are
carried out by a staff of 12 persons who average more than 15 years of
information security experience in both commercial and government organizations.
The Company believes that full commercial utilization of the Internet has been
hampered by lack of security and the vulnerability of the Internet and private
networks connected to the Internet. The very openness of the Internet means that
transmitted information and data stored in connected hosts are exposed to other
users who are able, in the absence of effective security measures, to gain
access to, manipulate and divert the data. This fundamental
weakness requires that organizations and individuals weigh security concerns
against the perceived commercial opportunities presented by millions of Internet
users.
To satisfy an organization's desire both to conduct commerce on public networks
and to keep hackers and viruses outside of its trusted network, firewalls are
designed to monitor and regulate the traffic passing into and out of the trusted
network. Organizations are vulnerable not only to unauthorized access to
information resources by outsiders, but also to abuse by employees within their
own organizations. The Company believes that firewalls and encryption are key
elements in providing solutions to these security issues. International Data
Corporation has recently forecast that revenues from new licenses of firewall
software will grow from approximately $160 million in 1995 to approximately $980
million in 2000.
To capitalize on this opportunity, the Company is pursuing a focused marketing
strategy to achieve greater market penetration through complementary domestic
and international distribution channels, including direct sales, resellers and
telesales. The Company's direct sales force markets its products and services to
Fortune 500 corporations and organizations with complex information security
needs, such as telecommunications companies, finance and banking institutions,
petrochemical companies and pharmaceutical companies. The Company's more than 50
resellers include Internet service providers such as BBN Internet Service Corp.,
Demon Internet Limited, PSINet, Inc., Unipalm Limited and UUNet Technologies,
Inc.; value added resellers and hardware vendors such as Bull Enterprise
Systems, Data General Corporation, HITACHI Ltd., Silicon Graphics, Inc. and
Sumitomo Electric Systems Company, Ltd.; system integrators such as AvantComp
Oy, Conjungi Corporation, Fujitsu Systems Business of Canada, Inc. and Media
Communications STM AB; and security product vendors such as Hanil Telecom Co.,
Ltd., Mergent International, Inc. and Virtual Open Network Environment
Corporation ("V-One").
Prior to founding TIS in 1983, Stephen T. Walker spent 20 years working on
computer security issues at the National Security Agency ("NSA"), the Advanced
Research Projects Agency ("ARPA") and the Office of the Secretary of Defense.
While working for the U.S. Department of Defense, Mr. Walker was responsible for
the development of network security standards and policies, as well as for the
establishment of the Department of Defense Computer Security Initiative, the
first comprehensive attempt in the Department of Defense at managing computer
security systems solutions. Mr. Walker is widely recognized as a pioneer in the
field of computer network security. He has testified before Congress as an
expert witness on these issues on numerous occasions and has played an
instrumental role in assisting the U.S. government to formulate encryption
export policy. Mr. Walker's experience is complemented by other members of the
Company's senior management team who average over 20 years of experience working
on computer security and networking issues in industry and government.
In 1987, TIS began to perform consulting and research and development projects
for government agencies, including the NSA and ARPA. These activities have
contributed to the Company's in-depth understanding of the technologies, threats
and user requirements in computer security and have contributed to the
development of the TIS Internet Firewall Toolkit and the Gauntlet family of
firewall products. The Company continues to provide research and development and
consulting services to government agencies in areas such as next generation
firewalls, distributed trusted operating systems, Internet domain name services,
international cryptography and advanced cryptographic key handling and recovery
techniques.
The Company's position as an adviser and supplier to industry and the government
has enabled it to become a leader in developing a key escrow solution, based on
its proprietary Key Recovery Technology ("KRT"), to permit the export of
products with strong cryptography while protecting the interests of security and
law enforcement agencies. In January 1996, the U.S. government granted the
Company an export license for a particular transaction involving a network
security product using the Data Encryption Standard ("DES") algorithm (56 bits).
This is the first export license granted because the encryption is combined with
a key recovery system. The Company has incorporated its Commercial Key Escrow
("CKE") solution into its Gauntlet Internet Firewall product and is pursuing
additional export licenses from the U.S. government.
The Company was incorporated in Maryland in 1983 and was reincorporated in
Delaware in 1996. The Company's principal executive offices are located at 3060
Washington Road, Glenwood, Maryland 21738. Its telephone number is (301)
854-6889. The Company's home page on the World Wide Web is www.tis.com.
THE OFFERING
COMMON STOCK OFFERED................ shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERING............................ shares(1)
USE OF PROCEEDS..................... Working capital and other general
corporate purposes including expansion
of distribution capabilities, further
development of products and technology,
expansion of service and support
capabilities, repayment of short-term
borrowings and potential acquisitions.
DIVIDEND POLICY..................... The Company intends to retain its
earnings to fund development of its
business and does not anticipate paying
cash dividends in the foreseeable
future. See "Dividend Policy."
RISK FACTORS........................ For a discussion of certain
considerations relevant to an
investment in the Common Stock, see
"Risk Factors."
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL.............................. "TISX"
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(1) Excludes shares of Common Stock reserved for issuance under
outstanding stock options and stock options to be awarded to outside Directors
in connection with the Offering. See "Management -- Employee Stock Options
Plans" and "-- Directors' Stock Option Plan" and Note 5 of Notes to Consolidated
Financial Statements.
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data derived from the
consolidated financial statements of the Company. The data should be read in
conjunction with the consolidated financial statements and notes thereto and
other financial information included elsewhere in this Prospectus.
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FIRST
FISCAL YEAR(1) QUARTER(1)
In thousands, except per share data 1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA
Revenues
Government contracts......................... $5,191 $6,262 $8,343 $11,258 $12,327 $3,040 $2,432
Commercial products and services............. 834 568 448 1,859 5,763 906 1,744
------ ------ ------ ------- ------- ------ ------
Total revenues............................. 6,025 6,830 8,791 13,117 18,090 3,946 4,176
Gross profit................................... 2,343 2,454 2,972 4,914 7,225 1,463 1,763
Income (loss) from operations.................. 213 262 192 1,271 2,353 179 (656)
Net income (loss).............................. 38 74 35 675 1,344 98 (424)
Net income (loss) per share....................
Weighted average shares outstanding............
--------------------------------------
MARCH 29,1996
DECEMBER 29, AS
1995 ACTUAL ADJUSTED(2)
------------ ------- -------------
(UNAUDITED)
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities.................. $ 54 $ 3,793
Working capital................................................... 210 1,914
Total assets...................................................... 10,222 14,988
Total debt........................................................ 3,264 5,153
Shareholders' equity.............................................. 2,407 4,282
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(1) The ending dates of these fiscal years are December 27, 1991, December 25,
1992, December 31, 1993, December 30, 1994 and December 29, 1995. The ending
dates of these first quarters are March 31, 1995 and March 29, 1996.
(2) Adjusted to reflect the sale of shares of Common Stock offered hereby
(assuming an initial public offering price of $ per share) and the
application of a portion of the estimated net proceeds therefrom to repay
short-term borrowings. See "Use of Proceeds" and "Capitalization."