<PAGE>

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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   Form 10-K

     (Mark One)
        X
       ---              Annual Report Pursuant to Section 13 or 15(d) of the
                                  Securities Exchange Act of 1934
                            For the Fiscal Year Ended December 31, 1999
                                          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: 0-28100

                           AXENT TECHNOLOGIES, INC.
            (Exact Name of Registrant as specified in its charter)

           Delaware                                             87-0393420
(State or other jurisdiction of                               (IRS employer
incorporation or organization)                             identification No.)

   2400 Research Boulevard, Suite 200                             20850
        Rockville, Maryland                                    (Zip Code)
(Address of principal executive office)

Registrant's telephone number, including area code: (301) 258-5043

          Securities Registered Pursuant to Section 12(b) of the Act:  None

          Securities Registered Pursuant to Section 12(g) of the Act:

                                              Name of Each Exchange
           Title of Each Class:               On which Registered:
           --------------------               --------------------
         Common Stock, par value              Nasdaq Stock Market
             $0.02 per share

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K[X].

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 21, 2000 was approximately $747,920,000.

The number of shares of the Registrant's Common Stock outstanding as of March
21, 2000 was 28,779,809.

Documents incorporated by reference: Specified portions of the Definitive Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A in connection with the 2000 Annual Meeting of Stockholders are
incorporated herein by reference into Part III of this Report. Such proxy
statement will be filed with the Securities and Exchange Commission not later
than April 29, 2000.

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                            AXENT TECHNOLOGIES, INC.

                                   FORM 10-K

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I
<S>                                                                                              <C>
Item 1.  Business...............................................................................  1
              Overview
              Industry Background
              The Need for E-Business Security
              AXENT's E-Security Solution
              Sales and Marketing
              Customers
              Customer Service and Support
              Competition
              Intellectual Property Rights
              Employees
              Certain Factors That May Affect Future Results
Item 2.  Properties.............................................................................  15
Item 3.  Legal Proceedings......................................................................  16
Item 4.  Submission of Matters to a Vote of Security Holders....................................  16

Part II

Item 5.  Market for the Company's Common Equity and Related Stockholder Matters.................  16
Item 6.  Selected Consolidated Financial Data...................................................  16
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..  18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............................  28
Item 8.  Financial Statements and Supplementary Data............................................  28
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...  28

Part III

Item 10. Directors and Executive Officers of the Company........................................  28
Item 11. Executive Compensation.................................................................  28
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................  29
Item 13. Certain Relationships and Related Transactions.........................................  29

Part IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................  30

Signatures......................................................................................  53
</TABLE>
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FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL OR POSSIBLE FUTURE RESULTS.  FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO THOSE DISCUSSED
IN THE SECTION OF THIS FORM 10-K ENTITLED "BUSINESS--CERTAIN FACTORS THAT MAY
AFFECT FUTURE RESULTS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--FACTORS THAT MAY AFFECT FUTURE
PERFORMANCE."  READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER
DOCUMENTS AXENT FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q FILED BY AXENT IN 1999
AND TO BE FILED IN 2000.  READERS ARE CAUTIONED NOT TO RELY ON FORWARD-LOOKING
STATEMENTS.  AXENT HAS NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO
FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
FILING OF THIS FORM 10-K.

ITEM 1.  BUSINESS.

Overview

AXENT is a leading global provider of electronic security (e-security) software
solutions that address vital security issues facing organizations deploying
business applications over the Internet or internally via Intranets. According
to the Internet Security Software 1999 Worldwide Markets and Trends report by
International Data Corporation, the overall security market is forecast to grow
at a compound annual growth rate of 21%, from a 1998 value of $3.2 billion to a
2003 value of $8.3 billion. Our breadth of security software products and depth
of security service expertise assist organizations in reducing risks associated
with the inherent vulnerabilities of today's Internet-based business
environment. To effectively apply our multiple solutions in a meaningful way for
customers, we offer "Lifecycle Security Services" to help organizations develop
a roadmap for assessing potential vulnerabilities, develop security policies,
practices and metrics, select and implement solutions and insure appropriate
monitoring and compliance. Through our Lifecycle Security Services, we believe
customers can develop and manage an electronic environment of trust critical for
today's business and the future of e-commerce.

We provide our e-security solutions in the areas of: vulnerability assessment,
intrusion detection, firewalls, virtual private networks, single sign-on, secure
Web access and management of the entire security environment.  Our information
security solutions have been licensed to more than 10,000 customers, including:
45 of the Fortune 50 U.S. companies, one third of the Fortune e-50 (which
encompasses the companies that understand the profundity of the Internet and its
power to change the Internet), five of the six largest public accounting firms,
industry leaders such as Sprint, OppenheimerFunds, Toronto Dominion Bank, Mobil,
MCI, Australia Post and Tower Communications New Zealand, and government
agencies including EPA and the U.S. Air Force.  We have also established key
strategic partnerships with leading organizations such as Baltimore
Technologies, BMC Software, Cobalt Networks, Compaq Computer Corporation,
Entrust Technologies, Hewlett Packard, Radware and Tivoli Systems.

We intend to maintain our leadership position by enhancing and expanding our
product and service offerings through acquisitions, internal development,
through appropriate marketing partnerships and focusing on the business
opportunities that both meet our customers' needs and provide us with the
largest growth.  We intend to offer integrated solutions that can be purchased
separately but offer increased value when purchased and used together. In our
role as an aggregator, we ensure that the whole is indeed greater than the sum
of its parts. This is in marked contrast to mere integrators of products and
services that cobble together products to meet the needs of securing any
particular organization's digital assets.  In summary, we provide open,
integrated information security solutions to enable e-business to insure that
our customers can implement an optimal information security posture.

AXENT Technologies, Inc. is a Delaware corporation and was organized in 1983.
References to "we", "us", "our" or "AXENT" refer to AXENT Technologies, Inc. and
its subsidiaries.

                                       1
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INDUSTRY BACKGROUND

The widespread adoption in recent years of open computing environments, such as
the Internet, has revolutionized the way in which organizations and consumers
communicate and conduct business. These advanced computing environments provide
an attractive medium for communications and commerce because of their global
reach, accessibility, use of open standards and ability to permit interactions
on a real-time basis. These computing environments also provide businesses a
user-friendly, low-cost way to conduct a wide variety of commercial functions
electronically.  Organizations utilize these computing environments to access
new markets, improve customer service and streamline business processes.  As a
result, the Internet has become a commonly accepted platform for interactions
with a variety of audiences and devices each of which may have different
business requirements for information security depending on the nature of the
device or content of the interaction.

International Data Corporation estimates that the number of Internet users will
grow from 97 million in 1998 to 320 million in 2002 and the number of devices
accessing the Internet will increase from 120 million in 1998 to 515 million in
2002. As the number of users and devices attached to the Internet continue to
grow at a rapid rate, embracing Internet platforms as part of an organization's
business strategy will be essential for survival in today's competitive business
environment.  New business models utilizing e-commerce, e-business, enterprise
portals and collaborative applications have already emerged and are
revolutionizing the way all businesses will seek to gain competitive advantage.

The very openness and accessibility that has stimulated the growth of private
and public networks such as the Internet also creates threats to the
confidentiality and integrity of the systems, applications, transactions and
communications used by such networks. With the increasing dependency of today's
businesses on platforms such as the Internet, we believe the survival of our
customers' business is dependent on managing and reducing these potential
threats to their mission critical applications such as those used in e-commerce
or e-business.

THE NEED FOR E-BUSINESS SECURITY

As organizations continue to leverage the benefits of open computing
environments such as the Internet to exploit new business opportunities, they
must proactively address the information security concerns inherent in such
environments or risk potentially harmful and significant disruptions to their
business. Key information security concerns include risk of theft, alteration,
destruction, interception or dissemination of confidential data; fraud;
disruption of operations; loss of reputation, customer confidence and trust; and
economic loss. Threats to information security arise from both external sources,
such as competitors and computer hackers, as well as internal sources such as
curious or disgruntled employees and contractors.

In addition, open computing environments such as the Internet are complex and
involve a variety of hardware, operating systems, networking protocols, and
applications supplied by a multitude of vendors, making these systems difficult
to manage, monitor and protect. Each application, operating system and device
connected to a distributed computing environment typically has its own limited
method of addressing security, creating inconsistencies throughout the system
and adding different types of vulnerabilities that can be exploited by an
unauthorized user.

Given the complexity of the information security concerns, customers seek to
apply the "right" level of security relative to the business needs with balanced
solutions designed to function in large-scale, multi-platform computing
environments. Historically, organizations have responded to perceived security
issues by implementing point tools designed to protect individual components of
their internal networks from unauthorized use. This piecemeal approach to
security combined with a limited supply of knowledgeable personnel has not
allowed organizations to effectively implement an environment of trust from
which to leverage new business models to their fullest potential.

In the future, we believe that organizations will seek 1) a comprehensive
methodology for proactively addressing security concerns; 2) a set of individual
solutions designed to work standalone or in concert with one another to provide
an integrated view of their security status; and 3) security expertise in the

                                       2
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form of expert consultants or managed services to address the limited supply of
knowledgeable personnel in information security. We believe that AXENT is in the
unique position of being able to offer such solutions and services.

AXENT'S E-SECURITY SOLUTION

As a trusted advisor, AXENT assists customers in creating an environment of
trust from which to conduct electronic business initiatives and ensure the
integrity of the systems and applications they have become dependent on. Through
the creation and management of a trusted environment, customers can minimize the
potential security threats and business interruptions that can occur through
unauthorized activities.  AXENT's approach to the challenges of information
security is to develop, market and support security software products that
perform a broad range of security functions and to provide expert consulting
services that complement these products as well as address other security needs
our customers might have. We believe that our integrated approach provides a
more comprehensive information security solution than the point product
offerings marketed by many of our competitors.

Information security must be designed, implemented and managed seamlessly from a
full business and organization perspective to ensure continued success and
reliability of the organization's business. We strive to provide uncompromised
security balanced with ease of implementation, use and maintenance. Today, we
offer customers 1) a methodology to proactively address security concerns
through our Lifecycle Security model; 2) a set of software solutions that
address risk assessment and understanding, protection of systems, enabling
secure Internet usage and security management; and 3) security expertise in the
form of consulting services and managed services

Lifecycle Security Methodology

Driven by our commitment to be our customers' trusted e-security partner, we
have developed our unique Lifecycle Security approach to help identify security
needs and implement practical solutions. AXENT's Lifecycle Security methodology
has been proven to help our customers implement consistent yet dynamic
information security across their organizations. This method has proven to be a
unique yet practical approach that recognizes the ongoing and continuous nature
of an effective information security program. The Lifecycle Security model takes
the guesswork out of security by providing a structured approach to design,
implement and manage security across an extended enterprise consisting of
multiple systems, applications and services.

Lifecycle Security Solutions

As part of the Lifecycle Security methodology, we offer the widest range of
market-leading products and services to meet four critical areas of e-security
to assess, protect, enable, and manage information assets and business processes
safely. Our principle information security products offered at January 1, 2000
are as follow:

Assess system vulnerabilities and ensure security policy compliance to
proactively reduce business risk. The initial step to proactively reduce
corporate risk is to effectively measure compliance to a business security
policy and assess vulnerabilities where critical information resides. It is
important to understand the effectiveness of a security policy, now and as it
changes with business needs in order to properly define, manage and enforce
business policies and assess possible treats. AXENT's solutions proactively
assess vulnerabilities and reduce the risk to critical information before it's
too late. We have two products performing these functions:

 .   Enterprise Security Manager(TM): provides scalable security policy
    compliance and host-based vulnerability assessment

 .   NetRecon(TM): provides network vulnerability assessment with root-cause
    analysis to show how the vulnerabilities can be exploited


                                       3
<PAGE>

Protect critical information with perimeter security, and check and detect
attacks to information to maintain business integrity. Organizations
must protect information against unwanted users and hackers and control access
to information maintain business integrity. Balancing these needs requires a
solution set that protects data from within the perimeter, checks and detects
attacks to the perimeter and controls access to information to assure customers'
proprietary data is secured. AXENT's solutions protect internal data and detect
attacks in real-time to maintain business integrity.

 .  Raptor(R) Firewall: Highest performing, most secure perimeter protection for
   enterprise networks

 .  Intruder Alert(TM):  Scalable host-based security monitoring and intrusion
   detection

 .  NetProwler(TM): Dynamic network intrusion detection

Enable secure Internet usage and communications between mobile employees, remote
operations, customers and other businesses to facilitate new revenue
opportunities. All businesses today recognize the Internet as an essential
resource that enables organizations to operate their business in a more
competitive fashion. It is critical to exchange information via the Internet and
Web-based applications to employees, partners and customers without compromising
the security of that information. The Internet, and in particular e-business
initiatives, can help to enable new business opportunities and reduce
operational costs. AXENT's solutions enable customers, partners, suppliers and
employees to connect to a network safely, reducing operational costs and
enabling new business opportunities.

 .  PowerVPN(TM) Server with RaptorMobile(TM): Secure, easy-to-manage virtual
   private network server with free client and personal firewall

 .  WebDefender(TM):  Secure access control for Web business applications

 .  Defender(TM): Secure, two-factor strong authentication

 .  PassGo(TM): Enterprise-wide single sign on and password synchronization

 .  PassGo(TM) InSync: Enterprise-wide password synchronization

                                       4
<PAGE>


Manage through open, integrated and scalable solutions. In order to effectively
manage trust levels of an e-business environment we recognize that today's
computing environments consist of multiple operating systems running
applications from different vendors and are accessed by multiple client
platforms. We provide the necessary AXENT product-to-product integration to
deliver value-add functionality. We partner to integrate with key market leading
enterprise network and systems management framework vendors. We also provide an
open, integrated security architecture to make managing trust both effective and
efficient. We deliver this unique capability whether AXENT customers or AXENT is
managing the trust levels.

 .  Smart Security Architecture: Smart and appropriate integrated security

 .  Integration with Enterprise Management Frameworks: Integrated view of AXENT
   security and leading management frameworks

 .  Privilege Manager(TM) for UNIX(R): Secure delegation of UNIX root authority

 .  Resource Manager(TM) for UNIX(R): User administration and enhanced security
   for UNIX

Lifecycle Security Services

Complimenting our Lifecycle Security methodology and solutions, we provide
consulting, education and customer support services to assist customers before,
during and after implementation of information security solutions.

Consulting: Consulting services are available through Secure Network Consulting,
Inc. ("SNCI"), an independent subsidiary of AXENT, to meet customers' business
needs. SNCI brings more than 115 years of collective security consulting
experience to help customers assess, implement, or manage any AXENT or non-AXENT
solution. Consulting is also available through our partnerships with more than
800 resellers and systems integrators worldwide. Through SNCI, we provide a full
range of security consulting services covering all components of the Lifecycle
Security Model. Our information security analysts deliver standardized fixed-
price consulting packages that can provide customers with an objective
assessment of their existing security systems, identify security vulnerabilities
and suggest corrective actions. The analysts, on a fee basis, assist with
information risk

                                       5
<PAGE>

analysis, develop security policy, implement our products and help organizations
securely connect to the Internet.  The analysts also design customized
consulting packages to help customers analyze their information security
requirements, integrate in-house security products into our product framework or
develop customized information security solutions.

Education: We also offer a comprehensive, standardized education and training
program to end-users of our products. Training classes are offered through in-
house facilities at various offices, as well as at customer locations. We also
provide on-site training services upon request by customers. Fees for
educational and training services are charged separately from our software
products. In addition, SNCI has announced a program to train and certify
personnel in the information technology industry who satisfactorily complete a
training course on our solutions.

Customer Support: We provide ongoing product support services under maintenance
contracts. Maintenance contracts are typically sold to customers for a one-year
term at the time of the initial product license and may be renewed for
additional periods. Under our maintenance agreements with our customers, we
provide, telephone support, documentation and software updates and error
corrections. Customers that do not renew their maintenance agreements but wish
to obtain product updates and new version releases are generally required to
purchase such items from us at market prices. In general, major new product
releases come out annually, and minor updates come and new checks come out as
needed. Customers with current maintenance agreements may download product
updates from our Web site. We believe that providing a high level of customer
service and technical support is necessary to achieve rapid product
implementation which, in turn, is essential to customer satisfaction and
continued license sales and revenue growth. Accordingly, we are committed to
continued recruiting and maintenance of a high-quality technical support team.
We provide telephone support to customers who purchase maintenance agreements
along with their product license. A team of dedicated engineers trained to
answer questions on the installation and usage of our products provides
telephone support from our various facilities around the world. We provide
telephone support 24 hours a day, seven days a week through a callback procedure
to certain customers who pay an additional fee for the service. In the United
States and internationally, our resellers provide first level telephone support
to their customers with technical assistance from us.


AXENT Strategy and Vision

Our product strategy is to provide a comprehensive family of products that
address many security requirements of those embracing e-business. We intend to
add new products and services, as well as enhance our existing ones. Adding new
products and functions to our existing product families and product lines will
allow us to market new technology to current customers while we expand our
customer base. We also intend to integrate many of the functions of our products
under the Smart Security Architecture initiative to provide seamless sharing of
functionality and management capability.

We believe that the depth and breadth of product functionality and the speed in
which we can deliver updates via the Web through our SWAT team and customize it
via exclusive AXENT technology give us an advantage over our competitors.
Because of the difficulty in developing software products that function across
multiple, disparate platforms, we believe that our technology leadership creates
a significant barrier to entry for single platform vendors that attempt to
support multiple platforms. We have also invested heavily in developing several
cross-platform technologies, which serve as the core of our product families and
provide hard-to-duplicate product features.

In June 1999, we unveiled our smart security Architecture to match the "right"
level of security to organizations' business needs. AXENT's Smart Security
Architecture is an encompassing vision and strategy for simplified integration,
correlation, administration and use of disparate security solutions. It contains
four initiatives for AXENT products: consolidated data and policies, common
components, security services, and integrated views across solutions. In
addition, the window into the information security picture must meld with the
industry frameworks from BMC Software, Inc. Tivoli Systems Inc. and Hewlett-
Packard Company.


The Security Architecture will facilitate the auditing, reporting, logging and
management requirements through the consolidation of data in the security data
warehouse.  The centralized security monitor will integrate and correlate
security events to offer multiple views of information security across the
enterprise.  This will ensure timely and efficient identification, notification
and escalations of security events for appropriate response.


                                       6
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In summary, we believe that our unique Lifecycle Security Methodology, our
Lifecycle security solutions and services assists customers in creating an
environment of trust from which to conduct electronic business initiatives and
ensure the integrity of the systems and applications they have become dependent
on.

SALES AND MARKETING

We market our products and services through a direct selling organization, and
through a mix of indirect channels, including two-tiered distribution, original
equipment manufacturers, distributors, resellers and systems integrators,
domestically and abroad. AXENT is sensitive to the growing role of application
service providers, Internet service providers and managed service providers. We
have developed alternative pricing strategies to work with these increasingly
important market segments. Our sales organization is divided into three areas:
North America, Europe Middle East and Africa (EMEA) and Asia Pacific Latin
America (APLA). We maintain a number of domestic sales offices and have
international sales offices in many countries in Europe as well as in Australia
and Japan.  During 1999, approximately 55% of our total revenues were through
the direct selling organization and approximately 45% of total revenues came
through our indirect channels.

International revenues accounted for approximately 30% of our revenues in 1999
and approximately 27% of revenues in 1998.   See Note 14 of Notes to the AXENT
Consolidated Financial Statements for financial information regarding AXENT's
domestic and foreign operations.  Our business has two reportable segments,
consisting of software products and consulting services.  Note 14 of Notes to
the AXENT Consolidated Financial Statements contains financial information
regarding those segments of our business.

A customer's decision to use our products may involve a substantial financial
commitment, which may require a substantial evaluation period and approval of
the customer's senior management.  A customer's decision to license certain of
our products may also involve significant user education and deployment costs,
as well as substantial involvement of the customer's personnel resources, which
may result in a long or unpredictable sales cycle.  We have no significant
inventory and little or no backlog.

We have experienced significant quarterly fluctuations in our operating results
and anticipate such fluctuations in the future.  Revenues, operating income and
net income have been significantly higher in the fourth quarter of each year
than in the first quarter of the following year with the exception of 1997, when
the accounting treatment of the AssureNet acquisition mitigated that historic
trend.  We believe that fourth quarter revenues are positively impacted by the
end of year budgeting cycles of some large corporate customers, as well as the
annual nature of our sales compensation plans.  Revenues also tend to be lower
in the summer months, particularly in Europe, when businesses often defer
purchase decisions. Quarterly revenues and operating results depend on the
volume and timing of orders received, which may be affected by large individual
transactions which sometimes are difficult to predict, especially with regard to
orders received through indirect distribution channels.  We historically have
recognized a substantial portion of its license revenues in the last month of
each quarter, and often in the last week of each quarter, which makes it very
difficult to gauge the level of license revenues that will be recognized during
a quarter until after its conclusion.  We expect that this will continue for the
foreseeable future.

STAR Partners Program

Our mission is to advance winning solutions in the information security industry
by empowering, leveraging and differentiating partners. To achieve this, we have
established our Partners Program to build a consortium of the best technology
companies in the business. Since launching our Partners Program, we have
established strategic partnerships with leading organizations such as Baltimore,
BMC Software, Cobalt Networks, Compaq Computer Corporation, Entrust
Technologies, Hewlett Packard, Radware, and Tivoli Systems.  We have also added
over 920 value added resellers to the AXENT channel.

                                       7
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Marketing Programs

We conduct various marketing programs intended to position and promote our
products and services.  Our programs are designed to educate and promote our
products and services to potential end users.  Marketing activities include:

 .  advertising (print, Web, email)
 .  direct mail
 .  public relations and education
 .  participation in industry trade shows as well
 .  as industry programs and forums
 .  seminars
 .  telemarketing
 .  WebCasts
 .  Web supersite (www.axent.com)
 .  publication of technical and educational articles in industry journals
 .  case studies
 .  sales training

A key element of our marketing strategy is to establish marketing programs
intended to position and promote our product and service solutions. Our
marketing personnel engage in various activities in support of all distribution
channels, as listed above.  Our product development personnel provide sales and
product training seminars for both our internal sales force, as well as our
channel partners' sales forces.  Our marketing department also has a leading
role in product marketing activities, including product management, cooperative
positioning and long-term product direction.

Customer Input:

We have several vehicles to receive input directly from our customers in product
and company direction. These include:

Customer Advisory Council

We formed a Customer Advisory Council in late 1999 to provide an open forum
where customers can freely discuss their experiences, both positive and
negative, in order to provide us with the information necessary to better serve
our customers. The Customer Advisory Council will provide us with direct
feedback from our customers. This feedback will be vital in assessing our
product directions as well as gauging customer satisfaction with our products
and services. It will also provide advanced information concerning customer
buying intentions.

SecureXchange

SecureXchange is our annual user conference that brings our customers from all
over the world together to gain their feedback, as well as to inform them of our
upcoming high-level strategies and product developments. Aside from the
informative technical sessions, we also hold several sessions to discuss timely
or important new information security issues.

PERFnet

PERFnet is AXENT's product enhancement request process that enables our
customers to systematically request product enhancements.  It also allows our
managers to collect, review and respond to all requests within 90 days of
request. It involves customers in the voting process to insure that our product
enhancements answer aggregate market demands and improve our overall competitive
advantage in the marketplace.  PERFnet has increased our customers' confidence
by guaranteeing enhancement request feedback within 90 days.

                                       8
<PAGE>

CUSTOMERS

As of December 31, 1999, we had over 10,000 customers.  Our target customers
include private and public sector organizations that require information
security to enable secure e-business initiatives.  Our customers represent a
broad range of organizations within diverse sectors including: financial
services, technology, professional services, government, consumer products and
energy and utilities.

Our impressive array of customers and partners validates our unique commitment
to providing e-security solutions to organizations around the world.  Our
customers rely on us to address the critical security trends in today's global
marketplace.

CUSTOMER SERVICE and SUPPORT

A high level of technical support and competence in Internet information
security technology is essential for gaining customer satisfaction as many of
our customers implement our products within technically complex heterogeneous
environments.

We offer support programs to assist our customers in meeting the ever-increasing
challenge of protecting their environments while also ensuring they realize the
potential of their investment in our products. Our annual support contract
provides the customer with 1) hot-line service delivered by telephone, fax and
over the Internet, 2) immediate patches for severe problems, 3) any periodic
software updates, 4) access to our technical knowledge base and FAQ, and 5) an
invitation to the annual user conference. AXENT understands the mission-critical
nature of our products and offers 7 days a week, 24-hour technical service for
those customers that require it.

We believe that an increased focus on technical support and customer service
will be a significant factor in the market place acceptance of our products. We
have invested in customer relationship management software, Internet service
delivery software and various other tools to ensure the accuracy of transactions
and to give the customer a strong sense of confidence that they are receiving an
excellent return for their maintenance contract investment.  We deliver hot-line
service from four locations in the United States, including: Waltham, MA,
Nashua, NH, Pittsburgh, PA, and American Fork, UT as well as two locations in
the UK.  When our products are licensed by resellers, first line technical
support is provided by these resellers to their customers.

COMPETITION

The market for information security is incredibly competitive and is expected to
continue to increase in the future.  We believe that the significant competitive
factors affecting the market include breadth of market, depth of product
functionality, breadth of platform support, product quality and performance,
conformance to industry standards, product price and customer support.  There
can be no assurance that we can maintain or enhance our competitive position
against current and future competitors given that many competitive
differentiators are not in our control.

                                       9
<PAGE>

Our primary competitors typically fall within one of five categories:

1)  Large enterprise network and systems management vendors offer multiple
    products that cover various aspects of information security.  For example,
    Computer Associates International, Inc., IBM, Hewlett-Packard Corporation
    and BMC Software, Inc.

2)  Point product security vendors sell products that offer particular
    information security functions for specific computing platforms.
    These vendors include:  Check Point Software Technology, Ltd. and
    RSA Security Inc.

3)  Solutions-based security vendors offer products that cover various aspects
    of information security.  For example, Network Associates, Inc.

4)  Telecommunications infrastructure vendors offer appliances that may include
    some resident security functionality.  These vendors include: Cisco Systems,
    Inc., Nortel Networks and Lucent Technologies. Inc.

5)  Platform vendors offer operating system software that may include some
    native security functionality.  These vendors include: Microsoft
    Corporation, Novell, Inc. and Sun Microsystems, Inc.

Many of our current and potential competitors have longer operating histories,
significantly greater resources greater name recognition and a larger install
base.  We compete with these organizations by offering our depth and breadth of
e-security solutions.  Our products and services assist organizations in
reducing the risks associated with the inherent vulnerabilities of today's
computing environments.  Nevertheless, there can be no assurance that we will be
able to compete successfully against current and future competitors or that the
competitive pressures we face will not have a material adverse affect on our
financial condition and results of operations.

INTELLECTUAL PROPERTY RIGHTS

Our success is heavily dependent on our proprietary technology.  We rely on a
combination of trade secret, copyright and trademark laws, non-disclosure
agreements and contractual provisions to establish and protect our proprietary
rights.  We have several patents or patents pending with respect to our products
and have registered a number of our copyrights in the United States. Certain
trademarks have been registered in the US and principal foreign countries and we
are currently seeking to register other trademarks in various countries.

We use a signed license agreement with many customers and a printed "shrink-
wrap" or electronic "click-wrap" license for all other users of our products in
order to protect our copyrights and trade secrets.  Since the licensee does not
sign shrink-wrap licenses, some authorities believe that they may not be
enforceable under many states' laws and the laws of many foreign jurisdictions.
The laws of Maryland, which the printed shrink-wrap licenses purport to make the
governing law, are unclear on this subject.  We also rely on trade secrets to
protect our proprietary rights in our software.  We attempt to protect our trade
secrets and other proprietary information through agreements with customers and
suppliers, non-disclosure and non-competition agreements with employees and
consultants and other security measures.  Although we intend to protect our
rights vigorously, there can be no assurance that these measures will be
successful.

Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary.  Policing unauthorized use of our products is difficult,
and, while we are unable to determine the extent to which piracy of our software
products exists, such piracy can be expected to be a persistent problem,
particularly in international markets and as a result of the growing use of the
Internet.  In addition, the laws of some foreign countries either do not protect
our proprietary rights or offer only limited protection for those rights.  There
can be no assurance that the steps taken to protect our proprietary rights will
be adequate or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technologies or products.

There has been substantial litigation in the software industry involving
intellectual property rights.  Although we do not believe that our products
infringe upon the intellectual property rights of others, there can be no
assurance that such claims, if asserted, would not have a material adverse
effect on our financial condition and results of operations.  In addition, as we
may acquire or license a portion of the software included in our products from
third parties, our exposure to infringement actions may increase because we must
rely upon such third parties for information as to the origin and ownership of
such acquired or licensed software.  Although we would intend to obtain
representations as to the origins and ownership of such acquired or licensed
software and obtain indemnification to cover any breach of any such
representations, there can
                                      10
<PAGE>

be no assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
representations.  In the future, litigation may be necessary to enforce and
protect our trade secrets, copyrights and other intellectual property rights.
We may also be subject to litigation to defend against claimed infringement of
the rights of others or to determine the scope and validity of the intellectual
property rights of others.  Any such litigation could be costly and divert
management's attention, either of which could have a material adverse effect on
our financial condition and results of operations.  Adverse determinations in
such litigation could result in the loss of our proprietary rights, subject us
to significant liabilities, require us to seek licenses from third parties and
prevent us from selling our products, any one of which could have a material
adverse effect on our financial condition and results of operations.

Employees

As of March 3, 2000, we had over 611 active employees worldwide, of which
approximately 468 were employed in offices in the U.S. and approximately 143
were employed at international offices. None of our employees or our
subsidiaries are represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.

Our future success will depend in significant part on our ability to attract and
retain qualified personnel. Competition for such qualified technical,
management, consulting and sales personnel is intense in the software industry,
and there can be no assurance that we can attract and retain the necessary
qualified personnel in the future.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Our Quarterly Revenues and Operating Results Will Fluctuate From Quarter to
Quarter.  We have experienced significant quarterly fluctuations in our
operating results and anticipate possibly substantial fluctuations in our future
operating results.  We generally have experienced seasonal variations in our
operating results, with higher revenues, operating income and net income in our
fourth quarter than in our first quarter of the following year, and with lower
revenues, operating income and net income in the summer months, when businesses
often defer purchase decisions.  The higher rate of increase during the last
quarter may also be due to our quota-based compensation plans, year-end
budgetary pressures on our customers and the tendency of some of our customers
to implement changes in enterprise network or data security just before the end
of the calendar year.  In addition, revenue tends to increase at lower rates in
the summer months, particularly in Europe, when businesses defer purchase
decisions.

Also, we have historically recognized a substantial portion of our license
revenues in the last month of each quarter, and even in the last week or last
several days of each quarter.  Because we have little or no backlog, quarterly
revenues and operating results depend on the volume and timing of orders
received during each quarter, especially during the last several weeks and days
of each quarter, which are difficult to forecast.  If our operating results fall
below the expectations of analysts, the trading price of our common stock may
decline dramatically.  Because our operating expenses are fixed, a small
variation in when revenue is recognized may cause significant variations in
operating results from quarter to quarter.  Operating results may also fluctuate
significantly on a quarterly basis due to the following factors:

 .  customer demand for our products;
 .  personnel changes;
 .  foreign currency exchange rates;
 .  the size, timing, shipment, cancellation or delay of customer orders;
 .  introduction of new products and product enhancements by us or our
   competitors;
 .  market acceptance of new products introduced by us or our competitors;
 .  budgeting cycles of customers;
 .  changes in the proportion of revenues attributable to licenses and service
   fees;
 .  changes in the percentage of products sold through our direct sales force and
   our indirect distribution channels;
 .  changes in product pricing;
 .  competitive conditions in the industry; and
 .  changes in general economic conditions.

Our consulting service revenues also tend to fluctuate as consulting projects,
which may continue over several quarters, are undertaken or completed.

Any Failure to Obtain Large Individual Contracts Will Have A Negative Effect On
Our Revenues.  The value of individual transactions as a percentage of our
quarterly revenues can be substantial, and particular transactions may generate
a significant portion of our operating profits for the quarter in which they are
signed.  The licensing of many of our products generally involves a long sales
cycle (between six and twelve months) and is subject to a number of

                                      11
<PAGE>

significant risks over which we have little or no control.  Because many of
our operating expenses are based on anticipated revenue levels, a substantial
portion of which is not typically generated until the end of each quarter, and
a high percentage of our expenses are fixed, delays in the receipt of orders
can cause a significant variation in operating results from quarter to quarter.
In addition, we may expend significant resources pursuing potential sales that
will not be consummated.  We also may choose to reduce prices or to increase
spending in response to competition or to pursue new market opportunities,
which may significantly reduce our operating results in the short-term.  For
those reasons, you should not rely on our prior operating results or
projections of future operating results as an indication of our future
performance.

Acquisitions or Divestitures of Businesses or Technologies May Hurt Our
Business.  In the normal course of our business, we evaluate potential
acquisitions and divestitures of businesses, products and technologies that
could focus, complement or expand our business.  Any transaction, whether or not
completed, may materially adversely affect our financial condition and results
of operations.  Acquisitions and divestitures are difficult to identify and
complete for a number of reasons, including competition among prospective buyers
and the need for regulatory approvals.  Furthermore, in order to finance a
potential transaction we may need to raise additional funds by selling stock or
borrowing money.  Any future acquisition in which we pay a substantial amount of
cash consideration may adversely affect our liquidity and financial condition,
and any future acquisition in which we issue a significant amount of our stock
as consideration may cause our stockholders to suffer a significant dilution of
their interests. Also, our evaluation and pursuit of possible acquisitions, and
our integration of completed acquisitions,  may divert our management time and
resources from necessary aspects of our business and operations.

Even if we do complete any given acquisition or divestiture, the integration of
new technology, business and operations into our business and operations is a
complex, time consuming and expensive process.  We may not be able to integrate
the acquired business, products or technologies into our existing business and
operations. Our failure to integrate successfully could materially adversely
affect our operating results, financial condition and the trading price of our
stock.  Before any acquisition, each company has its own business, culture,
customers, employees and systems.  Following an acquisition, we must operate as
a combined organization using common communication systems, operating
procedures, financial controls and human resource practices.  In order to
successfully integrate acquired companies or technology, we must, among other
things, successfully: attract and retain key management and other personnel;
integrate, both from an engineering and a sales and marketing perspective, the
acquired products into our suite of product offerings; coordinate research and
development efforts; integrate sales forces; and consolidate duplicate
facilities.  An acquisition may disrupt ongoing operations, divert management
from day-to-day business and adversely impact our results of operations. In
addition, these types of transactions often result in charges to earnings for
such things as transaction expenses, amortization of goodwill, or expensing of
in-process research and development expenses.

Our Stock Price Has Historically Been Volatile And Is Likely To Remain Volatile.
The market price of our common stock, which is traded on the Nasdaq Stock
Market, has been subject to significant fluctuations in the past and may be
subject to significant fluctuations in the future.  This volatility of the stock
price may make it more difficult for you to resell shares when you want at
prices you find attractive.  The stock price may fluctuate in response to
operating results, announcements of technological innovations or new products by
us or our competitors, patent or proprietary rights developments and market
conditions for computer industry stocks in general.  During 1999 our stock price
ranged from a per share high of $40.50 to a low of $7.6825.  In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of individual companies. Additionally, it is likely that in some
future quarters our operating results will be below the expectations of public
market analysts and investors.  Regardless of the general outlook for our
business, the announcement of quarterly operating results below analysts' and
investors' expectations could have a material and adverse effect on the price of
our common stock.  We may not discover, or be able to confirm, revenue or
earnings shortfalls until the end of a quarter, which may result in an immediate
drop in our stock price.  Securities class action litigation is often instituted
against publicly traded companies after a period of volatility in the market
price of a companies' securities.  Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources.
General economic conditions may also adversely affect the market price of our
stock.  The trading prices of many high technology companies' stocks are at or
near their historical highs and reflect price/earnings ratios substantially
above historical norms.  The trading price of our common stock may fluctuate
dramatically or go to and remain at low levels.

We Are In A Highly Competitive Market.  Some of our competitors may be more
successful than we are in attracting and retaining customers.  Competition in
the information security market is intense.  We currently compete with companies
that have substantially greater financial resources, sales and marketing
organizations, market penetration and research and development capabilities, as
well as broader product offerings and greater market presence and name
recognition.  We expect to face increasing competitive pressures from our
current competitors and new market entrants. We believe that significant
competitive factors affecting the information security industry are:

                                      12
<PAGE>

 .  the number of information security functions a product performs,
 .  the complexity of information security functions a product performs and a
   customer's ability to manage certain aspects of those functions,
 .  the number of different computer operating systems on which a product
   operates,
 .  product quality,
 .  product performance,
 .  the number of computer systems that can be controlled simultaneously by a
   product,
 .  product ease of use,
 .  conformance to industry standards,
 .  product price and
 .  customer support.

We may not be able to maintain or enhance our competitive position against
current and future competitors.  Negative competitive developments could have a
material adverse effect on our business and the trading price of our stock.

Market Consolidation May Create More Formidable Competitors.  There has been
substantial consolidation recently in the information security industry, and we
expect that there will be significant additional consolidation in the near
future.  As a result of that increasing consolidation, we expect that we will
increasingly compete with larger firms that have broader product offerings and
greater financial resources.  We believe that such competition may have a
significant negative effect on our current and developing collaborative,
marketing, distribution and reselling relationships, our product pricing and our
product development budget and capabilities.  Any of those negative effects can
significantly impair our financial condition and our results of operations.

We May Not Be Able To Adapt Quickly To Rapid Technological Change To Compete
Effectively.  The information security industry changes rapidly.  Changes can be
attributable to frequent new product introductions, continuing advances in
technology and changes in customer requirements and preferences.  The
introduction of new technologies could render our existing products obsolete or
unmarketable or require us to invest in research and development at much higher
rates with no assurance of developing competitive products.  Changes in
technologies or customer requirements may also cause the development cycle for
our new products to be significantly longer than our historical product
development cycle, resulting in higher development costs or a loss in market
share.  We may not be able to counter challenges to our current products, and
our future product offerings may not keep pace with the technological changes
implemented by competitors, developers of operating systems or networking
systems or persons seeking to breach information security.  Our products may not
satisfy evolving preferences of customers and prospects.  Failure to develop and
introduce new products and product enhancements in a timely fashion could
materially adversely affect our financial condition and results of operations.
Because of the complexity of our software products, which operate on or utilize
multiple platforms and communications protocols, we have from time to time
experienced delays in introducing new products and product enhancements
primarily due to development difficulties or shortages of development personnel.
There can be no assurance that we will not experience longer delays or other
difficulties that could delay or prevent the successful development,
introduction or marketing of new products or product enhancements.

Year 2000. The issues raised by the transition to the Year 2000 presented a
significant challenge to us, our customers, resellers, partners, and employees,
as well as to governments, communities and individuals.  In the near term, we
recognize the need to maintain our vigilance in the event year 2000 issues
arise.  Further, some commentators believe that a significant amount of
litigation will arise from Year 2000 issues. We continue to believe that we have
good defenses to any such claims brought against us. This Year 2000 statement
and the Year 2000 disclosure contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in this report are designated
as "Year 2000 Readiness Disclosures" pursuant to the Year 2000 Information and
Readiness Disclosure Act.

Our Products Are Complex And Are Operated in a Wide Variety of Computer
Configurations, Which Could Result In Errors Or Products Failures.  Because we
offer very complex products, undetected errors, failures or bugs may occur when
they are first introduced or when new versions are released.  Our products often
are installed and used in large-scale computing environments with different
operating systems, system management software and equipment and networking
configurations, which may cause errors or failures in our products or may
disclose undetected errors, failures or bugs in our products.  We have in the
past discovered software errors, failures and bugs in certain of our product
offerings after their introduction and have experienced delays or lost revenues
during the period required to correct these errors.  Our customers' computer
environments are often characterized by a wide variety of standard and non-
standard configurations that make pre-release testing for programming or
compatibility errors very difficult and time-consuming.  Despite testing by us
and by others, errors, failures or bugs may not be found in new products or
releases after commencement of commercial shipments by us.  Errors, failures or
bugs in our products could result in adverse publicity, product returns, loss of
or delay in market acceptance of our products or claims by the customer or
others.   Alleviating

                                      13
<PAGE>

such problems could require significant expenditures of our capital and
resources and could cause interruptions, delays or cessation of our product
licensing, which would adversely affect the results of our operations.

We attempt to limit our liability to customers, including liability arising from
a failure of the security features contained in our products, through
contractual limitations of warranties and remedies.  Our consulting agreements
with our customers generally contain provisions designed to limit our exposure
to claims related to negligence or errors or omissions by our employees and
agents.  However, some courts have held similar contractual limitations of
liability, or the "shrink wrap licenses" in which they sometimes are embodied,
to be unenforceable.  Accordingly, such limitations may not be enforced.  We
have insurance providing coverage up to $2,000,000 annually and per occurrence
to defray costs associated with claims arising from product failure and related
loss or damage to data.  Notwithstanding that insurance coverage, the
consequences of errors, failures or bugs in our products could have a material
adverse effect on our financial condition and results of operations.

We May Not Be Able To Attract And Retain Employees.  Our success depends to a
significant degree upon the continuing contributions of our employees including
management, sales, product development, marketing, professional services and
customer support personnel.  The loss of the services of any key employee could
adversely affect our financial condition and results of operations.  We believe
that our future success will depend in large part upon our ability to attract
and retain highly-skilled managerial, sales, product development, marketing,
professional services and customer support personnel.  We require product
development, consulting services and sales personnel who are highly technically
trained in the field of information security, and the competition for such
individuals is intense.  We have at times experienced, and continue to
experience, difficulty in recruiting qualified personnel.  Competition for
qualified personnel in the software industry is intense, and there can be no
assurance that we will be successful in retaining our key employees or that we
can attract or retain additional skilled personnel as required.  If we do not
succeed in attracting new personnel, or retaining and motivating existing
personnel, our business will be adversely affected.

International Sales Are A Significant Portion Of Our Revenue.  Sales outside the
United States accounted for a significant portion of our net revenues from our
information security products in the year ended December 31, 1999.  Our
international business may be subject to a variety of risks, including:

 .  costs and risks relating to establishing and expanding our relationships with
   resellers and distributors in certain countries or regions,
 .  delays in expanding those international distribution channels,
 .  difficulties in collecting international accounts receivable,
 .  increased costs associated with maintaining international marketing efforts,
 .  any increase in duty rates,
 .  political instability,
 .  foreign regulatory requirements,
 .  introduction of non-tariff barriers, and
 .  difficulties in enforcing intellectual property rights abroad.

Our international sales may be denominated in certain non-US Dollar currencies,
and we may be subject to risks associated with fluctuations in currency exchange
rates.  As we do not currently hedge foreign currency risk, a decrease in the
value of any of those currencies relative to the U.S. dollar will affect the
profitability in U.S. dollars of our products sold in these markets.

Our Products Are Subject To Export And Import Regulations.  Under new
regulations issued by the U.S. Department of Commerce in January 2000,
encryption products like those we produce and market of any key length may be
exported, after a one-time technical review, to all end-users other than
governmental end-users.  We expect shortly to complete the necessary technical
reviews of the products and services we currently export.  Following export of
certain of our products, we will be subject to various post-shipment reporting
requirements.  Encryption products may be exported to governmental end-users
under special encryption licensing arrangements or individual export licenses
which may be issued at the discretion of the U.S. Department of Commerce.  These
regulations may be modified at any time, and there can be no assurance that, in
the event of any such modification, we will be authorized to export encryption
products from the United States without a license. If there is such a
modification, we might be at a disadvantage in competing for international sales
as compared to companies located outside of the United States that would not be
subject to such restrictions.  While we believe our products are designed to
meet the regulatory standards of many foreign markets, any inability to obtain
foreign regulatory approvals on a timely basis could have a material adverse
effect on our financial condition or results of operations.

Our Intellectual Property And Proprietary Rights Are Costly To Defend And
Difficult To Protect.  We regard our software as proprietary, and our success
and ability to compete depends in part upon our proprietary technology and

                                      14
<PAGE>

rights.  We rely on copyright and trade secret laws, trademarks, confidentiality
procedures and contractual provisions to protect our proprietary software,
documentation and other proprietary information.  Although we hold several
patents and have several pending patent applications which cover certain aspects
of our technology, such patents and patent applications do not protect some of
our security products.  Our current and future patent applications may not be
granted.  Additionally, our patents may not be sufficiently broad to protect our
technology critical to our security products.

Although the effectiveness of our products does not depend upon the secrecy of
our proprietary technology or licensed technology, the public disclosure of our
technology could result in a perception of breached security and could reduce
the level of our product licensing, which could have an adverse effect on our
financial condition or results of operations.  Confidentiality agreements and
other methods on which we rely to protect our trade secrets and proprietary
information and rights may not be adequate to protect our proprietary rights.
Litigation to defend and enforce our intellectual property rights could result
in substantial costs and diversion of resources and could have a material
adverse effect on our financial condition and results of operations regardless
of the final outcome of such litigation.  Despite our efforts to safeguard and
maintain our proprietary rights, we may not be successful in doing so or the
steps taken by us in this regard may not be adequate to deter misappropriation
or independent third-party development of our technology or to prevent an
unauthorized third party from copying or otherwise obtaining and using our
products, technology or other information that we regard as proprietary.  Our
trade secrets or non-disclosure agreements may not provide meaningful protection
of our proprietary information.  Also, others may independently develop similar
technologies or duplicate any technology developed by us.  Our inability to
protect our proprietary rights would have a material adverse effect on our
financial condition and results of operations.

We May Be Subject To Intellectual Property Claims, Which Are Costly To Defend
And Could Limit Our Ability To Use Certain Technologies In The Future.  As the
number of information security products in the industry increases and the
functionality of these products further overlaps, we may become subject to
claims of infringement or misappropriation of the intellectual property or
proprietary rights of others.  Third parties could assert infringement or
misappropriation claims against us in the future with respect to current or
future products.  Further, we may be subject to additional risk as we enter into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced.  Legal protections of our rights may be
ineffective in such countries, and technology developed in such countries may
not be protectable in jurisdictions where protection is ordinarily available.
Any claims or litigation, with or without merit, could be costly and could
result in a diversion of management's attention, which could have a material
adverse effect on our financial condition and results of operations.  Adverse
determinations in such claims or litigation could also have a material adverse
effect on our financial condition and results of operations.

We Do Not Pay Dividends.  We have not paid dividends on our common stock and we
do not anticipate paying dividends in the foreseeable future.

Anti-Takeover Provisions Could Make It More Difficult For A Third Party To
Acquire Us.  Our Certificate of Incorporation requires that any action required
or permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any consent
in writing, and requires reasonable advance notice by a stockholder of a
proposal or director nomination which such stockholder desires to present at any
annual or special meeting of stockholders.  Special meetings of stockholders may
be called only by the Chairman of the Board, the Chief Executive Officer or, if
none, the President or by the Board of Directors.  Our Certificate provides for
a classified Board of Directors, and members of the Board of Directors may be
removed only for cause upon the affirmative vote of holders of at least two-
thirds of the shares of our capital stock entitled to vote.  These provisions,
and other provisions of our Certificate, may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices.  In addition, these provisions
may limit the ability of stockholders to approve transactions that they may deem
to be in their best interests.

ITEM 2. PROPERTIES.

Our headquarters is located in approximately 26,000 square feet of office space
in Rockville, Maryland, which is leased through February 2004. We have leased
office space for our development laboratories in Utah, Massachusetts, New
Hampshire and California of approximately 30,000, 50,000, 20,000, and 15,000
square feet, respectively.  We also lease domestic sales offices in a number of
locations, and approximately 30,000 square feet of office space in the United
Kingdom and several other small foreign sales offices.  We believe that our
existing facilities are adequate for our needs or that additional space will be
available as needed.

                                      15
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

On May 12, 1999, a venture capital entity and a small former stockholder owning
less than a majority share of CKS Limited, which AXENT acquired in March 1999,
commenced an action in the Suffolk County Superior Court in Boston,
Massachusetts against AXENT and its directors.  The action alleges violations of
the Massachusetts Uniform Securities Act, negligent misrepresentations, and
unfair trade practices. AXENT believes the claims are without merit and intends
to defend the action vigorously.

We are subject to legal proceedings and claims that arise in the ordinary
course of our business.  In the opinion of management, the amount of utlimate
liability with respect to these actions will not materially effect our financial
position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

                                    PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

Our common stock is traded on the Nasdaq Stock Market under the symbol "AXNT."

Our common stock began trading on the Nasdaq Stock Market on April 24, 1996. The
following table sets forth for the periods indicated the high and low sale
prices per share of our common stock on the Nasdaq Stock Market:

<TABLE>
<CAPTION>
                                                                                           High              Low
                                                                                      ------------      ------------
    1998
    <S>                                                                                 <C>               <C>
    First Quarter...............................................................            30 1/2           14 7/16
    Second Quarter..............................................................                32            22 3/4
    Third Quarter...............................................................           32 1/16            14 7/8
    Fourth Quarter..............................................................            31 1/8            13 1/2

    1999
    First Quarter...............................................................            40 1/2                22
    Second Quarter..............................................................            25 3/8          7  11/16
    Third Quarter...............................................................            17 7/8                11
    Fourth Quarter..............................................................                24           11  5/8
</TABLE>

On March 21, 2000 the last reported sale price of our common stock was $26.06
per share. As of March 21, 2000, we had approximately 316 stockholders of
record, and approximately 24,000 beneficial owners.

We have never paid or declared any cash dividends on our common stock.  We
currently intend to retain any earnings for future growth and, therefore, do not
expect to pay cash dividends in the foreseeable future.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The selected consolidated financial data as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, are unaudited
but have been derived from our audited consolidated financial statements
included elsewhere in this Form 10-K.  The selected consolidated financial data
as of December 31, 1997, 1996 and 1995 and for each of the years ended December
31, 1996 and 1995 are unaudited but have been derived from audited consolidated
financial statements of AXENT not included in this Form 10-K.  The data should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7 of this Annual Report on
Form 10-K and with AXENT's consolidated financial statements and notes thereto.

                                      16
<PAGE>

<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA.
                                                                           Year Ended December 31,
                                                      ---------------------------------------------------------------
                                                         1999         1998          1997         1996        1995
                                                      ----------  -----------  ------------  -----------  -----------
                                                                    (in thousands, except per share data)
<S>                                                     <C>          <C>          <C>           <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Net revenues:
  Product licenses..................................    $ 77,852     $ 80,912      $ 56,202     $ 29,490      $13,592
  Services..........................................      34,961       20,118        13,707        7,199        5,038
                                                      ----------     --------      --------     --------      -------
    Total net revenues..............................     112,813      101,030        69,909       36,689       18,630

Cost of net revenues................................      16,049        9,354         6,124        2,758        2,055
                                                      ----------     --------      --------     --------      -------
  Gross profit......................................      96,764       91,676        63,785       33,931       16,575
                                                      ----------     --------      --------     --------      -------
Operating Expenses:
  Sales and marketing...............................      61,252       41,209        31,856       21,606       15,160
  Research and development..........................      26,859       18,956        12,885        8,322        5,343
  General and administrative........................      11,572        6,445         7,030        4,704        3,546
  Amortization of acquired intangible assets........       4,184          450           432           --           --
  Acquisition-related charges.......................       3,753       17,422        34,154           --           --
                                                      ----------     --------      --------     --------      -------
    Total operating expenses........................     107,620       84,482        86,357       34,632       24,049
                                                      ----------     --------      --------     --------      -------
Income (loss) from continuing operations
  before interest, royalties and taxes..............     (10,856)       7,194       (22,572)        (701)      (7,474)

  Interest income (expense) and other...............       4,775        4,895         6,349        3,321          (53)
  Royalty income....................................          --        1,862         2,977        3,479           --
  Income tax benefit (provision)....................        (859)      (7,507)       (5,744)      (1,159)       2,146
                                                      ----------     --------      --------     --------      -------
Income (loss) from continuing operations............      (6,940)       6,444       (18,990)       4,940       (5,381)

Income from discontinued operations, net
  of tax............................................          --           --           255        2,395        5,050
                                                      ----------     --------      --------     --------      -------
Net income (loss)...................................    $ (6,940)    $  6,444      $(18,735)    $  7,335      $  (331)
                                                      ==========     ========      ========     ========      =======
Net income (loss) per common share (basic):
  Continuing operations.............................      $(0.25)       $0.26      $  (0.83)    $   0.27      $ (0.56)
  Discontinued operations...........................          --           --          0.01          .13         0.52
                                                      ----------     --------      --------     --------      -------
Net income (loss) per common share (basic)..........      $(0.25)       $0.26      $  (0.82)    $   0.40      $ (0.04)
                                                      ==========     ========      ========     ========      =======
Number of shares used to compute basic
  earnings per common share.........................      27,561       25,204        22,780       18,553        9,635
                                                      ==========     ========      ========     ========      =======
Net income (loss) per common share (diluted):
  Continuing operations.............................      $(0.25)       $0.24      $  (0.83)    $   0.23      $ (0.56)
  Discontinued operations...........................          --           --          0.01         0.11         0.52
                                                      ----------     --------      --------     --------      -------
Net income (loss) per common share (diluted)........      $(0.25)       $0.24      $  (0.82)    $   0.34      $ (0.04)
                                                      ==========     ========      ========     ========      =======
Number of shares used to compute diluted
  earnings per common share.........................      27,561       26,740        22,780       21,577        9,635
                                                      ==========     ========      ========     ========      =======

CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents.........................    $ 61,534     $ 80,035      $ 51,632     $ 54,828      $ 7,973
  Marketable securities.............................      47,331       31,774        40,882       34,026           --
  Net identifiable liabilities from
    discontinued operations.........................          --           --            --          163        1,319
  Working capital...................................     107,314      117,289        94,541       85,280        2,869
  Total assets......................................     198,880      161,276       124,813      107,185       12,646
  Total debt........................................         827           --            --           --        1,835
  Stockholders' equity (deficit)....................     157,059      134,328       104,280       93,435       (1,500)
  Cash dividends per share..........................          --           --            --           --           --
</TABLE>
                                      17
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Management's Discussion and Analysis of Financial Condition and Results of
Operations and the "Business" section of this report contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, which involve risk and
uncertainties.  These forward-looking statements are identified by the use of
the words "believes", "expects", "anticipates", "will", "would" or similar
expressions that contemplate future events.  Our actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those identified in "Certain Factors Affecting Future Performance" (see below)
and "Business--Certain Factors That May Affect Future Results".  The Company
assumes no obligation to update or correct forward-looking statements due to
events or changes after the date of this report.

Overview

The consolidated financial statements and results of operations of AXENT
Technologies, Inc. and its wholly owned subsidiaries, have been impacted by
several recent acquisitions as follows:

 .  PassGo Technologies, Ltd.  was acquired on March 31, 1999 and was
   accounted for as a purchase.  In connection with that transaction, we
   incurred a one-time charge of approximately $2 million for the write-off of
   purchased in-process research and development costs in the first quarter of
   1999.

 .  Internet Tools, Inc. was acquired on January 12, 1999, which was accounted
   for as a pooling-of-interests in accordance with APB No. 16.  Accordingly,
   we have restated all prior period consolidated financial statements presented
   in this report to include the combined results of operations, financial
   position, and cash flows of Internet Tools as though it had always been part
   of our company.  In connection with that transaction, we incurred a one-time
   charge of approximately $1.75 million.

 .  Secure Network Consulting, Inc. was acquired on July 21, 1998 and was
   accounted for as a purchase.

 .  Raptor Systems, Inc. was acquired on February 5, 1998 and was accounted for
   as a pooling-of-interests in accordance with APB No. 16.  Accordingly, we
   have restated all prior period consolidated financial statements presented in
   this report to include the combined results of operations, financial
   position, and cash flows of Raptor as though it had always been part of our
   company.  In connection with that transaction, we incurred a one-time charge
   of approximately $17.4 million related to transaction costs.

   On May 9, 1997, Raptor acquired a perpetual license of technology, including
   the underlying products, from Open Market, Inc.  The technology is used in
   certain current product offerings and will be used in future product
   offerings.  In connection with that transaction, we incurred a one-time
   charge of approximately $6.52 million ($4.24 million, net of taxes) for the
   write-off of purchased in-process research and development costs during the
   second quarter of 1997.

 .  AssureNet Pathways, Inc. was acquired on January 7, 1997 and was accounted
   for as a purchase.  In connection with that transaction, we incurred a
   one-time charge of approximately $27.63 million for the write-off of
   purchased in-process research and development costs in the first quarter of
   1997.

Our revenues are derived principally from two sources: (i) product license fees
for the use of our software products and (ii) service fees for maintenance,
consulting services and training related to our software products.  We generally
ship our software on a trial basis and recognize revenue when the customer
becomes contractually obligated to pay for the product. We recognize service
revenues from consulting and training as those services are performed, and we
defer maintenance revenues and recognize them ratably over the maintenance
period, typically one year.

We market our products through a direct sales organization, distributors and
other marketing relationships. Sales made through distributors typically have a
lower gross margin than direct sales. Revenues from independent distributors
accounted for approximately 45%, 44% and 51% of our net revenues from our
information security products for each of the years ended December 31, 1999,
1998 and 1997, respectively.  We expect the percentage of our net revenues
derived from independent distributors to fluctuate from period to period.  We
generally record revenue from distributors at the net license or service fee,
after deducting the distributors' commissions.

                                      18
<PAGE>

Certain Risks and Uncertainties

Year 2000

We approached Year 2000 compliance by preparing an inventory of all business
disruption problems that we regarded as reasonably possible, prioritizing those
possible problems to allocate appropriate resources to the most critical areas,
remediating or replacing systems and equipment to solve or mitigate Year 2000
problems and, if necessary, developing contingency plans. We have assessed the
impact of Year 2000 compliance on the current and prior versions of our
products, internal information systems, other internal computer systems and
equipment containing embedded systems, and we have implemented corrective
actions where appropriate.  Although we have not yet received any complaints
from our customers about the Year 2000 readiness of our products, our products
may contain undetected errors or defects associated with Year 2000 date
functions.  Such errors could result in delay or loss of revenue and diversion
of development resources, which might materially adversely affect our business,
financial condition or results of operations.

We believe that the current version of each of our products has been designed
and tested to process Year 2000 date data without interruption or error, and
that the current version of each of our product offerings is Year 2000 compliant
assuming no error after 1999 in the operating system or other management
software products operating on the same computer system as our product.
Information on the Year 2000 compliance of our products is available on our Web
site (www.axent.com/y2k.htm).

We believe we identified our equipment and systems that are critical to our
operations, such as communications and networking equipment, related software
and certain hardware and software systems, and completed our assessment of the
Year 2000 compliance of such equipment and systems.  We also assessed and tested
the Year 2000 compliance of various items of equipment, computer systems,
applications software, and equipment containing embedded systems that we did not
consider critical to our operations.  We replaced several internal information
systems critical to our operations as part of our normal development and
expansion or salesforce automation, accounting and customer service-related
information systems.  We received product warranties that those systems are Year
2000 compliant.  To date, we have not experienced any significant problems due
to non-Year 2000 ready equipment or software.

Costs we incurred in Year 2000 testing and remediation or replacement of
noncompliant systems was not material to our financial condition or results of
operations.  The cost of continued testing of our products will be included in
our research and development expenses, and testing of internal equipment,
hardware and software systems generally is included in general and
administrative expense.  In the case of prior product releases that are not Year
2000 ready, if any, we expect to devote internal engineering and customer
support resources to resolving any issues for existing customers of those
products.

We have made representations and warranties, both in contracts and in written
communications, to certain of our customers regarding the Year 2000 readiness of
our products.  With respect to any contractual representation we made regarding
Year 2000 readiness that was not accurate, we will seek to upgrade the affected
customer to our current Year 2000 compliant version of the product being used by
the customer.  If we have made a materially inaccurate statement regarding the
Year 2000 readiness of our products and the customer chooses not to upgrade to a
Year 2000 compliant version of the product, we may face the risk of one or more
lawsuits from customers alleging breach of representation.

The foregoing shall be considered a Year 2000 readiness disclosure to the
maximum extent allowed under the Year 2000 Information and Readiness Disclosure
Act.

Euro Currency

The European Union's adoption of the Euro currency raises a variety of issues
associated with our European operations.  Although the transition from national
currencies to the Euro will be phased in over several years, the Euro became the
single currency for most European countries on January 1, 1999.  We have
assessed Euro issues related to our treasury operations, product pricing,
contracts and accounting systems.  We believe that our existing or planned
hardware and software systems have and will accommodate the transition to the
Euro and any future required operating changes will not have a material effect
on future results of operations or financial condition.

                                      19
<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net Revenues.  Our net revenues increased approximately 12%, or $11.78 million
from $101.03 million in 1998 to $112.81 million in 1999.

Our net revenues from product licenses decreased approximately 4%, or $3.06
million, from $80.91 million in 1998 to $77.85 million in 1999.  For those
periods in 1998 and 1999, net revenues from product licenses represented 80% and
69%, respectively, of total net revenues.  Our revenues are subject to a number
of risks and uncertainties, including but not limited to, the level of demand
for our products; the volume and timing of customer orders, many of which come
at the end of a quarter; product and price competition; our ability to maintain
and expand our domestic and international sales and marketing organizations; our
ability to develop new and enhanced products; the availability of personnel and
the our ability to attract and retain key personnel; the mix of distribution
channels through which our products are sold; the extent to which unauthorized
access and use of online information is perceived as a threat to information
security; customer budgets and priorities; Year 2000 issues (during 1999);
seasonal trends in customer purchasing; foreign currency exchange rates; general
economic factors;  and risks associated with the rapid change in technology. In
addition, the value of individual transactions as a percentage of our actual or
anticipated quarterly revenues can be substantial and the failure to close such
transactions may have a material adverse impact on our operating results.

Our net revenues from services increased approximately 74%, or $14.84 million,
from $20.12 million in 1998 to $34.96 million in 1999, representing 20% and 31%
of total net revenues in 1998 and 1999, respectively. The increase in services
revenues is primarily attributable to the increases in consulting services,
customer training courses and customers under maintenance contracts.

We currently believe that year-to-year comparisons of net revenues from the
licensing of different software products and the provision of related services
are not necessarily meaningful as an indication of future performance.

Revenues derived from North American and international operations as a percent
of total revenues were 73% and 27%, respectively in 1998 as compared to 70% and
30%, respectively in 1999.  The increase in international revenues as a
percentage of total revenues from 1998 to 1999 is attributable to increased
sales due to the expansion of our operations, primarily in European markets, and
the acquisition of UK-based PassGo.

Cost of Net Revenues.  Our cost of net revenues includes the cost of media,
product packaging, documentation and other production costs, product royalties,
and the direct and indirect costs of providing technical support, training, and
consulting services to our customers.  Cost of net revenues increased
approximately 72%, or $6.70 million, from $9.35 million in 1998 to $16.05
million in 1999, representing 9% and 14% of net revenues in 1998 and 1999,
respectively.  The increase in the cost of net revenues is primarily
attributable to the increase in staff of our customer support and consulting
services operations necessary to support a larger installed customer base as
well as additional products offered by our company, including PassGo.  The
increase in the cost of net revenues as a percentage of revenues is primarily
attributable to the increased costs associated with supporting a larger customer
base and increased consulting services.  Cost of net revenues, as a percentage
of revenues, may fluctuate from period to period due to a change in the mix of
license revenues and consulting service revenues, a change in the number or size
of transactions recorded in a quarter, integration of acquired operations or
products, or an increase or decrease in licenses of royalty-bearing products.

Sales and Marketing.  Sales and marketing expenses consist primarily of
personnel costs, including commissions, salaries, benefits and bonuses, travel,
telephone, costs of advertising, public relations seminars and trade shows.
Sales and marketing expenses increased 49%, or $20.04 million, from $41.21
million in 1998 to $61.25 million in 1999, representing 41% and 54% of total net
revenues for 1998 and 1999, respectively. The increase in dollar amount and
percentage of total net revenues was due to an increase in staff and marketing
programs to support our sales and marketing activities plus the addition of
costs associated with PassGo.  We currently anticipate that the dollar amount of
sales and marketing expenses will increase as we continue to hire necessary
staff and expand our marketing activities to promote expansion of our business.

Research and Development.  Research and development expenses consist primarily
of personnel costs, including salaries, benefits and bonuses, travel and other
personnel-related expenses of the employees engaged in ongoing research and
development projects and third party development contracts.  Costs related to
research and development of products are expensed as incurred.  Research and
development expenses increased 42%, or $7.90 million, from $18.96 million in
1998 to $26.86 million in 1999, representing 19% and 24% of total net revenues
in 1998 and 1999, respectively. The increase in dollar amount and percentage of
total net revenues resulted from the addition of staff and use of outside
consultants

                                      20
<PAGE>

needed to develop, maintain and enhance our software products plus the addition
of costs associated the acquired operations of Internet Tools and PassGo. We
currently anticipate that the dollar amount of research and development expenses
will increase as we continue to commit substantial resources to research and
development in future periods.

General and Administrative.  General and administrative expenses consist
primarily of personnel costs, including salaries, benefits and bonuses, travel
and related costs for management, finance and accounting, legal and other
professional services.  General and administrative expenses increased 80%, or
$5.12 million, from $6.45 million in 1998 to $11.57 million in 1999,
representing 6% and 10% of total net revenues for 1998 and 1999, respectively.
The increase in dollar amount and percentage of total net revenues is primarily
a result of additional staff and investments in corporate infrastructure and
information systems needed to support our operations, the integration of
acquisitions plus the addition of costs associated with PassGo.  We currently
anticipate that the dollar amount of general and administrative expenses will
increase as we continue to invest in the corporate infrastructure.

Amortization of Acquired Intangible Assets.  Amortization of intangible assets
consists primarily of the amortization of purchased goodwill and other purchased
intangible assets.  Amortization of intangible assets expenses increased $3.73
million, from $450,000 in 1998 to $4.18 million in 1999.  The increase in dollar
amount is primarily due to the amortization of goodwill and intangibles
resulting from the acquisition of PassGo and amortization of purchased
technology from Alta Vista, which is being amortized ratably over three to
seven years.

Acquisition-Related Charges.   In 1998, we incurred a one-time charge of $17.42
million, $13.3 million net of taxes, for severance, investment banking, legal
and accounting fees, and other costs related to the merger with Raptor.  In
1999, we incurred charges of approximately $1.75 million for severance,
investment banking, legal and accounting fees, and other costs related to the
merger with Internet Tools, and approximately $2.0 million of in-process
research and development expense in connection with the acquisition of PassGo.

Income (Loss) from Continuing Operations before Royalties, Interest and Taxes.
Loss from continuing operations before royalties, interest and taxes was $10.86
million in 1999 compared to a profit of $7.19 million in 1998.  The loss is
primarily attributable to the increase in operating expenses without an equal or
greater increase in net revenue, which were negatively impacted in our first
quarter of 1999.

Interest Income and Other.  Interest income decreased 2.5%, or  $120,000, from
$4.90 million in 1998 to $4.78 million in 1999. The decrease relates primarily
to the decline in the average balance of interest bearing assts during 1999. It
is currently our policy to hold securities until they mature. Interest income
and other may fluctuate from period to period due to changes in investment mix,
varying cash balances and fluctuations in interest rates.

Royalty Income.  Royalty income in 1998 of $1.86 million, consisted of amounts
payable to us under the Exclusive Distributor License Agreement with Raxco
Software, Inc. related to certain OpenVMS utility software products we own.
Raxco has experienced declining revenues for these products as a result of the
erosion of market share that the OpenVMS platform has experienced world-wide.
Royalty income ceased in 1999 as a result of our transfer of those products and
all related liabilities to Raxco and termination of the Exclusive Distributor
License Agreement during the first quarter in 1999.

Income Taxes. We account for income taxes under SFAS 109. Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the carrying amounts of
existing assets and liabilities for financial statement purposes and their
respective tax basis. The Company records a valuation allowance for deferred tax
assets when in management's judgement it is more likely than not that all or a
portion of the deferred asset will not be realized.

We recorded a tax provision of $7.51 million in 1998 related to our taxable
income from operations and a tax provision of $859,000 in 1999 related to our
taxable loss from operations.

Excluding the amortization of acquired intangibles and write off of certain
acquisition costs from income, the effective tax rate is approximately 36.7%
and 67.7% in 1998 and 1999, respectively.

Income (Loss) from Continuing Operations. As a result of the above, we recorded
a loss from continuing operations of $6.94 million in 1999 compared to a profit
of $6.44 million in 1998. This decrease is primarily attributable to the
growth in operating expenses which exceeded world-wide revenue growth offset in
part by the decrease in non-recurring charges.

                                      21
<PAGE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Revenues.  Our net revenues increased approximately 45%, or $31.12 million
from $69.91 million in 1997 to $101.03 million in 1998.

Our net revenues from product licenses increased approximately 44%, or $24.71
million, from $56.20 million in 1997 to $80.91 million in 1998, representing 80%
of total net revenues for both 1997 and 1998, respectively.  The increase in
product license revenue is primarily attributable to continued broader
acceptance of our products, continued expansion into overseas markets, the
introduction and general release of new products or revisions and the expansion
of available products running on new or additional platforms.

Our net revenues from services increased approximately 47%, or $6.41 million,
from $13.71 million in 1997 to $20.12 million in 1998, representing 20% of total
net revenues for both 1997 and 1998, respectively. The increase in services
revenues is primarily attributable to growth in the customer base purchasing
maintenance and to the increase in 1998 of revenues related to consulting,
training and the Secure Network Consulting, Inc. acquisition.

We currently believe that year-to-year comparisons of net revenues from the
licensing of different software products and the provision of related services
are not necessarily meaningful as an indication of future performance.

Revenues derived from North American and international operations as a percent
of total revenues were 78% and 22%, respectively in 1997 as compared to 73% and
27%, respectively in 1998.  The increase in the international revenues as a
percentage of total revenues from 1997 to 1998 is attributable to continued
acceptance of our products in international markets, particularly in the United
Kingdom, Europe and Asia.

Cost of Net Revenues.  Cost of net revenues increased approximately 53%, or
$3.23 million, from $6.12 million in 1997 to $9.35 million in 1998, representing
9% of net revenues for both 1997 and 1998, respectively.  The increase in the
cost of net revenues is primarily attributable to the increase in staff of our
customer support and consulting services operations necessary to support a
larger installed customer base as well as additional products offered by our
company.  Cost of net revenues, as a percentage of revenues, may fluctuate from
period to period due to a change in product mix, a change in the number or size
of transactions recorded in a quarter, integration of acquired operations or
products, or an increase or decrease in licenses of royalty-bearing products.

Sales and Marketing.  Sales and marketing expenses increased 29%, or $9.35
million, from $31.86 million in 1997 to $41.21 million in 1998, representing 46%
and 41% of total net revenues for 1997 and 1998, respectively.  The increase in
dollar amount was due to the increase in sales staff to support our growth.  The
decrease in sales and marketing expenses as a percentage of total net revenues
was due primarily to the greater increase in total net revenues. We currently
anticipate that the dollar amount of sales and marketing expenses will increase
as we continue to hire additional staff to support our growth in future periods.

Research and Development.  Costs related to research and development of products
are expensed as incurred.  Research and development expenses increased 47%, or
$6.07 million, from $12.89 million in 1997 to $18.96 million in 1998,
representing 18% and 19% of total net revenues in 1997 and 1998, respectively.
The increase in dollar amount and percentage of total net revenues resulted from
the addition of staff needed to develop, maintain and enhance our software
products in an effort to keep pace in a dynamic market where security needs and
demands are constantly changing.  We currently anticipate that the dollar amount
of research and development expenses will increase as we continue to commit
substantial resources to research and development in future periods.

General and Administrative.  General and administrative expenses decreased 8%,
or $585,000, from $7.03 million in 1997 to $6.45 million in 1998, representing
10% and 6% of total net revenues for 1997 and 1998, respectively.  The decrease
in the dollar amount and percentage of total net revenues is primarily a result
of the synergies gained from the elimination of overlapping administrative
functions associated with the Raptor acquisition. We currently anticipate that
the dollar amount of general and administrative expenses will increase as we
continue to hire additional staff to support our growth in future periods.

In 1997, certain general and administrative expenses were offset in part by fees
billed by our company under the Administrative Services Agreement between our
company and Raxco, which terminated in 1998. That agreement provides for Raxco
to pay our company for the cost of providing certain operational and system
support services including

                                      22
<PAGE>

bookkeeping, personnel processing, administrative support, facilities
management and product packaging and mailing. In 1998, we charged Raxco
$570,000 under the Administrative Services Agreement.

Amortization of Acquired Intangible Assets.  Amortization of intangible assets
expenses increased $18,000, from $432,000 in 1997 to $450,000 in 1998.

Acquisition-Related Charges.  During 1997, we incurred a one-time charge
associated with the acquisition of AssureNet of approximately $27.63 million to
expense the purchased in-process research and development that had not reached
technological feasibility and had no probable future use, as well as a one-time
charge of $6.52 million, $4.24 million net of taxes, for the write-off of
purchased in-process technology associated with the acquisition of a perpetual
license of certain products from Open Market, Inc.  In 1998, we incurred a one-
time charge of $17.42 million, $13.3 million net of taxes, for severance,
investment banking, legal and accounting fees, and other costs related to the
merger with Raptor.

Income (Loss) from Continuing Operations before Royalties, Interest and Taxes.
Income from continuing operations before royalties, interest and taxes increased
$29.76 million to a profit of $7.19 million in 1998 from a loss of $22.57
million in 1997.  The increase is primarily attributable to the decrease in non-
recurring charges as well as the overall increase in world-wide revenues offset
in part by the investments required to generate such revenues.  The results of
income from continuing operations before royalties, interest and taxes excluding
non-recurring items were $11.6 million and $24.6 million for 1997 and 1998,
respectively.

Interest Income and Other.  Interest income decreased 23%, or  $1.45 million,
from $6.35 million in 1997 to $4.90 million in 1998. The decrease relates
primarily to the sale of marketable securities, which decreased $1.35 million,
from $1.74 million in 1997 to $389,000 in 1998.  Interest income may fluctuate
from period to period due to changes in investment mix, varying cash balances,
and fluctuations in interest rates.

Royalty Income.  Royalty income declined 38%, or $1.12 million, from $2.98
million in 1997 to $1.86 million in 1998.  The decline is primarily attributable
to declining revenues recognized by Raxco as a result of erosion of market share
that the OpenVMS platform experienced.  During 1998, Raxco reported to us
approximately $6.2 million of OpenVMS utility revenues.

Income Taxes.   The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). In accordance with SFAS No. 109, the Company previously determined that
unrecognized tax benefits did not satisfy the recognition criteria set forth in
the standard. Accordingly, a valuation allowance was recorded against the
applicable deferred tax asset.  During 1998 and 1997, a portion of that
valuation allowance was released.  Management believes that it is more likely
than not that this tax asset will be realized.

Income (Loss) from Continuing Operations. As a result of the above, we recorded
a profit from continuing operations of $6.44 million in 1998 compared to a loss
of $18.99 million in 1997.  This increase is primarily attributable to the
decrease in non-recurring charges as well as the increase in world-wide revenues
offset in part by the investments required to generate such revenues.

Income from Discontinued Operations.  Income from discontinued operations
consists of the net results of operations from the divested businesses of our
company, which for financial statement purposes have been accounted for in
accordance with APB No. 30 and classified as discontinued operations. Our income
from discontinued operations decreased 100%, from $255,000 in 1997 to $0 in
1998.  We currently anticipate no further income from discontinued operations.

                                      23
<PAGE>

Quarterly Results of Operations

The following tables set forth unaudited quarterly consolidated financial data
for 1999 and 1998. We believe that all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the selected quarterly information when read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere
herein. The results of operations for any quarter are not necessarily indicative
of results that may be expected for any subsequent periods.

<TABLE>
<CAPTION>
                                      UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                                       (amounts in thousands, except per share data)

                                                        1999                                        1998
                                     -------------------------------------------  ------------------------------------------
                                      Mar. 31    June 30   Sept. 30(a)  Dec. 31    Mar. 31   June 30   Sept. 30     Dec. 31
                                     --------   --------   ---------   ---------  ---------   -------   ---------   ---------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:

Net revenues:
<S>                                   <C>        <C>         <C>            <C>        <C>         <C>       <C>         <C>
  Product licenses.................   $15,186    $17,545    $19,129     $25,992    $ 16,283    $17,392    $18,968    $28,269
  Services.........................     6,258      8,884      9,343      10,476       4,048      5,148      5,047      5,875
                                      -------    -------    -------     -------    --------    -------    -------    -------
    Total net revenues.............    21,444     26,429     28,472      36,468      20,331     22,540     24,015     34,144

Cost of net revenues...............     3,143      3,721      4,173       5,012       2,037      2,209      2,341      2,767
                                      -------    -------    -------     -------    --------    -------    -------    -------

Gross profit.......................    18,301     22,708     24,299      31,456      18,294     20,331     21,674     31,377
                                      -------    -------    -------     -------    --------    -------    -------    -------

Operating expenses:
  Sales and marketing..............    13,656     15,659     15,115      16,822       9,141      9,597      9,881     12,590
  Research and development.........     6,294      6,922      6,647       6,996       4,158      4,551      4,731      5,516
  General and administrative.......     2,702      2,667      2,762       3,441       1,482      1,430      1,578      1,955
  Amortization of acquired
    intangible assets..............       151      1,309      1,301       1,423          81         83        131        155
  Acquisition-related charges......     3,753          -          -           -      17,422          -          -          -
                                      -------    -------    -------     -------    --------    -------    -------    -------
    Total operating expenses.......    26,556     26,557     25,825      28,682      32,284     15,661     16,321     20,216
                                      -------    -------    -------     -------    --------    -------    -------    -------

Income (loss) from operations
  before interest, royalties and
  taxes............................    (8,255)    (3,849)    (1,526)      2,774     (13,990)     4,670      5,353     11,161

  Interest income and other........     1,068      1,050      1,264       1,393       1,452      1,022      1,228      1,193
  Royalty income...................         -          -          -           -         569        558        383        352
  Income tax benefit (provision)...     1,119        598       (329)     (2,247)      2,105     (2,283)    (2,571)    (4,758)
                                      -------    -------    -------     -------    --------    -------    -------    -------
Net income (loss)..................   $(6,068)   $(2,201)   $  (591)    $ 1,920    $ (9,864)   $ 3,967    $ 4,393    $ 7,948
                                      =======    =======    =======     =======    ========    =======    =======    =======
Net income (loss) per common
  share (basic)....................    $(0.23)    $(0.08)    $(0.02)      $0.07      $(0.40)     $0.16      $0.17      $0.31
                                      =======    =======    =======     =======    ========    =======    =======    =======
Number of shares used in
  computing net income (loss)
  per common share outstanding
  (basic)..........................    26,292     27,843     27,926      28,009      24,404     25,195     25,510     25,722
                                      =======    =======    =======     =======    ========    =======    =======    =======

Net income (loss) per common
  share (diluted)..................    $(0.23)    $(0.08)    $(0.02)      $0.07      $(0.40)     $0.15      $0.16      $0.29
                                      =======    =======    =======     =======    ========    =======    =======    =======
Number of shares used in
  computing net income (loss)
  per common share outstanding
  (diluted)........................    26,292     27,843     27,926      28,840      24,404     27,234     26,776     26,973
                                      =======    =======    =======     =======    ========    =======    =======    =======
</TABLE>
(a) - The third quarter of 1999, as previously reported in Form 10-Q, has been
changed herein to reflect an adjustment relating to a single order that
decreased revenue form approximately $29.4 million to approximately $28.5
million.  As a result of this revenue deferral, net loss per share in the third
quarter increased from $0.00 to $0.02.  The deferred revenue relating to this
order has been recognized in the fourth quarter of 1999.   A second order from
the same customer and for an equal amount has been deferred from the fourth
quarter of 1999 into 2000.

                                      24
<PAGE>

<TABLE>
<CAPTION>
                                      UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
                                          (as a percentage of total net revenue)

                                                        1999                                        1998
                                     -------------------------------------------  ------------------------------------------
                                      Mar. 31    June 30    Sept. 30    Dec. 31     Mar. 31   June 30   Sept. 30     Dec. 31
                                     --------   --------   ---------   ---------  ---------   -------   ---------   ---------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
<S>                                  <C>        <C>         <C>          <C>       <C>        <C>       <C>          <C>
Net revenues:
  Product licenses.................      70.8%      66.4%      67.2%       71.3%       80.1%      77.2%      79.0%      82.8%
  Services.........................      29.2       33.6       32.8        28.7        19.9       22.8       21.0       17.2
                                      -------    -------    -------     -------    --------    -------    -------    -------
    Total net revenues.............     100.0      100.0      100.0       100.0       100.0      100.0      100.0      100.0

Cost of net revenues...............      14.7       14.1       14.7        13.7        10.0        9.8        9.7        8.1
                                      -------    -------    -------     -------    --------    -------    -------    -------

Gross profit.......................      85.3       85.9       85.3        86.2        90.0       90.2       90.3       91.9
                                      -------    -------    -------     -------    --------    -------    -------    -------

Operating expenses:
  Sales and marketing..............      63.7       59.2       53.1        46.1        45.0       42.6       41.2       36.8
  Research and development.........      29.4       26.2       23.3        19.2        20.5       20.2       19.7       16.2
  General and administrative.......      12.5       10.1        9.7         9.4         7.3        6.3        6.6        5.7
  Amortization of acquired
    intangible assets..............       0.7        5.0        4.6         3.9         0.4        0.4        0.5        0.5
  Acquisition-related
    charges........................      17.5          -          -           -        85.6          -          -          -
                                      -------    -------    -------     -------    --------    -------    -------    -------
    Total operating expenses.......     123.8      100.5       90.7        78.6       158.8       69.5       68.0       59.2
                                      -------    -------    -------     -------    --------    -------    -------    -------

Income (loss) from
  operations before interest,
  royalties and taxes..............     (38.5)     (14.6)      (5.4)        7.6       (68.8)      20.7       22.3       32.7

  Interest income and other........       5.0        4.0        4.4         3.8         7.1        4.5        5.1        3.5
  Royalty income...................         -          -          -           -         2.8        2.5        1.6        1.0
  Income tax benefit
   (provision).....................       5.2        2.3       (1.1)       (6.1)       10.4      (10.1)     (10.7)     (13.9)
                                      -------    -------    -------     -------    --------    -------    -------    -------

Net income (loss)..................     (28.3)%     (8.3)%     (2.1)%       5.3%      (48.5)%     17.6%      18.3%      23.3%
                                      =======    =======    =======     =======    ========    =======    =======    =======
</TABLE>
The following table sets forth the cost of net revenues as a percentage of the
related net revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                        1999                                        1998
                                     -------------------------------------------  ------------------------------------------
                                      Mar. 31    June 30    Sept. 30    Dec. 31     Mar. 31   June 30   Sept. 30     Dec. 31
                                     --------   --------   ---------   ---------  ---------   -------   ---------   --------
<S>                                  <C>        <C>        <C>         <C>        <C>         <C>       <C>         <C>
Cost of product licenses..........       10.0%       7.1%       7.2%        7.2%        4.0%       5.5%       5.4%       4.4%
Cost of services..................       26.0%      27.9%      29.9%       30.1%       34.1%      24.2%      26.2%      25.9%

</TABLE>

We have experienced significant quarterly fluctuations in our operating results
and anticipate such fluctuations in the future. Revenues, operating income and
net income have been significantly higher in the fourth quarter of each year
than in the first quarter of the following year. We believe that fourth quarter
revenues are positively impacted by the end of year purchasing cycles of some
large corporate customers. Revenues also tend to be lower in the summer months,
particularly in Europe, when businesses often defer purchase decisions.
Quarterly revenues and operating results depend on the volume and timing of
orders received, which may be affected by large individual transactions and
which sometimes are difficult to predict, especially with regard to orders
received through indirect distribution channels. We historically have recognized
a substantial portion of our license revenues in the last month of each quarter,
and often in the last week of each quarter, which makes it very difficult to
gauge the level of license revenues that will be recognized during a quarter
until after its conclusion. We expect that this will continue for the
foreseeable future.

                                      25
<PAGE>

Liquidity and Capital Resources

At December 31, 1999 and 1998, we had $61.53 million and $80.04 million,
respectively, in cash and cash equivalents and $47.33 million and $31.77
million in marketable securities, respectively. The combined total of cash and
cash equivalents and marketable securities at December 31, 1999 and 1998 were
$108.86 million and $111.81 million, respectively.

We financed our operations during 1999 and 1998 through cash flows from
continuing operations.  Our continuing operating activities provided net cash of
$5.40 million, $11.01 million and $12.27 million in 1999, 1998 and 1997,
respectively.  Net cash provided by operating activities in 1999 consisted
primarily of net income net of amortization of intangible assets and payments
for transaction related costs associated with the acquisitions of Raptor and
ITI.  Net cash provided by operating activities in 1998 consisted primarily of
net income, increases in deferred revenue and income taxes payable and an offset
by the growth in accounts receivable and other assets.  In 1997, net cash
provided by operating activities consisted primarily of net income before
acquisition costs, which were offset by growth in accounts receivables and other
assets and increases in income taxes payable and deferred revenue.

During 1998 we had gains from the sale of MTI Technology Corporation ("MTI")
shares of common stock.  This stock was received from the exercise of stock
warrants granted by MTI in connection with MTI's purchase of our storage
management business in 1994.  We received proceeds of $389,000 ($238,000, net of
taxes) from the exercise of the MTI warrants in 1998.

We made capital expenditures of approximately $5.82 million and $5.89 million in
1999 and 1998, respectively.  These purchases have generally consisted of
computer workstations, networking equipment, office equipment, office furniture
and equipment and leasehold improvements.  We had no material firm commitments
for capital expenditures at December 31, 1999.

During 1999, our financial position was also affected by the following: 1) we
had cash outlays of approximately $448,000 and $1.52 million for transaction
costs associated with the acquisitions of Raptor and ITI; 2) we received
proceeds of $4.04 million from the issuance of common stock for stock option
exercises and employee stock purchase plan; 3) we purchased $120.33 million of
marketable securities; 4) we received $104.95 million from the maturity of
short-term investments; and 5) we paid $4.82 million for the PassGo acquisition-
related expenses offset by cash acquired. The Company intends to convert a $1.5
million note receivable from RAXCO (see note 3 to the Consolidated Financial
Statements) into a minority interest in RAXCO.


We believe that our working capital at December 31, 1999 and cash generated from
operations will be sufficient to meet our capital expenditures, working capital
and other cash requirements both for the next twelve months and for the
foreseeable future.

Recent Accounting Pronouncements

On January 1, 1999, we adopted the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants (the "AICPA") Statement
of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities,"
issued by the Accounting Standards Executive Committee of the AICPA.  SOP No.
98-5 established standards on accounting for start-up and organization costs
and, in general, requires such costs to be expensed as incurred.  The adoption
of SOP No. 98-5 did not impact our financial position or results of operations.

In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions."  SOP 98-9 modifies
SOP 97-2 by requiring revenue to be recognized using the "residual method" if
certain conditions are met.  SOP 98-9 will be effective for our 2000 financial
statements.  We do not believe that SOP 98-9 will have a material impact on our
results of operations or financial condition.

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes a reporting
standard for derivative instruments which will require our company to record all
derivatives as either assets or liabilities and requires that those instruments
are recorded at their fair value.  During June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of SFAS No. 133." This statement defers the effective date
of SFAS 133 to 2001.  We plan to adopt SFAS No. 133 for fiscal year beginning
January 1, 2001. We believe the adoption of SFAS 133 will not have a material
effect on our consolidated financial statements.

In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 became effective
January 1, 1999. The adoption of SOP 98-1 did not impact our financial position
or results of operations.

                                      26
<PAGE>

Certain Factors That May Affect Future Performance

Factors Affecting Our Business and Prospects

Although we have experienced significant growth in revenues from our software
products and consulting services, we do not believe prior growth rates are
necessarily indicative of future operating results and enhanced services
offerings. In addition, we expect increased competition and intend to invest
significantly in product development. As a result, there can be no assurance
that we will remain profitable on a quarterly or annual basis.  Due to our
relatively limited operating history with respect to many of our software
products and consulting services, predictions as to future operating results are
difficult. Future operating results may fluctuate due to factors such as: demand
for our products and consulting services; the size and timing of customer
orders; the number of competitors and the breadth and functionality of their
product offerings and services; the introduction by us or our competitors of new
products, product enhancements and services offerings; the budgeting cycle of
customers; changes in the proportion of revenues attributable to license fees
and consulting services; the availability of services personnel to demonstrate,
install, configure and implement products and perform vulnerability assessments
and managed services offerings; changes in the level of operating expenses;
competitive conditions in the industry; and changes in technologies affecting
computing, networking, communications, systems and applications management and
data security.  Our future operating results also may be affected if we fail to
recognize the anticipated benefits of our acquisitions on the timetable we
project; those benefits include, among others, integration of product and
services offerings and coordination of their sales, marketing and research,
development and services teams without disruption or unanticipated expense.  Our
future results of operations may also be adversely affected if the anticipated
integration of operations of acquired companies produces unexpected expenses,
delays, inefficiencies, loss of key personnel, loss of resellers or distributors
or loss of consultants or if it leads to adverse effects on customer purchasing
decisions.

The market for our software products is highly competitive, and we expect that
we will face increasing pricing pressures from its current competitors and new
market entrants.  As a result of increasing consolidation in the information
security industry, we expect that it will become subject to increased
competition, which may negatively impact existing collaborative, marketing,
reselling, distribution or marketing agreements or relationships and thereby
materially adversely affect our financial condition and results of operations.
Any material reduction in the price of our software products and services
offerings would negatively affect gross margins and could materially adversely
affect our financial condition and results of operations.

The licensing of many of our software products generally involve significant
testing by and education of prospective customers as well as a commitment of
resources by both parties. For these and other reasons, the sales cycle
associated with the enterprise-wide licensing of our security software products
is typically long and subject to a number of significant risks over which we
have little or no control and, as a result, may expend significant resources
pursuing potential sales that will not be consummated.

Factors Affecting International Operations

We anticipate that international sales will continue to represent a significant
percentage of revenue in the foreseeable future.  International sales are
subject to a number of risks, including unexpected changes in regulatory
requirements, export limitations on encryption technologies, import
restrictions, tariffs and other trade barriers, providing consulting services
and customer support across time zones and in different languages, political and
economic instability in foreign markets, difficulty in the staffing, management
and integration of foreign operations, longer payment cycles, greater difficulty
in accounts receivable collection, currency fluctuations and potentially adverse
tax consequences.  The uncertainty of the monetary exchange values has caused,
and may in the future cause, some foreign customers to delay new orders or delay
payment for existing orders.  These factors may, in the future, contribute to
fluctuations in our financial condition and results of operations.  Based upon
our overall currency rate exposure at December 31, 1999, a 10% change in foreign
exchange rates would have had an immaterial effect on our financial position,
results of operations and cash flows.  On January 1, 1999 the Euro was
introduced as a common currency for members of the European Monetary Union.  We
have not determined what impact, if any, the Euro will have on our foreign
exchange exposure.  To date, we have not hedged the risks associated with
foreign exchange exposure.  Although our results of operations have not been
materially adversely affected to date as a result of currency fluctuations, the
long-term impact of currency fluctuations, including any possible effect on the
business outlook in other developing countries, cannot be predicted.  To date,
our foreign currency gains and losses have been immaterial.

                                      27
<PAGE>

Factors Affecting Marketable Securities

The fair value of our investments in marketable securities at December 31, 1999
was $47.33 million.  Our investment policy is to manage our marketable
securities portfolio to preserve principal and liquidity while maximizing the
return on the investment portfolio through the full investment of available
funds.  We diversify the marketable securities portfolio by investing in
multiple types of investment-grade securities.  Our marketable securities
portfolio is primarily invested in short-term securities with at least an
investment grade rating to minimize interest rate and credit risk as well as to
provide for an immediate source of funds. If market interest rates were to
increase immediately and uniformly by 10% from the levels at December 31, 1999,
the fair market value of the portfolio would decline by an immaterial amount.
We have the ability to hold our fixed income investments until maturity, and
therefore we do not expect our operating results or cash flows to be materially
affected by a sudden change in market interest rates on our investment
portfolio.  Although changes in interest rates may affect the fair value of the
marketable securities portfolio and cause unrealized gains or losses, such gains
or losses would not be realized unless the investments are sold.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Response to this item is included in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations  -- Certain Factors
that May Affect Future Performance" above.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated financial statements and schedule required by Item 8 are
incorporated by reference in our Consolidated Financial Statements and financial
statement schedule filed with this Form 10-K, under Item 14 of Part IV.
Quarterly financial information required by Item 8 is included in Item 7, above.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On February 23, 2000, our management dismissed PricewaterhouseCoopers LLP as our
auditors after the Office of Chief Accountant of the Securities and Exchange
Commission advised that it could not concur that PricewaterhouseCoopers LLP met
requirements for "independence" in order to audit our consolidated financial
statements at December 31, 1999 and for the year then ended. In January 2000, it
came to our attention that the extent of bookkeeping and payroll services
provided by several overseas firms affiliated with PricewaterhouseCoopers LLP to
certain of our foreign sales offices exceed the amount of such services allowed
under the SEC's independence policies. On February 23, 2000, our management
engaged Ernst & Young LLP as its independent public accountants to audit our
consolidated financial statements at December 31, 1999 and for the year then
ended. The dismissal of PricewaterhouseCoopers LLP and the engaging of Ernst &
Young LLP have been approved by the Audit Committee of our Board of Directors.

In connection with the audits for the two most recent fiscal years preceding the
change in accountants, there has been no disagreement on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference in connection
with its report on our financial statements to the subject matter of the
disagreement. The reports of PricewaterhouseCoopers LLP on our financial
statements for the years ended December 31, 1997 and December 31, 1998 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the two
most recent fiscal years there were no "reportable events" within the meaning of
Item 304 (a) (1) (v) of Regulation S-K. Additionally, during the two most recent
fiscal years and subsequent interim period to the date hereof, the Company did
not consult with Ernst & Young LLP regarding any of the matters or events set
forth in paragraph (a) (2) of Item 304 of Regulation S-K.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

The information required by Item 10 is incorporated by  reference to our
definitive proxy statement to be filed in connection with our 2000 Annual
Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION.

The information required by Item 11 is hereby incorporated by reference to the
Proxy Statement.

                                      28
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 12 is incorporated by reference to our
definitive proxy statement to be filed in connection with our 2000 Annual
Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is hereby incorporated by reference to our
definitive proxy statement.

                                      29
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

                                  Page Number
                                  -----------
<TABLE>
<CAPTION>
(a)  Documents filed as part of the report:
<S>          <C>                                                                  <C>
     (1)     Reports of Independent Auditors....................................  33
             Consolidated Balance Sheets at December 31, 1999 and 1998..........  35
             Consolidated Statements of Operations for the years ended
               December 31, 1999, 1998 and 1997.................................  36
             Consolidated Statements of Stockholders' Equity for the years ended
               December 31, 1999, 1998  and 1997................................  37
             Consolidated Statements of Cash Flows for the years ended
               December 31, 1999, 1998  and 1998................................  38
             Consolidated Statements of Comprehensive Income for the years ended
               December 31, 1999, 1998 and 1997.................................  39
             Notes to Consolidated Financial Statements.........................  40
     (2)     Financial Statement Schedule
               Schedule II, Valuation and Qualifying Accounts...................  56
     (3)     Exhibits
</TABLE>
                                      30
<PAGE>


<TABLE>
<CAPTION>

Exhibit Number         Description
--------------         -----------
<S>             <C>
  3.1    (1)    Amended and Restated Certificate of Incorporation of AXENT.
  3.2    (2)    Amended and Restated Bylaws of AXENT.
  4.1    (1)    Specimen stock certificate for shares of Common Stock of AXENT.
  10.1   (1)    AXENT's 1991 Amended and Restated Stock Option Plan.
  10.2   (3)    AXENT's 1996 Amended and Restated Stock Option Plan.
  10.3   (3)    AXENT's 1996 Amended and Restated Directors' Stock  Option Plan.
  10.9   (1)    Form of Indemnification Agreement between AXENT and its directors and executive officers.
  10.11  (1)    Lease Agreement dated as of September 6, 1995, by and between
                Research Grove Associates and AXENT.
  10.11A (6)    Second Amendment dated September 18, 1998 to Lease Agreement by and
                between Research Grove Associates and AXENT.
  10.12  (1)    Lease of Real Property dated as of March 7, 1995, by and between
                TNK Associates and AXENT.
  10.17  (4)    Memorandum of Understanding regarding certain compensation and
                severance matters relating to Richard A. Lefebvre, dated July 22,
                1997.
  10.17A (8)    First Amendment to Memorandum of Understanding relating to Richard
                Lefebvre.
  10.29  (3)    Amended Agreement and Plan of Merger among AXENT, Axquisition,
                Inc., and AssureNet Pathways, Inc, dated as of January 6, 1997 and
                amended February 26, 1997.
  10.30  (5)    AXENT's 1998 Employee Stock Purchase Plan.
  10.31  (5)    AXENT's 1998 Incentive Stock Plan.
  10.32  (5)    AXENT's Exchange Option Plan for Optionees of Raptor Systems, Inc.
  10.33  (5)    Agreement and Plan of Merger among AXENT, Axquisition Two, Inc. and
                Raptor Systems, Inc. dated as of December 1, 1997.
  10.34  (6)    AXENT's Executive Severance General Guidelines.
  10.35  (6)    Lease Agreement dated as of April 23, 1998 by and between Pracvest
                and AXENT.
  10.36  (6)    Lease Agreement dated as of May 6, 1997 by and between CC&F Second
                Avenue Trust and Raptor Systems, Inc.
  10.36A (6)    First Amendment to Lease dated as of December 15, 1997 by and
                between CC&F Second Avenue Trust and Raptor Systems, Inc.
  10.37  (7)    Share Exchange Agreement dated as of March 29, 1999 by and during
                AXENT and the holders of all of the shares of capital stock, share
                capital and warranty of CKS Limited.
  10.38  (8)    Software Product Purchase and License Agreement dated as of March
                31, 1999 by and between AXENT and Raxco Software, Inc.
  10.39  (9)    AXENT's 1999 Incentive Stock Plan.
  10.40  (10)   AXENT's 1999 PassGo Technologies Exchange Option Plan.
  16.0   (11)   Letter from PricewaterhouseCoopers LLP dated February 28, 2000.
  21.1*         Subsidiaries of the Company.
  23.1*         Consent of Ernst & Young LLP, Independent Auditors
  23.2*         Consent of PricewaterhouseCoopers LLP on certain financial data
                schedules.
  24.1          Power of Attorney (included in signature pages).
  27.1*         Financial Data Schedule
  27.2*         Financial Data Schedule (1998 Restated)
</TABLE>



                                      31
<PAGE>

Schedule               Description
--------               -----------

II.   *      Valuation and Qualifying Accounts.

             All other schedules are omitted since they are not applicable,
             not required or the required information is included in the
             consolidated financial statements or notes thereto.
--------------------------------------------------------------------------------
(1)  Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-1 (File No. 333-01368) and incorporated herein by reference.
(2)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the Quarter Ended September 30, 1996.
(3)  Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-4 (File No. 333-20207) and incorporated herein by reference.
(4)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the Quarter Ended September 30, 1997.
(5)  Previously filed as an exhibit to AXENT's Registration Statement on Form
     S-4 (File No. 444-43265) and incorporated herein by reference.
(6)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended September 30, 1998 and incorporated herein by reference.
(7)  Previously filed as an exhibit to AXENT's Current Report on Form 8-K filed
     in April 1999 and incorporated herein by reference.
(8)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended March 31, 1999 and incorporated herein by reference.
(9)  Previously filed as an appendix to AXENT's definitive proxy statement dated
     April 30, 1999 and incorporated herein by reference.
(10) Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-8 (File No. 333-83329) and incorporated herein by reference.
(11) Previously filed as an exhibit to AXENT's Form 8-K dated February 23, 2000
     and incorporated herein by reference.

*    Filed herewith.


(b)  Reports on Form 8-K.  AXENT filed no reports on Form 8-K during the three
     month period ended December 31, 1999.  A report on Form 8-K was filed on
     February 23, 2000 reporting AXENT's dismissal of PricewaterhouseCoopers
     LLP as its auditors, and the engagement of Ernst & Young LLP as AXENT's
     independent public accountants, to audit AXENT's financial statements at
     December 31, 1999 and for the year then ended.  AXENT dismissed
     PricewaterhouseCoopers LLP after the SEC's Office of Chief Accountant
     advised that it could not concur that PricewaterhouseCoopers LLP met
     requirements for "independence" in order to audit AXENT's financial
     statements at December 31, 1999 and for the year then ended.

(c)  Exhibits.  The exhibits required by this Item are listed under
     Item 14(a)(3).

(d)  Financial Statement Schedule.  The consolidated financial statement
     schedule required by this Item is listed under Item 14(a)(2).


                                      32
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of AXENT Technologies, Inc.:

We have audited the accompanying consolidated balance sheet of AXENT
Technologies, Inc. and its subsidiaries (the Company) as of December 31, 1999,
and the related consolidated statements of operations, stockholders' equity,
cash flows and comprehensive income for the year then ended.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statement based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the 1999 financial statements present fairly, in all material
respects, the consolidated financial position of AXENT Technologies, Inc. and
its subsidiaries as of December 31, 1999, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.


                                        Ernst & Young LLP

McLean, Virginia
March 17, 2000

                                      33
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of AXENT Technologies, Inc.:


     In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, stockholders' equity, cash flows
and comprehensive income present fairly, in all material respects, the financial
position of AXENT Technologies, Inc. and its subsidiaries (the Company) at
December 31, 1998, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.


                                       PRICEWATERHOUSECOOPERS LLP

Washington, D.C.
January 26, 1999

                                      34
<PAGE>

<TABLE>
<CAPTION>
                                                 AXENT TECHNOLOGIES, INC.

                                                CONSOLIDATED BALANCE SHEETS

                                         (amounts in thousands, except share data)

                                                                                               December 31,
                                                                              --------------------------------------------
                                 ASSETS                                                1999                     1998
                                 ------                                       -------------------      -------------------
<S>                                                                           <C>                      <C>
Current assets:
    Cash and cash equivalents............................................                $ 61,534                 $ 80,035
    Marketable securities................................................                  47,331                   31,774
    Accounts receivable, net of allowance for doubtful accounts of $1,328
      and $1,586, respectively...........................................                  35,954                   28,300
    Other current assets.................................................                   3,696                    4,128
                                                                              -------------------      -------------------
            Total current assets.........................................                 148,515                  144,237
                                                                              -------------------      -------------------
Property and equipment, net..............................................                  12,427                    7,482
Goodwill and other intangible assets, net................................                  29,554                    2,340
Other assets.............................................................                   8,384                    7,217
                                                                              -------------------      -------------------
    Total assets.........................................................                $198,880                 $161,276
                                                                              ===================      ===================

                    LIABILITIES AND STOCKHOLDERS' EQUITY
                    ------------------------------------
Current liabilities:
    Accrued liabilities and accounts payable.............................                $ 23,266                 $ 15,764
    Deferred revenue.....................................................                  17,935                   11,184
                                                                              -------------------      -------------------
            Total current liabilities....................................                  41,201                   26,948
                                                                              -------------------      -------------------

Long term debt, net of current maturities...............................                     620                       --
                                                                              -------------------      -------------------
            Total Liabilities............................................                  41,821                   26,948
                                                                              -------------------      -------------------

Commitments and contingencies (note 8)...................................                      --                       --
Stockholders' equity:
     Preferred stock, $0.02 par value (5,000,000 shares authorized,
       none issued)......................................................                      --                       --
    Common stock, $0.02 par value (50,000,000 shares authorized,
      28,047,696 and 26,163,284 issued and outstanding,
      in 1999 and 1998, respectively)....................................                     561                      523
    Additional paid-in capital...........................................                 191,272                  161,386
    Comprehensive income and other.......................................                    (623)                    (370)
    Accumulated deficit..................................................                 (34,151)                 (27,211)
                                                                              -------------------      -------------------
            Total stockholders' equity...................................                 157,059                  134,328
                                                                              -------------------      -------------------
    Total liabilities and stockholders' equity...........................                $198,880                 $161,276
                                                                              ===================      ===================

The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
                                      35

<PAGE>

                           AXENT TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 (amounts in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------------------------------------
                                                                     1999                  1998                  1997
                                                              ------------------     -----------------      ---------------

<S>                                                             <C>                   <C>                    <C>
Net revenues:
    Product licenses......................................              $ 77,852              $ 80,912             $ 56,202
    Services..............................................                34,961                20,118               13,707
                                                              ------------------     -----------------      ---------------
            Total net revenues............................               112,813               101,030               69,909

Cost of net revenues......................................                16,049                 9,354                6,124
                                                              ------------------     -----------------      ---------------

Gross profit..............................................                96,764                91,676               63,785
                                                              ------------------     -----------------      ---------------

Operating expenses:
    Sales and marketing...................................                61,252                41,209               31,856
    Research and development..............................                26,859                18,956               12,885
    General and administrative............................                11,572                 6,445                7,030
    Amortization of acquired intangible assets............                 4,184                   450                  432
    Acquisition-related charges...........................                 3,753                17,422               34,154
                                                              ------------------     -----------------      ---------------
            Total operating expenses......................               107,620                84,482               86,357
                                                              ------------------     -----------------      ---------------

Income (loss) from operations before interest, royalties
    and taxes.............................................               (10,856)                7,194              (22,572)

  Interest income and other...............................                 4,775                 4,895                6,349
  Royalty income..........................................                    --                 1,862                2,977
  Income tax provision....................................                  (859)               (7,507)              (5,744)
                                                              ------------------     -----------------      ---------------

Income (loss) from continuing operations..................                (6,940)                6,444              (18,990)
Income from discontinued operations, net of tax (note 3)..                    --                    --                  255
                                                              ------------------     -----------------      ---------------
Net income (loss).........................................              $ (6,940)             $  6,444             $(18,735)
                                                              ==================     =================      ===============

Net income (loss) per common share (basic):
    Continuing operations.................................              $  (0.25)             $   0.26             $  (0.83)
    Discontinued operations...............................                    --                    --                 0.01
                                                              ------------------     -----------------      ---------------
Net income (loss) per common share (basic)................              $  (0.25)             $   0.26             $  (0.82)
                                                              ==================     =================      ===============
Number of shares used in computing net income (loss) per
  common share outstanding (basic)........................                27,561                25,204               22,780
                                                              ==================     =================      ===============

Net income (loss) per common share (diluted):
    Continuing operations.................................              $  (0.25)             $   0.24             $  (0.83)
    Discontinued operations...............................                    --                    --                 0.01
                                                              ------------------     -----------------      ---------------
Net income (loss) per common share (diluted)..............              $  (0.25)             $   0.24             $  (0.82)
                                                              ==================     =================      ===============

Number of shares used in computing net income (loss) per
  common share outstanding (diluted)......................                27,561                26,740               22,780
                                                              ==================     =================      ===============

The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
                                      36
<PAGE>

<TABLE>
<CAPTION>
                                                                AXENT TECHNOLOGIES, INC.

                                               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                  FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                                        (amounts in thousands, except share data)

                                     Common Stock        Additional    Comprehensive
                                ----------------------     Paid-In         Income         Unearned       Accumulated
                                   Shares      Amount     Capital        and Other      Compensation       Deficit        Total
                                ------------  --------   -----------   -------------   --------------   -------------   ----------
<S>                             <C>           <C>        <C>           <C>             <C>              <C>             <C>
BALANCE,
DECEMBER 31, 1996.............    20,614,613      $412      $108,825         $   (69)           $(813)       $(14,920)    $ 93,435
Net income (loss).............            --        --            --              --               --         (18,735)     (18,735)
AssureNet acquisition.........     1,550,000        31        23,046              --               --              --       23,077
Issuance of common stock......       169,681         4           705              --               --              --          709
Stock options exercised.......     1,076,220        22         2,285              --               --              --        2,307
Tax benefit related to
  employee stock options......            --        --         3,053              --               --              --        3,053
Unrealized gain on
  marketable securities, net
  of tax provision of
  $159........................            --        --            --             238               --              --          238
Amortization of unearned
  compensation................            --        --            --              --              450              --          450
Foreign currency translation
  loss........................            --        --            --            (254)              --              --         (254)
                                ------------   -------   -----------   -------------   --------------   -------------   ----------
BALANCE,
DECEMBER 31, 1997.............    23,410,514       469       137,914             (85)            (363)        (33,655)     104,280
Net income (loss).............            --        --            --              --               --           6,444        6,444
Secure Network Consulting,
  Inc. acquisition............        85,000         2         1,548              --               --              --        1,550
Issuance of common stock......       561,337        11         1,100              --               --              --        1,111
Issuance of stock under
  stock option and employee
  stock purchase plans........     2,106,433        41        13,277              --               --              --       13,318
Tax benefit related to
  employee stock options......            --        --         7,547              --               --              --        7,547
Gain on the sale of
  marketable securities, net
  of tax provision............            --        --            --            (238)              --              --         (238)
Amortization of unearned
  compensation................            --        --            --              --              363              --          363
Foreign currency translation
  loss and other..............            --        --            --             (47)              --              --          (47)
                                ------------   -------   -----------   -------------   --------------   -------------   ----------
BALANCE,
DECEMBER 31, 1998.............    26,163,284       523       161,386            (370)              --         (27,211)     134,328
Net income (loss).............            --        --            --              --               --          (6,940)      (6,940)
CKS Limited acquisition.......     1,486,146        30        24,925              --               --              --       24,955
Issuance of stock under
  stock option and employee
  stock purchase plans........       398,266         8         4,030              --               --              --        4,038
Tax benefit related to
  employee stock options......            --        --           931              --               --              --          931
Foreign currency translation
  loss and other..............            --        --            --            (253)              --              --         (253)
                                ------------   -------   -----------   -------------   --------------   -------------   ----------
BALANCE,
DECEMBER 31, 1999.............    28,047,696      $561      $191,272         $  (623)         $    --        $(34,151)    $157,059
                                ============   =======   ===========   =============   ==============   =============   ==========

The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
                                      37
<PAGE>

                           AXENT TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                            (amounts in thousands)
<TABLE>
<CAPTION>
                                                                                              YEAR ENDED DECEMBER 31,
                                                                                           1999         1998          1997
                                                                                        ---------     --------      --------
<S>                                                                                     <C>           <C>           <C>
Cash flows from operating activities:
  Income (loss) from continuing operations..........................................    $  (6,940)    $  6,444      $(18,990)
Adjustments to reconcile income (loss) to net cash provided by operating activities:
  Depreciation and amortization.....................................................        8,492        2,928         2,463
  Write-off of in process research and development..................................        2,000            -        34,154
  Provision for losses on accounts receivable.......................................        1,057        1,121           794
  Compensation expense on equity issuances..........................................            -          363           449
  Deferred income taxes.............................................................         (567)        (680)        1,219
  Accretion of discount on marketable securities....................................         (175)        (241)         (347)
  Gain on sale of marketable securities.............................................            -         (389)       (1,738)
Change in assets and liabilities:
  (Increase) in accounts receivable.................................................       (6,335)     (11,112)       (8,722)
  (Increase) decrease in other assets...............................................        3,135       (1,207)       (2,363)
  Increase (decrease) in accrued liabilities and accounts payable...................        1,976        2,846          (391)
  Increase (decrease) in income taxes payable.......................................         (699)       7,149         3,791
  Increase in deferred revenue......................................................        3,452        3,788         1,952
                                                                                        ---------     --------      --------
            Net cash provided by operating activities...............................        5,396       11,010        12,271
            Net cash used in discontinued operating activities......................            -         (141)         (412)
                                                                                        ---------     --------      --------
  Net cash provided by operating activities.........................................        5,396       10,869        11,859
                                                                                        ---------     --------      --------
Cash flows from investing activities:
  Capital expenditures..............................................................       (5,821)      (5,890)       (2,728)
  Purchased Software................................................................       (1,500)          --            --
  Sale of property, plant and equipment.............................................           --           --            41
  Maturity of marketable securities.................................................      104,948       73,242        18,629
  Purchases of marketable securities................................................     (120,330)     (64,131)      (24,742)
  Proceeds from sale of marketable securities.......................................            -          389         1,738
  Equity investment in common stock.................................................            -         (150)          (54)
  Payments for corporate acquisition, net of cash...................................       (4,824)        (124)      (10,434)
                                                                                        ---------     --------      --------
            Net cash provided by (used in) investing activities.....................      (27,527)       3,336       (17,550)
            Net cash provided by discontinued investing activities..................            -            -           645
                                                                                        ---------     --------      --------
  Net cash provided by (used in) investing activities...............................      (27,527)       3,336       (16,905)
                                                                                        ---------     --------      --------
Cash flows from financing activities:
  Proceeds from line of credit draws................................................            -            -           490
  Principal payments on line of credit..............................................            -            -        (1,402)
  Principal payments on note payable................................................         (155)           -             -
  Proceeds from issuance of common stock............................................        4,038       14,430         3,016
                                                                                        ---------     --------      --------
            Net cash provided by financing activities...............................        3,883       14,430         2,104
                                                                                        ---------     --------      --------
Effect of exchange rate changes ....................................................         (253)        (232)         (254)
Net increase (decrease) in cash and cash equivalents................................      (18,501)      28,403        (3,196)
Cash and cash equivalents, beginning of period......................................       80,035       51,632        54,828
                                                                                        ---------     --------      --------
Cash and cash equivalents, end of period............................................    $  61,534     $ 80,035      $ 51,632
                                                                                        =========     ========      ========

The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
                                      38

<PAGE>

                            AXENT TECHNOLOGIES, INC.

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                             (amounts in thousands)

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                       --------------------------------------------------------------------------
                                                                 1999                       1998                       1997
                                                       ---------------------      ---------------------      --------------------
<S>                                                      <C>                        <C>                        <C>
   Net income (loss).................................               $ (6,940)                    $6,444                  $(18,735)
   Other comprehensive income (loss):
       Recognition of unrealized gain on marketable
           securities................................                      -                           -                      238
       Realization of gain on marketable securities..                      -                       (238)                        -
      Currency translation effects...................                   (253)                      (232)                     (254)
                                                       ---------------------      ---------------------      --------------------
   Comprehensive income (loss).......................                $(7,193)                    $5,974                  $(18,751)
                                                       =====================      =====================      =====================

The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
                                      39

<PAGE>

                            AXENT TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

AXENT Technologies, Inc. ("AXENT") and its subsidiaries (collectively, the
"Company") develop, market, license and support enterprise-wide information
security solutions for client/server computing environments and provide related
services.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
which could differ from actual results. These estimates and assumptions affect
the reported amounts of assets and liabilities and the reported amounts of
revenues and expenses for these consolidated financial statements.

Consolidation

The accompanying consolidated financial statements include the accounts of AXENT
Technologies, Inc. and its wholly-owned subsidiaries, including:  AXENT EMEA
Limited and its subsidiaries (which includes PassGo Technologies, Ltd.); AXENT
Technologies K.K.; AXENT Technologies I, Inc.; Secure Network Consulting, Inc.
("SNCI") and AXENT Technologies B.V.  All significant intercompany transactions
have been eliminated.

Reclassifications and Restatements

Certain reclassifications and restatements have been made to the 1998 and 1997
consolidated financial statements in order to conform to the 1999 presentation.
Prior year amounts have been restated to reflect a 1999 acquisition accounted
for under the pooling method of accounting (see note 2).

Revenue Recognition

The Company develops, markets, licenses and supports computer software products
and provides related services. The Company conveys the rights to use the
software products to customers under perpetual license agreements, and conveys
the rights to product support and enhancements in annual maintenance agreements
or understandings. The Company generally ships its software on a trial basis and
recognizes revenue when the customer accepts and becomes contractually obligated
to pay for the product. The Company defers and recognizes maintenance and
support services revenue over the term of the contract period, which is
generally one year. The Company recognizes training and consulting services
revenue as the services are provided. The Company generally expenses sales
commissions as the related revenue is recognized.

In addition to the direct sales effort, the Company licenses its products and
provides support services to customers through a network of independent
distributors. The Company generally records revenue from independent
distributors at the net license or service fee, after deducting the
corresponding independent distributor's commissions. Product support and
enhancement fees from independent distributors, net of independent distributor
commissions, are recorded as deferred revenue when received and recognized
ratably over the applicable contract period. Revenue is recognized upon shipment
to independent distributors who do not have the right to return products.
Revenue is recognized upon distributor's sell-through when the independent
distributor has the right to return unsold products. The Company's revenue
recognition policies are in conformity with the Statement of Position 97-2,
"Software Revenue Recognition," promulgated by the American Institute of
Certified Public Accountants.

Software Development Costs

Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software development
costs once technological feasibility is established, which the Company generally
defines as completion of a working model. Capitalization ceases when the
products are available for general release to customers, at which time
amortization of the capitalized costs begins on a straight-line basis over the
estimated product life, or on the ratio of current revenues to total projected
product revenues, whichever is greater.

                                      40

<PAGE>

To date, the period between achieving technological feasibility and the general
availability of such software has been short, and software development costs
qualifying for capitalization have been insignificant.

Net income per common share

The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," ("SFAS 128") to calculate net income per share.  Basic
earnings per common share have been computed by dividing net income by the
weighted average number of common shares outstanding during the period.  Diluted
earnings per share have been computed by dividing net income by the weighted
average number of common shares outstanding plus an assumed increase in common
shares outstanding for dilutive securities.  Potentially dilutive securities
consist of stock options and warrants to acquire common stock for a specified
price and their dilutive effect is measured using the treasury method.
Potentially dilutive securities are not included in the diluted earnings per
share calculations for the periods in which there is a net loss as their
inclusion would be anti-dilutive to the basic loss per share calculations.

Purchased Software

Purchased software is recorded at the lower of cost or net realizable value and
is included in other assets. Amortization is calculated on a straight-line basis
over the estimated lives of the software products, generally three years.
Amortization expense for the years ended December 31, 1999, 1998 and 1997 was
$477,000, $337,000 and $432,000, respectively.  Purchased software, included in
other assets, is as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
                                                 December 31,
                                   --------------------------------------
                                          1999                  1998
                                   ----------------     -----------------
<S>                                  <C>                  <C>
Purchased software..............             $1,500                $1,223
Accumulated amortization........               (125)                 (871)
                                   ----------------     -----------------
Purchased software, net.........             $1,375                $  352
                                   ================     =================
</TABLE>

During 1999 the Company acquired $1,500,000 of purchased software from
AltaVista.  Amortization expense for the year ended December 31, 1999 related to
this software was $125,000, and is included in the schedule above.

As a result of the AssureNet purchase in 1997, the Company acquired $1,455,000
of purchased software.  Due to AssureNet's history of net operating losses, a
full valuation allowance was recorded against AssureNet's deferred tax assets.
A tax benefit in the amount of $782,000 was recognized in 1997, due to the
utilization of AssureNet's deferred tax assets and the reduction of the related
valuation allowance.  In accordance with SFAS No. 109, the benefit was recorded
as a reduction in the book value of the intangible assets.  Accordingly, the
basis of the purchased software was reduced by $782,000 during 1997.
Amortization expense for the year ended December 31, 1999, 1998 and 1997 related
to this software was $150,000, $150,000 and $265,000, respectively and is
included in the schedule above for 1998 and was fully amortized and written off
during 1999.

In 1996, the Company entered into an agreement with an unrelated third party to
pay up to $1,500,000 for a nonexclusive license to the source code of certain
security technology. Pursuant to this agreement, the Company paid the third
party a $500,000 acquisition fee upon acceptance of the source code, plus a non-
refundable royalty prepayment of $400,000. Amortization expense was $166,000,
$167,000 and $167,000 for 1999, 1998 and 1997, respectively, and is included in
the schedule above for 1998 and was fully amortized and written off during 1999.

Asset Impairment

The carrying value of goodwill and intangible assets, as well as other long-
lived assets, are reviewed if, as described in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
the facts and circumstances indicate potential impairment of their carrying
value.  Impairment, if any, is recorded in the current period.  Impairment is
measured by comparison of the undiscounted cash flows of the related business
operation to the appropriate carrying values.  There has been no such impairment
to date.

Income Taxes

Under SFAS No. 109, "Accounting for Income Taxes," deferred tax assets or
liabilities are recorded to reflect the tax consequences on future years of the
differences between the financial statement and income tax bases of assets and

                                      41

<PAGE>

liabilities, using presently enacted tax rates.  Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period.

Foreign Currency Translation

The assets and liabilities of non-U.S. operations are translated into U.S.
dollars at exchange rates in effect as of the balance sheet date. Revenue and
expense accounts of these operations are translated at average exchange rates
prevailing during the month the transactions occur. Translation gains and losses
are included as an adjustment to stockholders' equity. Net transaction gains
(losses) for the years ended December 31, 1999, 1998 and 1997 were ($195,388),
($9,665) and $6,588, respectively, and are included in income (loss) from
continuing operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of time and demand deposits, money market
accounts, and government securities and short-term repurchase agreements, which
have original maturity dates of three months or less.  Due to the short maturity
of these investments, carrying value on the Company's consolidated balance sheet
approximates fair value.

Marketable Securities

The Company accounts for its marketable securities under the Financial
Accounting Standards Board Statement No. 115 ("SFAS No. 115"), "Accounting for
Certain Investments in Debt and Equity Securities."  Securities purchased in
1998 and 1999 were classified as "held-to-maturity."  All "held-to-maturity"
securities are carried at amortized cost.  As of December 31, 1999 and 1998, the
Company's "held-to-maturity" securities were valued at $47.33 and $31.77
million, respectively.  The Company's marketable securities consist primarily of
certificates of deposit and government securities, all with maturities of one
year or less.  Gains and losses are determined based on the specific
identification method.  During 1999, 1998 and 1997, the Company did not realize
significant gains or losses on marketable securities.

As part of the consideration for the sale of its storage management products
effective as of December 31, 1994, the Company received a warrant to purchase
250,000 shares of common stock of MTI Technology Corporation ("MTI").  On
October 15, 1997, the Company exchanged its warrant for 161,830 shares of MTI
common stock.  These shares were considered to be available-for-sale as of the
exchange of the warrant.  During 1997, the Company received proceeds of $1.74
million ($1.04 million, net of taxes) from the sale of 131,380 shares of MTI
common stock.  Based upon the closing price of $13.25 on December 31, 1997, the
market value of the remaining 30,000 unsold shares of MTI common stock was
$398,000.  During 1998, AXENT sold the remaining 30,000 shares of MTI common
stock and received proceeds of $389,000 ($238,000, net of taxes) on the sale.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash and cash equivalents,
short-term investments, accounts receivable, and to a lesser extent, currencies
denominated in other than U.S. dollars. The Company limits the amount of
investment exposure to any one financial instrument. The Company performs on-
going credit evaluations and maintains reserves for potential credit losses;
historically such losses have been immaterial. The Company minimizes the amount
of cash it maintains in local currencies by maintaining excess cash in U.S.
dollars.

There were no customers that accounted for more than 10% of revenue in 1999,
1998 and 1997.

Recent Accounting Pronouncements

On January 1, 1999, the Company adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (the
"AICPA") Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities," issued by the Accounting Standards Executive Committee of
the AICPA.  SOP No. 98-5 established standards on accounting for start-up and
organization costs and, in general, requires such costs to be expensed as
incurred.  The adoption of SOP No. 98-5 did not impact the Company's financial
position or results of operations.

In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions."  SOP 98-9 modifies
SOP 97-2 by requiring revenue to be recognized using the "residual method" if
certain conditions are met.  SOP 98-9 will be effective for the Company's 2000
financial statements.  Management does not believe that SOP 98-9 will have a
material impact on the Company's results of operations or financial condition.

                                      42

<PAGE>

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes a reporting
standard for derivative instruments which will require the Company to record all
derivatives as either assets or liabilities and requires that those instruments
are recorded at their fair value.  During June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of SFAS No. 133." This statement defers the effective date
of SFAS 133 to 2001.  The Company plans to adopt SFAS No. 133 for fiscal year
beginning January 1, 2001. The Company believes the adoption of SFAS 133 will
not have a material effect on the consolidated financial statements.

In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 became effective
January 1, 1999.  The adoption of SOP 98-1 did not impact the Company's
financial position or results of operations.

NOTE 2. ACQUISITIONS

On March 31, 1999, the Company completed the acquisition of United Kingdom-based
CKS Limited, the parent of PassGo, a worldwide leader in centralized user access
and control, and single sign-on and password synchronization products.  In
conjunction with the acquisition, the Company issued 1,486,146 shares of common
stock to holders of shares and warrants of CKS Limited and agreed to exchange
stock options to purchase 64,157 AXENT shares for all outstanding CKS Limited
stock options.  The transaction was accounted for using the purchase method of
accounting and accordingly, the net assets and operating results of PassGo have
been included in the accompanying consolidated financial statements from the
date of acquisition.  The purchase price, including transaction costs of $6.0
million, was approximately $30.96 million.  The allocation of the purchase price
was based on the results of an independent third party valuation and allocated
to assets acquired and liabilities assumed, based on their respective fair
values at the acquisition date.  The purchase price allocation resulted in
goodwill and other intangibles of approximately $27.8 million, which is being
amortized, on a straight-line basis over their useful lives, of between three
and seven years.  During 1999, the Company recorded a charge for acquired in-
process research and development of approximately $2.0 million related to
PassGo. The charge reflects technology acquired for which technological
feasibility had not been reached and for which there is no alternative future
use.

The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of CKS Limited had occurred at the beginning of
1998.  The unaudited pro forma information is presented for information purposes
only and is not indicative of what would have occurred if the acquisition had
actually been made as of the beginning of 1998.  In addition, the unaudited pro
forma information is not intended to be a projection of future results and does
not reflect synergies expected to result from the integration of CKS Limited and
AXENT.

<TABLE>
<CAPTION>
Unaudited Pro Forma Information:
(amounts in thousands, except per share data)
<S>                                                       <C>                               <C>
                                                                Year Ended December 31,
                                                               1999                  1998
                                                          ---------------      ----------------

Net revenues.......................................            $115,116             $114,990
Net loss...........................................            $ (9,577)            $ (1,544)
Net loss per common share (basic and diluted)......            $  (0.35)            $  (0.06)
</TABLE>

On January 12, 1999, the Company consummated its merger with ITI in which it
acquired 100% of the outstanding stock of ITI for 703,194 shares of AXENT common
stock and assumed stock options covering a total of 46,806 shares of AXENT
common stock.  The Company incurred approximately $1.75 million in acquisition-
related transaction and other related costs in connection with the merger.  The
business combination was accounted for by the pooling of interests method of
accounting and, accordingly, the assets, liabilities, and stockholders' equity
of ITI were combined with the Company's respective accounts at recorded values.
Prior period financial statements have been restated to give effect to the
merger. This acquisition did not meet the criteria for a significant business
combination and as such pro forma disclosures are not included herein.

On July 21, 1998, the Company completed the acquisition of Secure Network
Consulting, Inc. ("SNCI") a privately held information security consulting firm.
In conjunction with the acquisition, the Company issued 85,000 shares of common
stock to SNCI's stockholders.  The transaction was accounted for using the
purchase method of accounting.  The purchase price, including transaction costs,
was $2.3 million.  This amount exceeded the fair value of assets acquired by
approximately $2.1 million, which is being treated as goodwill and amortized, on
a straight-line basis, over seven years. This transaction was accounted for
using the purchase method of accounting and accordingly, the net assets and
operating results of SNCI have been included in the accompanying consolidated
financial statements from the date of acquisition. The effect of this
acquisition does not have a material impact upon the financial results of the
Company.

                                      43

<PAGE>

On February 5, 1998, the Company completed the acquisition of Raptor under a
definitive merger agreement dated December 1, 1997. Under terms of the merger
agreement, the Company offered 0.80 shares of its common stock for each
outstanding share of Raptor's common stock and agreed to exchange stock options
for all Raptor Stock options outstanding immediately prior to consummation of
the merger. Based upon 13,690,521 shares of Raptor common stock, and stock
options covering a total of 2,158,127 shares of Raptor common stock, that were
outstanding immediately before the effective time of the merger, the Company
issued approximately 10,952,380 shares of its common stock and exchanged stock
options covering a total of 1,725,988 shares of the Company's common stock as a
result of the merger.  In connection with the merger, during 1998 the Company
recorded a non-recurring charge of $17.42 million associated with investment
banking, legal and accounting fees, severance and costs associated with
eliminating duplicative operations.  The remaining merger accrual as of December
31, 1998 of approximately $350,000 was fully utilized during March 1999.  The
merger between the Company and Raptor has been accounted for as a by the
pooling-of-interests method of accounting, and accordingly, historical financial
data has been restated to include Raptor.  The following data summarizes the
results of operations of the Company and Raptor on a stand-alone basis for the
year ended December 31, 1997:

<TABLE>
<CAPTION>
(amounts in thousands)
                                                                                       1997
                                                                     ---------------------------------------
                                                                            AXENT                Raptor
                                                                     -----------------     -----------------
<S>                                                                    <C>                   <C>
Net revenues......................................................            $ 41,749               $28,160
Net income (loss) from continuing operations......................             (19,816)                  826
Net income from discontinued operations...........................                 255                    --
</TABLE>

Before the combination, there were no intercompany transactions between the
Company and Raptor.  In addition, no adjustments were required to adopt
consistent accounting practices.  Certain reclassifications were recorded to the
Raptor financial statements to conform to the Company's presentation.

On May 9, 1997, Raptor acquired a perpetual license, concerning certain
products, from Open Market, Inc., of Cambridge, Massachusetts.  In association
with this transaction, the Company incurred a one-time charge for the write-off
of purchased in-process technology of $6.52 million ($4.24 million, net of tax).

On March 25, 1997, the Company exchanged 1,550,000 shares of its common stock
for all the outstanding stock and options of AssureNet Pathways, Inc.
("AssureNet") in a transaction valued at $32.0 million, which was accounted for
using the purchase method of accounting.  A portion of the purchase price was
allocated to the net assets acquired, based on their fair market value.  The
fair market value of the tangible assets acquired was approximately $2.9
million, and purchased software was valued at approximately $1.5 million.  The
remaining $27.6 million of the purchase price was allocated to in-process
research and development based on the determination of the products' net present
value using a discounted cash flow model.  These products had not reached
technological feasibility and had no probable future uses, and therefore were
expensed at the date of the acquisition. The operating results of AssureNet have
been included in the Consolidated Statement of Operations since January 7, 1997.

NOTE 3. RESTRUCTURING, DISPOSITIONS AND LIQUIDATIONS

In mid-1994, the Company made a strategic decision to focus its business on the
information security market and to divest itself of products and services
unrelated to such core business.

In 1995, the Company transferred certain operations of its OpenVMS utility
software business to Raxco Software Inc. ("Raxco") resulting in the division of
the Company's operations into two separate companies (the "Spin-off"). The
distributed operations included the sales, marketing and support operations
related to the OpenVMS utility software business, leaving the Company with the
sales, marketing, development and support operations associated with the
information security business and ownership of the OpenVMS utility software
products.

In connection with the Spin-off, the Company and Raxco entered into an Exclusive
Distributor License Agreement, an Administrative Services Agreement and a Line
of Credit Loan Agreement. Pursuant to the Exclusive Distributor License
Agreement, Raxco distributed the Company's OpenVMS utility software products and
paid the Company a royalty.  The Company accounted for royalties as non-
operating income from continuing operations. Pursuant to the Administrative
Services Agreement, which was terminated in 1998, Raxco paid the Company the
greater of $750,000 or the actual cost of providing certain operational and
system support services including bookkeeping, personnel processing,
administrative support, facilities management and product packaging and mailing.
The $750,000 Line of Credit Loan Agreement expired on December 31, 1996.

                                44

<PAGE>

For the periods ended December 31, 1999 and 1998, the Company recorded royalty
income of $0 and $1.86 million, respectively, under the Exclusive Distributor
License Agreement.   During 1999 and 1998 the Company did not receive income
from the Administrative Services agreement.

For the period ended 1998, Raxco reported to the Company gross revenues of
approximately $7.5 million (unaudited), which included approximately $6.2
million (unaudited) of revenues from licensing of the Company's OpenVMS utility
products and a net loss of $642,000 (unaudited) for the year ended December 31,
1998.  As of December 31, 1999 and 1998, Raxco owed the Company $1.67 million
and $1.92 million, respectively, which is included in other assets related to
royalties under the Exclusive Distributor License Agreement.

In February 1996, the Company disposed of its Helpdesk operations for
approximately $2.0 million, consisting of an initial cash payment of $150,000, a
non-interest bearing note of $150,000, assumption of approximately $400,000 in
obligations and liabilities, and the payment of a royalty up to a maximum of
$1.3 million on future gross revenues from all Helpdesk product license and
maintenance fees.  During 1997, the Company recorded royalties of $60,537.  In
1997, the Company and the buyer agreed to amend the purchase agreement by
terminating the relationship for $150,000 in final consideration.

In December 1994, the Company sold its storage management products.  This
transaction resulted in a pre-tax gain of approximately $4.8 million ($4.3
million after tax), net of costs incurred in connection with the sale of which
$2.3 million of the gain was recognized in 1994 and $2.5 million was deferred.
The deferred gain was recognized as the payments on the notes were received,
which approximated the potential exposure and time frame of certain contractual
indemnification provisions provided by the Company to the purchaser for third
party claims related to product ownership and performance prior to the sale or
other related liabilities incurred by the Company. The Company recognized
$430,000 of the gain in 1997 which represented the final payment under the
related notes.

For financial statement purposes, the foregoing discontinued operations (the
"Discontinued Operations") have been accounted for in accordance with APB No.
30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," and classified as discontinued operations in the
Consolidated Statement of Operations.  The $255,000 income from discontinued
operations, net of tax reported in the 1997 statement of operations primarily
relates to the $430,000 gain on the final payment of the notes receivable
pursuant to the sale of the storage management products business discussed
above.

The Statement of Cash Flows related to the Discontinued Operations included in
the accompanying Consolidated Statement of Cash Flows for 1998 and 1997
includes:  net cash used in operating activities of $141,000 in 1998 primarily
related to a decrease in accrued liabilities; net cash used in operating
activities of $412,000 in 1997 primarily related to decrease of accrued
liabilities and deferred revenue; and net cash provided by investing activities
of $645,000 in 1997 primarily related to proceeds from sale of storage
management products.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
(amounts in thousands)
                                                                                   December 31,
                                                                     --------------------------------------
                                                                            1999                  1998
                                                                     ----------------     -----------------
<S>                                                                    <C>                  <C>
Leasehold improvements............................................            $ 2,328               $ 1,371
Computer equipment................................................             14,887                 8,570
Furniture and fixtures............................................              5,145                 3,553
                                                                     ----------------     -----------------
                                                                               22,360                13,494
Less accumulated depreciation and amortization....................             (9,933)               (6,012)
                                                                     ----------------     -----------------
Property and equipment, net.......................................            $12,427               $ 7,482
                                                                     ================     =================
</TABLE>

Property and equipment are stated at cost. Depreciation and amortization are
calculated using either straight-line or accelerated methods over the estimated
useful lives of the assets. Depreciation expense amounted to approximately
$3,834,000, $2,463,000 and  $2,032,000 for 1999, 1998 and 1997, respectively.
The principal estimated useful lives range from three to five years for computer
equipment and seven to ten years for furniture and fixtures. Leasehold
improvements are amortized over the shorter of their economic useful life or the
terms of the respective lease.

                                45

<PAGE>

NOTE 5.  DEVELOPER ROYALTIES

In 1996, the Company entered into an agreement with an unrelated third party to
purchase a nonexclusive license to the source code of a certain technology.  The
Company paid a $400,000 non-refundable pre-payment against future royalties.
The Company may be required to pay up to an additional $600,000 in royalties
based on a percentage of the revenues derived from the source code license over
a three-year period. The Company incurred royalties of $124,000, $100,000 and
$91,000 in 1999, 1998 and 1997, respectively.

NOTE 6.  ACCRUED LIABILITIES AND ACCOUNTS PAYABLE

Accrued liabilities and accounts payable consist of the following:
<TABLE>
<CAPTION>
(amounts in thousands)                                                           December 31,
                                                                 ------------------------------------------
                                                                          1999                  1998
                                                                 --------------------   -------------------
<S>                                                                <C>                    <C>
Accounts payable and accrued expenses.........................                $13,471               $ 7,982
Accrued payroll, bonus and vacation...........................                  6,796                 5,285
Accrued royalties and commissions.............................                  2,999                 2,497
                                                                 --------------------   -------------------
                                                                              $23,266               $15,764
                                                                 ====================   ===================
</TABLE>
NOTE 7.  LONG TERM DEBT


As a result of the acquisition of CKS Limited (see note 2), the Company assumed
an existing loan facility with Barclays Bank PLC for $1.06 million repayable
over five years in equal quarterly installments of approximately $52,000.
Interest is payable under this facility at an annual interest rate of LIBOR plus
3.5%. The loan facility is secured by certain real estate. Interest paid by the
Company on this debt in 1999 was approximately $63,000. At December 31, 1999,
the amount owed under the debt agreement was approximately $827,000. Payments on
this debt are due as follows: approximately $207,000 in 2000, 2001 and 2002, and
approximately $206,000 in 2004. The current portion of the debt is included in
accrued liabilities and accounts payable.

NOTE 8. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under operating leases expiring through 2008. A
majority of the leases contain escalation clauses tied to Consumer Price Index
changes, which provide for increases in base rental to recover increases in
future operating costs. The future minimum rental payments shown below include
base rentals, exclusive of any future escalation. Rent expense is recognized
ratably over the period of occupancy for these leases. Rent expense amounted to
approximately $4,397,000, $2,731,000 and $2,045,000 for 1999, 1998 and 1997,
respectively.

The future minimum payments under non-cancelable lease agreements as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
(amounts in thousands)
<S>                                                                                    <C>
2000.............................................................................               $ 4,679
2001.............................................................................                 4,299
2002.............................................................................                 4,300
2003.............................................................................                 2,733
2004.............................................................................                 2,537
Thereafter.......................................................................                 1,872
                                                                                     ------------------
                                                                                                $20,420
                                                                                     ==================
</TABLE>

The Company currently subleases four office spaces.  Future income expected to
be recognized is approximately $556,000 and $257,000 for 2000, 2001 and none for
the years thereafter, respectively.  Total sublease rental income was
approximately $337,000 in 1999.

Legal Proceedings

On May 12, 1999, a venture capital entity and a small former stockholder owning
less than a majority share of CKS Limited, which AXENT acquired in March 1999,
commenced an action in the Suffolk County Superior Court in Boston,
Massachusetts against AXENT and its directors.  The action alleges violations of
the Massachusetts Uniform Securities Act, negligent misrepresentations, and
unfair trade practices.  AXENT believes the claims are without merit and intends
to defend the action vigorouosly.

The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business.  In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially effect the
financial position or results of operations of the Company.

                                46

<PAGE>

NOTE 9.  COMMON STOCK

In March 1999, the Company completed the acquisition of  CKS Limited.  The
Company issued approximately 1,486,146 shares of its common stock to holders of
shares and warrants of CKS Limited and exchanged stock options covering a total
of 64,157 shares of the Company's common stock.

In January 1999, the Company completed the acquisition of ITI.  The Company
issued approximately 703,194 shares of its common stock to ITI's stockholders
and exchanged stock options covering a total of 46,806 shares of the Company's
common stock.

In July 1998, the Company completed the acquisition of SNCI.  The Company issued
approximately 85,000 shares of its common stock to SNCI's stockholders.

In February 1998, the Company completed the acquisition of Raptor.  The Company
issued approximately 10,952,380 shares of its common stock to Raptor
securityholders and exchanged stock options covering a total of 1,725,988 shares
of the Company's common stock as a result of the merger.

All share and per share data has been adjusted to reflect the following actions
by Raptor: 1) a two hundred fifty-for-one stock split of Raptor's common stock
and redeemable convertible preferred stock approved in February 1995 and
effected as a stock dividend; 2) a three-for-one split of Raptor's common stock
approved in December 1995 and effected as a stock dividend; and 3) the
combination with the Company consummated in February 1998.

In March 1997, the Company completed the acquisition of AssureNet.  The Company
issued 1,550,000 shares of its common stock to AssureNet securityholders and
assumed stock options and warrants to acquire up to 54,977 shares of the
Company's common stock.

In April 1996, the Company filed a registration statement with the Securities
and Exchange Commission and sold 2,000,000 shares of its common stock to the
public.  Under the registration statement, certain non-officer stockholders of
the Company also sold 990,000 shares to the public, which included 390,000
shares to cover over-allotments.  AXENT received proceeds from its initial
public offering of approximately $25.08 million, net of approximately $1.96
million and $960,000 in underwriting fees and offering expenses, respectively.
The Company  received no proceeds from the sale of shares by selling
stockholders in its initial public offering.

In February 1996, Raptor filed a registration statement with the Securities and
Exchange Commission and sold 3,000,000 shares of its common stock to the public.
Raptor received proceeds from the offering of approximately $40.55 million, net
of approximately $3.15 million and $600,000 in underwriting fees and offering
expenses, respectively.

In January 1996, the Company's Board of Directors adopted an amended and
restated Certificate of Incorporation which increased the authorized
capitalization of the Company to 50,000,000 shares of common stock and 5,000,000
shares of preferred stock.  The par value of each class of stock remained at
$0.02 per share.  During 1996, warrants to purchase 30,000 shares were
exercised.

In November 1995, Raptor sold 75,000 shares of restricted common stock to its
non-employee directors for a total of $37,500 and recorded unearned compensation
of $150,000 which was amortized over the four-year vesting period.  All
restrictions on transfer and rights of the Company to repurchase unvested shares
lapsed upon consummation of the combination of the Company and Raptor.

NOTE 10.   STOCK OPTION PLANS

The Company has adopted certain fixed stock option plans.  At the Company's
Annual Meeting of Stockholders on June 4, 1999, stockholders approved the 1999
Incentive Stock Plan (the "Employee Plan"). The Employee Plan, together with
other stock option plans, provides for a total of 8,577,260 shares of common
stock to be issued. The Employee Plan and other plans provide for grants to
employees, consultants, directors and advisors. Of the authorized shares under
the Employee Plan and other plans, at December 31, 1999, options for 3,776,814
shares were outstanding; 3,239,919 shares had been issued; and 1,560,527 shares
were available for future grants. The 1996 Directors' Stock Option Plan (the
"Director Plan") allows for the granting of up to 200,000 options to directors
of the Company who are not employees of the Company. Of the authorized shares
under the Director Plan, at December 31, 1999, options for 58,000 shares were
outstanding, 12,000 shares had been issued, and 130,000 shares were available
for future grants. The exercise price of each option equals the market price of
the Company's stock as determined on the date of grant and the option's maximum
term ranges from seven to ten years. Options are granted throughout the year and
vest over a period of four to five years, except the options granted under the
Director Plan which vest over a period of one to three years.  During 1997, the

                                47

<PAGE>

Company exchanged 264,400 options with exercise prices between $14.00 and $15.00
per share, for options with an exercise price of $11.125 per share, which was
the fair market value of the Company's common stock on the date of the exchange.

Stock option activity for 1999, 1998 and 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                                      Number of                 Price             Weighted Average
                                                       Options                  Range              Exercise Price
                                               ---------------------    --------------------   ---------------------
<S>                                              <C>                      <C>                    <C>
Outstanding, December 31, 1996..............               3,492,077           $0.07 - 37.66                  $ 5.46
Granted.....................................               2,452,039            0.96 - 25.16                   14.06
Exercised...................................              (1,076,220)           0.07 - 17.19                    2.15
Canceled....................................              (1,066,887)           0.07 - 37.66                   17.52
                                               ---------------------    --------------------   ---------------------
Outstanding, December 31, 1997..............               3,801,009           $0.07 - 25.16                  $ 8.73
                                               ---------------------    --------------------   ---------------------
Granted.....................................               1,665,747           $0.96 - 25.50                  $17.99
Exercised...................................              (2,093,225)           0.07 - 23.50                    6.33
Canceled....................................                (464,737)           0.07 - 25.47                   15.05
                                               ---------------------    --------------------   ---------------------
Outstanding, December 31, 1998..............               2,908,794           $0.07 - 25.50                  $14.90
                                               ---------------------    --------------------   ---------------------
Granted.....................................               1,845,700           $9.17 - 30.06                  $11.39
Options exchanged in purchase business
 combination................................                  64,157            2.81 - 15.88                    3.29
Exercised...................................                (341,874)           0.07 - 23.50                    9.70
Canceled....................................                (641,963)           0.07 - 30.06                   15.49
                                               ---------------------    --------------------   ---------------------
Outstanding, December 31, 1999..............               3,834,814           $0.07 - 30.06                  $13.39
                                               =====================    ====================   =====================
</TABLE>

Stock options for 1,345,612, 847,147 and 762,171 shares were vested and
exercisable as of December 31, 1999, 1998 and 1997, respectively. The weighted
average fair value of options granted during 1999, 1998 and 1997 were $11.39,
$17.99 and $14.06, respectively.  The weighted average fair value of options
vested and exercisable as of December 31, 1999, 1998 and 1997, were $13.40,
$12.39 and $6.83, respectively.

The following table summarizes information about fixed stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                                               Options Outstanding                             Options Exercisable
                            -------------------------------------------------------     ---------------------------------
                             Number of Shares    Weighted Average       Weighted        Number of Shares     Weighted
                              Outstanding at        Remaining            Average         Exercisable at       Average
Range of Exercise Prices         12/31/99        Contractual Life    Exercise Price         12/31/99       Exercise Price
------------------------    -----------------   -----------------   ---------------     ---------------   ---------------
<S>                         <C>                  <C>                <C>                 <C>               <C>
$ 0.07 -   9.19                       973,261         8.87 years             $ 8.52             182,449           $ 6.28
  10.00 - 11.69                     1,103,120               6.09              11.32             536,757            11.14
  11.94 - 17.19                       966,485               6.83              14.44             331,292            14.86
  17.50 - 30.06                       791,948               7.93              20.97             295,114            20.30
                            -----------------   ----------------   ----------------     ---------------   --------------
                                    3,834,814         7.36 years             $13.39           1,345,612           $13.40
                            =================   ================   ================     ===============   ==============
</TABLE>

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company has elected the disclosure-only alternative for stock-based employee
compensation which requires the disclosure of pro forma net income or loss and
per share amounts using the fair-value based method. The Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method
of SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
(amounts in thousands, except per share data)                             Year Ended December 31,
                                                     ---------------------------------------------------------------
                                                            1999                    1998                  1997
                                                     ------------------    -------------------    ------------------
<S>                                                  <C>                     <C>                    <C>
Net income (loss)
            As reported............................            $ (6,940)               $ 6,444              $(18,735)
            Pro forma..............................            $(16,935)               $(5,039)             $(29,329)
Basic earnings (loss) per share
            As reported............................            $  (0.25)               $  0.26              $  (0.82)
            Pro forma..............................            $  (0.61)               $ (0.20)             $  (1.29)
Diluted earnings (loss) per share
            As reported............................            $  (0.25)               $  0.24              $  (0.82)
            Pro forma..............................            $  (0.61)               $ (0.20)             $  (1.29)
</TABLE>
                                        48

<PAGE>

For the purpose of SFAS No. 123, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes multiple option-pricing
model with the following weighted-average assumptions used for grants in 1999,
1998 and 1997, respectively: dividend yield of 0% for all grants; risk-free
interest rates of 6.00%, 6.20% and 6.20%; expected lives of 3.5, 3.1 and
4.3 years for each grant; and expected volatility of 125%, 74% and 65% for
1999, 1998 and 1997, respectively.

NOTE 11.  INCOME TAXES

The Company has adopted the asset and liability method of accounting for income
taxes as required by SFAS No. 109. In accordance with SFAS No. 109, the Company
records a valuation allowance for deferred tax assets when in management's
judgement it is more likely than not that all or a portion of the deferred tax
asset will not be realized.

The components of the provision (benefit) for income taxes included in the
Consolidated Statements of Operations are as follows:

<TABLE>
<CAPTION>
(amounts in thousands)                                                             Year Ended December 31,
                                                              ---------------------------------------------------------------
                                                                       1999                  1998                  1997
                                                              -------------------    ------------------    ------------------
Continuing Operations:
Current provision:
<S>                                                             <C>                    <C>                   <C>
            Federal........................................                $  675                $6,789                $3,583
            State..........................................                    76                 1,320                   752
            Foreign........................................                   338                   380                    33
                                                              -------------------    ------------------    ------------------
Total current provision from continuing operations.........                $1,089                $8,489                $4,368
                                                              ===================    ==================    ==================
    Deferred provision (benefit):
            Federal........................................                $ (567)               $ (899)               $1,167
            State..........................................                   (76)                 (175)                  209
            Foreign........................................                   413                    92                     -
                                                              -------------------    ------------------    ------------------
Total deferred provision (benefit) from continuing
 operations................................................                $ (230)               $ (982)               $1,376
                                                              ===================    ==================    ==================
Total provision from continuing operations.................                $  859                $7,507                $5,744
                                                              ===================    ==================    ==================
</TABLE>

The Company's effective tax rate on pre-tax income (loss) from continuing
operations differs from the U.S. federal statutory tax rate as follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                              ---------------------------------------------------------------
                                                                       1999                  1998                  1997
                                                              -------------------    ------------------    ------------------
<S>                                                             <C>                    <C>                   <C>
U.S. federal statutory rate................................                  34.0%                 34.0%               (34.0)%
Increase (decrease) in rates resulting from:
    State taxes............................................                   4.0                   4.9                  (4.4)
    Amortization of goodwill...............................                 (22.5)                    -                     -
    Write-off of purchased in process
     Research and Development..............................                 (23.5)                 13.4                  80.7
    Effect of foreign income taxes.........................                  (3.2)                 (4.1)                  5.5
    Change in valuation allowance for deferred tax asset...                     -                     -                  (6.4)
    Other..................................................                  (2.9)                  1.2                   2.4
                                                              -------------------    ------------------    ------------------
Effective tax rate.........................................                 (14.1)%                49.4%                 43.8%
                                                              ===================    ==================    ==================
</TABLE>
                                        49

<PAGE>

Deferred tax assets (liabilities) are included in other assets and are comprised
of the following:
<TABLE>
<CAPTION>
(amounts in thousands)                                                  Year Ended December 31,
                                       ---------------------------------------------------------------------------------------
                                                           1999                                          1998
                                       --------------------------------------------   ----------------------------------------
                                           Federal          State         Foreign        Federal         State        Foreign
                                       -------------   -------------   ------------   ------------   ------------   ----------
<S>                                     <C>            <C>             <C>            <C>            <C>            <C>
Current deferred assets:
    Accrued expenses.................        $   646          $  121         $    -        $   996        $   186       $    -
    Deferred revenue.................              -               -              -             40              8            -
    Reserves.........................          1,461             274              -            594            112            -
                                       -------------   -------------   ------------   ------------   ------------   ----------
        Total current deferred assets          2,107             395              -          1,630            306            -
                                       -------------   -------------   ------------   ------------   ------------   ----------
Non-current deferred assets:
    Depreciation and amortization....            439              83              -            434             82            -
    Net operating loss...............          6,656           1,040            426          5,659          1,062            -
    Credits..........................          1,132               -              -          1,132              -            -
                                       -------------   -------------   ------------   ------------   ------------   ----------
        Total non-current deferred
         assets......................          8,227           1,123            426          7,225          1,144            -
                                       -------------   -------------   ------------   ------------   ------------   ----------
Non-current deferred liability:
    Depreciation and amortization....              -               -            200              -              -           92
                                       -------------   -------------   ------------   ------------   ------------   ----------

Gross deferred tax assets............         10,334           1,518            226          8,855          1,450          (92)
Valuation allowance..................         (9,104)         (1,250)             -         (7,955)        (1,220)           -
                                       -------------   -------------   ------------   ------------   ------------   ----------
Net deferred tax assets..............        $ 1,230          $  268         $  226        $   900        $   230       $  (92)
                                       =============   =============   ============   ============   ============   ==========
</TABLE>

As of December 31, 1999, the Company has approximately $21.0 million of net
operating loss and approximately $1.0 million of general business credit
carryforwards. Approximately $11.0 million of the net operating loss
carryforward relates to stock option exercises. The tax benefit associated with
the stock option exercises will be credited to equity when realized. As of
December 31, 1999, approximately $18.0 million of the net operating loss and
approximately $1.0 million of the credit carryforwards may be limited under
section 382 of the Internal Revenue Code. The net operating loss and the credit
carryforwards will expire at various dates through 2011.

NOTE 12.  EMPLOYEE BENEFIT PLANS

401(k) Retirement Plans

The Company sponsors a 401(k) Retirement Plan (the "401(k) Plan") which is
qualified under section 401(k) of the Internal Revenue Code. Pursuant to the
401(k) Plan, eligible participants, which include all permanent U.S. employees
who work at least 20 hours per week and have served for a requisite period, may
elect to contribute a percentage of their annual gross compensation to the
401(k) Plan. Contributions to the 401(k) Plan by the Company are discretionary.
For the year ended December 31, 1997, the Company did not contribute to the
401(k) Plan. The Company amended its 401(k) Plan effective January 1, 1998, to
provide for a discretionary matching contribution by the Company of 25% of the
first 4% of qualified employee contributions.  The Company contributed $402,000
and $222,000 to the 401(k) Plan for the year ended December 31, 1999 and 1998.

In conjunction with the PassGo acquisition (see note 2), the Company acquired a
401(k) Plan established for the benefit of the PassGo employees.  Employer
matching contributions were not discretionary.  Employer contributions are equal
to 25% of the employee's contributions to the plan, up to 4% of their
compensation.  The employer contributions for both 1998 and 1997 were $4,000,
respectively.  In 1999 no employer contributions were made and all
employer/employee contributions to this plan ceased to be effective on July 31,
1999.  This plan will be terminated and merged into the Company's 401(k) Plan,
by December 31, 2000.

In conjunction with the Raptor acquisition (see note 2), the Company acquired a
401(k) Plan established for the benefit of the Raptor employees.  Under the
Plan, the Company makes no contributions.  All employee contributions to this
plan ceased effective on April 30, 1998.  This plan was terminated on December
31, 1998 and was merged into the Company's 401(k) Plan in January 1999.

                                50

<PAGE>

In conjunction with the AssureNet acquisition (see note 2), the Company
acquired a savings and retirement plan established for the benefit of the
AssureNet employees.  Employer matching contributions are discretionary.
Employer matching contributions are equal to 25% of the employee's contributions
to the Plan, up to 4% of their compensation.  For the year ended December 31,
1997 the Company made contributions of $46,000. All employee/employer
contributions to this plan ceased effective on December 31, 1997.  This plan was
terminated and merged into the Company's 401(k) Plan on December 31, 1997.

Employee Stock Purchase Plan:

The Company's 1998 Employee Stock Purchase Plan (the "ESP Plan") was adopted by
the Board of Directors in December 1997 and was approved by the stockholders in
February 1998.  The Company has reserved a total of 500,000 shares of common
stock for issuance under the ESP Plan.  The ESP Plan, which is intended to
qualify under section 423 of the Internal Revenue Code of 1986, as amended,
permits eligible employees of the Company to purchase common stock through
payroll deductions of up to ten percent of their compensation.  The price of
Common Stock purchased under the ESP Plan is 85% of the lower of the fair market
value of the common stock on the first or last day of each three month purchase
period.  The ESP Plan is administered by the Compensation Committee of the Board
of Directors.  Employees are eligible to participate if they are employed by the
Company or any designated subsidiary for at least 20 hours per week and for more
than 90 days.  Under the ESP Plan, the Company sold 65,811 and 25,642 shares to
employees in 1999 and 1998, respectively.

NOTE 13.  SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of certain tax and interest information as well as non-
cash investing and financing activities include the following (in addition to
items related to the acquisitions in note 2):

1999

During 1999, the Company's current tax liability was reduced to zero due to the
tax benefits associated with the exercise of employee stock options.  Cash paid
for interest associated with long term debt was approximately $63,000.

1998

Cash paid for income taxes associated with continuing operations was $892,000.
During 1998, the Company's current tax payable was reduced by approximately
$7,547,000 due to tax benefits associated with the exercise of employee stock
options.  AXENT received proceeds during 1998 from the sale of the remaining
30,000 shares of MTI common stock of $389,000 ($238,000, net of taxes).

1997

Cash paid for income taxes associated with continuing and discontinued
operations was $342,000 and $289,000, respectively.  During 1997, the Company's
current tax payable was reduced by approximately $5,029,000 due to tax benefits
associated with the exercise of employee stock options.

As part of the consideration for the sale of its storage management products
effective as of December 31, 1994, the Company received a warrant to purchase
250,000 shares of common stock of MTI.  On October 15, 1997, the Company
exchanged the warrant for 161,830 shares of MTI common stock.  During 1997,
AXENT received proceeds of $1.74 million ($1.04 million, net of taxes) from the
sale of 131,830 shares of MTI common stock.

NOTE 14.  INFORMATION CONCERNING BUSINESS SEGMENTS

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders.  Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.

The Company's approach to information security is to develop, market and support
security software products that perform a broad range of security functions and
to provide consulting services to address customers' security needs.  As such,
the Company has two reportable segments: a software product segment and a
consulting services segment.  The software product segment includes products
which provide security assessment and policy management, host and network

                                      51

<PAGE>

based intrusion detection, systems and network access control, data
confidentiality, user administration, activity monitoring, secure authentication
solutions for remote network access and virtual private networking capabilities
for remote users and remote sites.  The consulting services segment includes
training and "Lifecycle Security Services" designed to help organizations
develop a framework and roadmap for assessing potential vulnerabilities;
developing security policies, guidelines, practices and metrics; selecting and
implementing solutions; conducting training; and ensuring appropriate monitoring
and compliance.

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.  The Company
evaluates the performance of its operating segments based on income from
continuing operations before royalty, interest, taxes, non-recurring charges and
gains/losses on the sale of marketable securities.  Intersegment sales and
transfers are not significant.

Summarized financial information concerning the Company's reportable segments is
shown in the following table.  The "Other" column includes the consulting
services segment as it is below the quantitative thresholds, corporate related
items and, as it relates to segment profit(loss), income and expense not
allocated to reportable segments. There were no customers that accounted for
more than 10% of total revenues in 1999, 1998 and 1997.

<TABLE>
<CAPTION>
(amounts in thousands)                                                          Year Ended December 31,
                                                             -------------------------------------------------------------
                                                                    1999                  1998                  1997
                                                             -----------------    ------------------    ------------------
<S>                                                          <C>                    <C>                   <C>
Net revenues:
    Software products......................................           $105,430              $ 96,578              $ 67,101
    Other..................................................              7,383                 4,452                 2,808
                                                             -----------------    ------------------    ------------------
        Total net revenues.................................           $112,813              $101,030              $ 69,909
                                                             =================    ==================    ==================

Segment operating profit (loss):
    Software products......................................           $ (4,646)             $ 22,382              $ 15,299
    Other..................................................             (6,210)              (15,188)              (37,871)
                                                             -----------------    ------------------    ------------------
        Total segment operating profit (loss)..............           $(10,856)             $  7,194              $(22,572)
                                                             =================    ==================    ==================

Total assets:
    Software products......................................           $ 55,180              $ 41,357              $ 27,320
    Other..................................................            143,700               119,919                97,493
                                                             -----------------    ------------------    ------------------
        Total assets.......................................           $198,880              $161,276              $124,813
                                                             =================    ==================    ==================
</TABLE>

The Company's area of operations are principally in the United States.
Operations outside of the United States are worldwide but primarily in the
United Kingdom, Europe and Asia.  No single foreign country is significant to
the consolidated operations.  Foreign operations' revenue, profit and
identifiable assets are shown in the following table.

<TABLE>
<CAPTION>
(amounts in thousands)                                                          Year Ended December 31,
                                                             -------------------------------------------------------------
                                                                    1999                  1998                  1997
                                                             -----------------    ------------------    ------------------

Net revenues:
<S>                                                          <C>                    <C>                   <C>
    U.S....................................................           $ 79,434              $ 74,111              $ 54,750
    International..........................................             33,379                26,919                15,159
                                                             -----------------    ------------------    ------------------
        Total net revenues.................................           $112,813              $101,030              $ 69,909
                                                             =================    ==================    ==================

Profit (loss):
    U.S....................................................           $(10,120)             $ (8,304)             $(26,760)
    International..........................................              3,180                14,748                 7,770
                                                             -----------------    ------------------    ------------------
        Total profit (loss)................................           $ (6,940)             $  6,444              $(18,990)
                                                             =================    ==================    ==================

Total assets:
    U.S....................................................           $172,479              $156,368              $120,637
    International..........................................             26,401                 4,908                 4,176
                                                             -----------------    ------------------    ------------------
        Total assets.......................................           $198,880              $161,276              $124,813
                                                             =================    ==================    ==================
</TABLE>
                                      52

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Rockville,
Maryland, on the 29th day of March 2000.

                          AXENT TECHNOLOGIES, INC.

                          By: /S/ JOHN C. BECKER
                              ------------------
                              John C. Becker
                              Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Company in the capacities and on the date indicated.

Each person whose signature appears below in so signing also makes, constitutes
and appoints John C. Becker and Gary M. Ford, and each of them acting alone, his
true and lawful attorney-in-fact, with full power of substitution, for him in
any and all capacities, to execute and cause to be filed with the Securities and
Exchange Commission any and all amendments and post-effective amendments to this
Report, with exhibits thereto and other documents in connection therewith, and
hereby ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.

A Majority of the Board of Directors:
<TABLE>
<CAPTION>

Signature                     Title                              Date
---------                     -----                              ----
<S>                           <C>                                <C>

/S/ JOHN C. BECKER            Chairman of the Board,             March 29, 2000
----------------------------  Chief Executive Officer
John C. Becker                and Director (Principal
                              Executive Officer


/S/ ROBERT B. EDWARDS, JR.    Vice President, Chief Financial    March 29, 2000
----------------------------  Officer and Treasurer (Principal
Robert B. Edwards, Jr.        Financial and Accounting Officer)


/S/ GABRIEL A. BATTISTA       Director                           March 29, 2000
----------------------------
Gabriel A. Battista

/S/ JOHN F. BURTON            Director                           March 29, 2000
----------------------------
John F. Burton

/S/ TIMOTHY A. DAVENPORT      Director                           March 29, 2000
----------------------------
Timothy A. Davenport

/S/ RICHARD A. LEFEBVRE       Director                           March 29, 2000
----------------------------
Richard A. Lefebvre

/S/ KEVIN A. MCNERNEY         Director                           March 29, 2000
----------------------------
Kevin A. McNerney
</TABLE>



                                      53

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------

Exhibit Number                  Description
--------------                  -----------
<S>               <C>
  3.1    (1)      Amended and Restated Certificate of Incorporation of AXENT.
  3.2    (2)      Amended and Restated Bylaws of AXENT.
  4.1    (1)      Specimen stock certificate for shares of Common Stock of AXENT.
  10.1   (1)      AXENT's 1991 Amended and Restated Stock Option Plan.
  10.2   (3)      AXENT's 1996 Amended and Restated Stock Option Plan.
  10.3   (3)      AXENT's 1996 Amended and Restated Directors' Stock  Option Plan.
  10.9   (1)      Form of Indemnification Agreement between AXENT and its directors and executive officers.
  10.11  (1)      Lease Agreement dated as of September 6, 1995, by and between
                  Research Grove Associates and AXENT.
  10.11A (6)      Second Amendment dated September 18, 1998 to Lease Agreement by and
                  between Research Grove Associates and AXENT.
  10.12  (1)      Lease of Real Property dated as of March 7, 1995, by and between
                  TNK Associates and AXENT.
  10.17  (4)      Memorandum of Understanding regarding certain compensation and
                  severance matters relating to Richard A. Lefebvre, dated July 22,
                  1997.
  10.17A (8)      First Amendment to Memorandum of Understanding relating to Richard
                  Lefebvre.
  10.29  (3)      Amended Agreement and Plan of Merger among AXENT, Axquisition,
                  Inc., and AssureNet Pathways, Inc, dated as of January 6, 1997 and
                  amended February 26, 1997.
  10.30  (5)      AXENT's 1998 Employee Stock Purchase Plan.
  10.31  (5)      AXENT's 1998 Incentive Stock Plan.
  10.32  (5)      AXENT's Exchange Option Plan for Optionees of Raptor Systems, Inc.
  10.33  (5)      Agreement and Plan of Merger among AXENT, Axquisition Two, Inc. and
                  Raptor Systems, Inc. dated as of December 1, 1997.
  10.34  (6)      AXENT's Executive Severance General Guidelines.
  10.35  (6)      Lease Agreement dated as of April 23, 1998 by and between Pracvest
                  and AXENT.
  10.36  (6)      Lease Agreement dated as of May 6, 1997 by and between CC&F Second
                  Avenue Trust and Raptor Systems, Inc.
  10.36A (6)      First Amendment to Lease dated as of December 15, 1997 by and
                  between CC&F Second Avenue Trust and Raptor Systems, Inc.
  10.37  (7)      Share Exchange Agreement dated as of March 29, 1999 by and during
                  AXENT and the holders of all of the shares of capital stock, share
                  capital and warranty of CKS Limited.
  10.38  (8)      Software Product Purchase and License Agreement dated as of March
                  31, 1999 by and between AXENT and Raxco Software, Inc.
  10.39  (9)      AXENT's 1999 Incentive Stock Plan.
  10.40  (10)     AXENT's 1999 PassGo Technologies Exchange Option Plan.
  16.0   (11)     Letter from PricewaterhouseCoopers LLP dated February 28, 2000.
  21.1*           Subsidiaries of the Company.
  23.1*           Consent of Ernst & Young LLP, Independent Auditors
  23.2*           Consent of PricewaterhouseCoopers LLP on certain financial data schedules.
  24.1            Power of Attorney (included in signature pages).
  27.1*           Financial Data Schedule
  27.2*           Financial Data Schedule (1998 Restated)

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Schedule               Description
--------               -----------
<S>          <C>
II.   *      Valuation and Qualifying Accounts.

             All other schedules are omitted since they are not applicable, not
             required or the required information is included in the
             consolidated financial statements or notes thereto.

--------------------------------------------------------------------------------

(1)  Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-1 (File No. 333-01368) and incorporated herein by reference.
(2)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the Quarter Ended September 30, 1996.
(3)  Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-4 (File No. 333-20207) and incorporated herein by reference.
(4)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the Quarter Ended September 30, 1997.
(5)  Previously filed as an exhibit to AXENT's Registration Statement on Form
     S-4 (File No. 444-43265) and incorporated herein by reference .
(6)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended September 30, 1998 and incorporated herein by reference.
(7)  Previously filed as an exhibit to AXENT's Current Report on Form 8-K filed
     in April 1999 and incorporated herein by reference.
(8)  Previously filed as an exhibit to AXENT's Quarterly Report on Form 10-Q for
     the quarter ended March 31, 1999 and incorporated herein by reference.
(9)  Previously filed as an appendix to AXENT's definitive proxy statement dated
     April 30, 1999 and incorporated herein by reference.
(10) Previously filed as an exhibit to AXENT's Registration Statement on
     Form S-8 (File No. 333-83329) and incorporated herein by reference.
(11) Previously filed as an exhibit to AXENT's Form 8-K dated February 23, 2000
     and incorporated herein by reference.

*    Filed herewith.
</TABLE>
<PAGE>

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS

              For the Years Ended December 31, 1999, 1998 and 1997

                             (amounts in thousands)

<TABLE>
<CAPTION>
                                                  Balance at            Additions                                  Balance at
                                                 Beginning of          Charged to                                    End of
               Description                          Period              Expenses             Deductions              Period
------------------------------------------   ------------------   -------------------   ------------------    ------------------
<S>                                            <C>                  <C>                   <C>                   <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS

December 31, 1999.........................               $1,586                $1,057             $(1,315)               $ 1,328
December 31, 1998.........................                1,339                 1,121                (874)                 1,586
December 31, 1997.........................                  749                   794                (204)                 1,339

DEFERRED TAX ASSET VALUATION ACCOUNT

December 31, 1999.........................               $9,175                $1,179             $     -                $10,354
December 31, 1998.........................                9,124                    51                   -                  9,175
December 31, 1997.........................                4,502                 5,548                (926)                 9,124

Note:  Beginning balance at 12/31/97 and additions and deductions were adjusted to include ITI.  Additions for 1997 include the
 beginning valuation allowance associated with AssureNet.
</TABLE>