SurfControl acquires enterprise spyware, extended threat protection technology

SurfControl, a world leading Internet security company providing enterprise Web and e-mail filtering, has announced the acquisition of enterprise spyware and extended threat protection technology from Apreo, a leading innovator of technologies that control file and application distribution to secure enterprise networks.

* Spyware is infecting millions of computers. The anti-spyware market is expected to grow to $305 million by 2008 (Source: IDC).

* SurfControl has acquired advanced enterprise technology for spyware and extended threat protection for $6.8 million in cash.

* Acquisition complements the existing SurfControl product strategy, providing additional layers of threat defence to enterprises.

* Product launch planned for Q4 FY05 (Calendar Q2 2005).

According to industry researcher IDC, spyware is infecting millions of computers: stealing personal information, enabling identity theft, tracking users` online activity, and selling the information back to anyone willing to pay. The need to identify and eradicate these parasitic programs is forecast to drive anti-spyware software revenues from $12 million in 2003 to $305 million in 2008. In today`s world, spyware is only one of the threats enterprises have to be concerned with.

"We believe this acquisition establishes SurfControl as the security vendor of choice for enterprises that are assaulted daily by an ever-widening variety of blended threats targeting their IT infrastructure," said SurfControl CEO, Steve Purdham. "The SurfControl Product Roadmap continues to focus upon providing sophisticated multi-layered threat protection for our customers. By extending our already powerful layers of threat defence with the new technologies from Apreo we will move threat protection for enterprises to another level, providing a unified platform for protection against a new array of known and emerging IT threats.

"Spyware and phishing attacks are escalating in sophistication and becoming more harmful and fraudulent in nature," says Wayne Bird, Director at Networks Unlimited. "These security threats frequently utilise multiple attack vectors - Web, e-mail and IM/P2P, memory sticks or infected machines of mobile workers - to penetrate a network and propagate within an organisation. This innovative and new technology will seamlessly integrate with SurfControl`s existing world-class intellectual property."

The newly acquired technology will be launched in Q4 (April-June timeframe) as the SurfControl Enterprise Threat Shield (SETS). SETS enhances SurfControl`s Internet threat protection solutions as follows:

* Enterprise-class protection from specific threats such as spyware.

* Businesses gain extended control over the broad and ever-evolving range of malicious content and applications - spyware, games, IM/P2P, music, movies and other user defined content threats - through dynamically updated threat databases and granular policy definition. Whether or not disguised, and regardless of their network entry point, SurfControl`s acquired technology detects threats, such as spyware, at the exact moment they are introduced to the system, while it is being written to the network.

* The technology delivers enhanced protection by continuously discovering, terminating in real-time, and removing applications before they get onto users` machines. By automatically removing existing malicious applications already on the network, costly administrator intervention is not required for retrospective network cleanup at desktop level.

* The technology has centralised management and reporting which allows enterprises to manage their usage policy from a single point for rapid deployment and updates. Seamless integration with current business` directory services, such as Microsoft Active Directory and Novell eDirectory, simplifies product deployment across the enterprise. This ensures maximum control, minimum overhead, and no requirement for end-user involvement.

Having reviewed a number of competitive solutions on the market before making this acquisition, SurfControl believes those solutions are either flawed or limited in one or more of the following ways:

1. Easily circumvented by the end-user.
2. Resource intensive at the desktop.
3. Built and targeted for the consumer desktop. This does not meet the complex operational needs of an enterprise.
4. Not customisable. This limits end-user control of policy definition and threat identification.
5. Only provide scanning, detection and removal at the desktop. This does not meet enterprise threat protection needs for the network as a whole.
6. Only focused on single threats, eg spyware.

The addition of this new technology to the existing award-winning Web and e-mail filtering products will allow SurfControl to provide an enhanced level of threat protection, delivering significant competitive advantage for the enterprise market.

SurfControl`s unified threat protection solutions will deliver the most comprehensive protection against known, day-zero and custom threats, to secure Internet content, enhance employee productivity and IT resource utilisation, achieve regulatory compliance and limit legal liability.

The intellectual property relating to the technology was acquired from Apreo Limited. The purchase price is $6 820 000, of which $6 750 000 was paid in cash at closing. The balance of $70 000 is subject to an earn-out over 12 months, and if earned, will be paid in cash or could be used to acquire 5 636 treasury shares.

The current operating expenses relating to the acquired assets, together with planned integration and marketing-related product launch preparation costs are expected to be in the range of $0.8 million to $1 million in FY 05. It is too early to predict the timing and magnitude of invoicing from SETS, but it is probable that little revenue will be generated in Q4. Further information will be provided at the time of the Q3 FY 05 results announcement, following early integration and product launch preparation activity.

Intangible assets relating to this acquisition will be capitalised and amortised over an estimated useful life of 24 months, consistent with our current accounting policies, commencing in Q3 FY 05. Details of this amortisation charge will also be provided at the time of the Q3 FY 05 results announcement.