Form 6-K
Table of Contents
 
FORM 6-K
 
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
 
Commission File Number: 333-10486
 
For the Month of October 2002
 
Trend Micro Incorporated
(Translation of registrant’s name into English)
 
 
Odakyu Southern Tower, 10th Floor, 2-1, Yoyogi 2-chome,
Sibuya-ku, Tokyo 151-8583, Japan
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Form 20-F      X            Form 40-F            
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes               No     X    
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            
 

Table of Contents
 
Information furnished on this form:
 
Table of Contents
 
1.
   
2.
   
(*)
 
The U.S. GAAP consolidated interim financial information (unaudited) contained in the press release is the same as 2. (except that the press release does not contain full notes thereto) and is thus omitted from 1.

2

Table of Contents
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
       
TREND MICRO INCORPORATED
Date:
  
October 22, 2002
      
By:
  
/s/    MAHENDRA NEGI        
               
Mahendra Negi
Representative Director, Chief Financial Officer and
Executive Vice President
 

3

Table of Contents
Attachment 1

Table of Contents
 
Trend Micro announces its U.S. GAAP financial information for the first half of 2002
 
Tokyo, Japan—October 21, 2002—Trend Micro Incorporated (Nasdaq: TMIC, Tokyo Stock Exchange: 4704, a worldwide leader in network antivirus and Internet content security solutions, today announced its unaudited U.S. GAAP financial information for the first half of 2002.
 
Financial Highlights for the first half of FY 2002 (January 1, 2002 through June 30, 2002)
 
(1)
 
Consolidated Results of Operations (Unaudited except FY 01 (annual))
 
    
Net sales
     
Growth rate
   
Operating income
   
Growth rate
     
Net income before tax
   
Growth rate
  
    
Millions of yen
     
%
   
Millions of yen
   
%
     
Millions of yen
   
%
  
The first half of FY 02
   
20,507
     
58.5
   
6,350
   
530.7
 
   
6,406
   
423.5
 
The first half of FY 01
   
12,939
     
38.7
   
1,007
   
(62.4
)
   
1,224
   
(67.3
)
FY 01 (annual)
   
31,326
          
7,516
          
7,757
       
 
    
Net
income
   
Growth rate
     
Net income
per share
   
Net income
per share (diluted)
    
Millions of yen
   
%
     
Yen
   
Yen
The first half of FY02
   
3,654
   
559.8
 
   
27.65
   
27.53
The first half of FY01
   
554
   
(74.8
)
   
4.22
   
4.14
FY 01 (annual)
   
4,386
          
33.33
   
33.02
(Note)
1.
 
Equity in gain (loss) of affiliated companies: 3 million yen ((105) million yen in the first half of FY 2001, (130) million yen in FY 2001)
2.
 
The average number of issued and outstanding shares: 132,153,432 shares (131,339,944 shares for the first half of FY 2001, 131,594,913 shares for FY 2001)
3.
 
The company made no changes in accounting principle that had material effects on the financial position and results of operations, during the period.
4.
 
The percentage of net sales, operating income, net income before tax and net income are in comparison to the first half of the prior fiscal year.
 
(2)
 
Consolidated Financial Position (Unaudited except December 31, 2001)
 
    
Total assets
     
Shareholders’ equity
     
Shareholders’ equity ratio
     
Shareholders’ equity
per share
As of
   
Millions of yen
     
Millions of yen
     
%
     
Yen
June 30, 2002
   
68,791
     
34,742
     
50.5
     
262.37
June 30, 2001
   
52,993
     
26,891
     
50.7
     
204.21
December 31, 2001
   
64,729
     
30,766
     
47.5
     
233.00
(Note)
Number of issued and outstanding shares (consolidated): 132,419,856 shares as of June 30, 2002, the end of the first half of FY 2002 (131,681,887 shares as of the end of the first half of FY 2001, 132,043,182 shares as of the end of the FY 2001)
 
(3)
 
Consolidated Cash Flow Position (Unaudited except December 31, 2001)
 
      
Cash flows from operating activities
     
Cash flows from investing activities
       
Cash flows from financing activities
     
Cash and cash equivalents at end of period
As of
     
Millions of yen
     
Millions of yen
       
Millions of yen
     
Millions of yen
June 30, 2002
     
6,275
     
(1,416
)
     
1,057
     
45,991
June 30, 2001
     
4,191
     
(1,364
)
     
6,963
     
34,553
December 31, 2001
     
12,240
     
(2,918
)
     
5,784
     
40,783
 
(4)
   
Basis of consolidation and application of equity method:
     
    
The number of consolidated subsidiaries
   
15
    
The number of unconsolidated subsidiaries
   
—
    
The number of affiliated companies  
   
4
 
(5)
   
Change in the basis of consolidation and application of equity method:
     
    
The number of additional consolidated subsidiaries
   
—
    
The number of excluded consolidated subsidiaries
   
3
    
The number of additional consolidated affiliated companies
   
—
    
The number of excluded consolidated affiliated companies
   
—

5

Table of Contents
[For the U.S. GAAP consolidated interim financial information (unaudited) of Trend Micro and its consolidated subsidiaries for the six months ended June 30, 2002, see the second attachment to this report on Form 6-K.]

6

Table of Contents
About Trend Micro, Inc.
 
Trend Micro, Inc. is a leader in network antivirus and Internet content security software and services. The Tokyo-based corporation has business units worldwide. Trend Micro products are sold through corporate and value-added resellers. For additional information and evaluation copies of all Trend Micro products, please visit our website: http://www.trendmicro.com.
 
For additional information:
Mr. Mahendra Negi
Chief Financial Officer/IR Officer
Phone: +81-3-5334-4899
Fax: +81-3-5334-4874
ir@trendmicro.co.jp

7

Table of Contents
Attachment 2

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
INDEX TO CONSOLIDATED INTERIM FINANCIAL INFORMATION (UNAUDITED)
 
    
Page
  
1
  
3
  
4
  
5

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(Except December 31, 2001, all balances unaudited)
 
ASSETS
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
June 30, 2001
     
December 31, 2001
     
June 30, 2002
     
June 30, 2002
  
Current assets:
   
(Yen
)
   
(Yen
)
   
(Yen
)
         
Cash and cash equivalents
   
34,553,234
 
   
40,782,650
 
   
45,990,588
 
   
$
386,476
 
Time deposits
   
65,511
 
   
70,768
 
   
64,796
 
   
 
545
 
Marketable securities
   
2,505,717
 
   
1,847,113
 
   
2,220,115
 
   
 
18,656
 
Notes and accounts receivable, trade—less allowance for doubtful accounts and sales return of ¥608,682, ¥850,376 and ¥1,389,080 ($11,673)
   
7,058,799
 
   
11,430,383
 
   
9,351,860
 
   
 
78,587
 
Inventories
   
206,946
 
   
238,881
 
   
371,790
 
   
 
3,124
 
Deferred income taxes
   
2,798,031
 
   
3,218,595
 
   
3,313,136
 
   
 
27,841
 
Prepaid expenses and other current assets
   
994,108
 
   
786,997
 
   
1,218,177
 
   
 
10,237
 
    
  
  
  
    
48,182,346
 
   
58,375,387
 
   
62,530,462
 
   
 
525,466
 
    
  
  
  
Investments and other assets:
                              
Securities investments
   
1,256,501
 
   
1,304,489
 
   
1,254,689
 
   
 
10,544
 
Investment in and advances to affiliated Companies
   
109,623
 
   
84,929
 
   
87,515
 
   
 
735
 
Software
   
908,856
 
   
1,061,319
 
   
895,966
 
   
 
7,529
 
Other intangible assets
   
70,672
 
   
49,143
 
   
37,730
 
   
 
317
 
Deferred income taxes
   
150,447
 
   
972,201
 
   
1,097,533
 
   
 
9,223
 
Other
   
795,721
 
   
868,377
 
   
940,301
 
   
 
7,902
 
    
  
  
  
    
3,291,820
 
   
4,340,458
 
   
4,313,734
 
   
 
36,250
 
    
  
  
  
Property and equipment:
                              
Office furniture and equipment
   
1,921,112
 
   
2,317,359
 
   
2,420,444
 
   
 
20,340
 
Other properties
   
597,089
 
   
1,003,901
 
   
1,030,911
 
   
 
8,663
 
    
  
  
  
    
2,518,201
 
   
3,321,260
 
   
3,451,355
 
   
 
29,003
 
Less: Accumulated depreciation
   
(999,550
)
   
(1,308,386
)
   
(1,504,072
)
   
 
(12,639
)
    
  
  
  
    
1,518,651
 
   
2,012,874
 
   
1,947,283
 
   
 
16,364
 
    
  
  
  
    
(Yen
)
   
(Yen
)
   
(Yen
)
         
    
52,992,817
 
   
64,728,719
 
   
68,791,479
 
   
$
578,080
 
    
  
  
  
 
The accompanying notes are an integral part of the financial information.

1

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(Except December 31, 2001, all balances unaudited)
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
June 30,
2001
     
December 31,
2001
     
June 30,
2002
     
June 30,
2002
  
Current liabilities:
   
(Yen
)
   
(Yen
)
   
(Yen
)
         
Current portion of long-term debt
   
57,200
 
   
3,000,000
 
   
8,000,000
 
   
$
67,227
 
Notes payable, trade
   
81,140
 
   
175,510
 
   
388,051
 
   
 
3,261
 
Accounts payable, trade
   
627,547
 
   
1,206,486
 
   
918,963
 
   
 
7,722
 
Accounts payable, other
   
637,700
 
   
1,806,527
 
   
1,112,339
 
   
 
9,347
 
Withholding income taxes
   
172,648
 
   
264,608
 
   
171,992
 
   
 
1,445
 
Accrued expenses
   
981,643
 
   
1,529,358
 
   
1,873,023
 
   
 
15,740
 
Accrued income and other taxes
   
606,682
 
   
3,359,572
 
   
2,131,466
 
   
 
17,912
 
Deferred revenue
   
6,311,197
 
   
9,342,597
 
   
11,159,665
 
   
 
93,779
 
Other
   
273,278
 
   
304,525
 
   
466,106
 
   
 
3,917
 
    
  
  
  
    
9,749,035
 
   
20,989,183
 
   
26,221,605
 
   
 
220,350
 
    
  
  
  
Long-term liabilities:
                              
Long-term debt
   
15,471,300
 
   
11,500,000
 
   
6,500,000
 
   
 
54,622
 
Deferred revenue
   
655,291
 
   
916,873
 
   
857,572
 
   
 
7,206
 
Accrued pension and severance costs
   
226,315
 
   
277,488
 
   
306,631
 
   
 
2,577
 
Other
   
—  
 
   
279,149
 
   
163,180
 
   
 
1,371
 
    
  
  
  
    
16,352,906
 
   
12,973,510
 
   
7,827,383
 
   
 
65,776
 
    
  
  
  
Shareholders’ equity:
                              
Common stock
                              
Authorized
                              
—June 30, 2001 250,000,000 shares (¥50 par value)
                              
—December, 2001 250,000,000 shares (no par value)
                              
—June 30, 2002 250,000,000 shares (no par value)
                              
Issued
                              
—June 30, 2001 131,681,887 shares
   
6,799,374
 
                       
—December 31, 2001 132,052,284 shares
          
6,833,678
 
                
—June 30, 2002 132,492,510 shares
                 
7,240,080
 
   
 
60,841
 
Additional paid-in capital
   
12,313,160
 
   
12,144,908
 
   
13,036,859
 
   
 
109,553
 
Legal reserve
   
149,991
 
   
149,991
 
   
182,084
 
   
 
1,530
 
Retained earnings
   
7,279,920
 
   
11,127,585
 
   
14,738,395
 
   
 
123,852
 
Accumulated other comprehensive income
                              
Net unrealized gain (loss) on debt and equity securities
   
118,721
 
   
(310,480
)
   
(396,267
)
   
 
(3,330
)
Cumulative translation adjustments
   
240,701
 
   
848,873
 
   
190,795
 
   
 
1,604
 
    
  
  
  
    
359,422
 
   
538,393
 
   
(205,472
)
   
 
(1,726
)
    
  
  
  
Treasury stock, at cost
   
(10,991
)
   
(28,529
)
   
(249,455
)
   
 
(2,096
)
    
  
  
  
    
26,890,876
 
   
30,766,026
 
   
34,742,491
 
   
 
291,954
 
    
  
  
  
Commitments and contingent liabilities
   
—  
 
   
—  
 
   
—  
 
   
 
—  
 
    
  
  
  
    
(Yen
)
   
(Yen
)
   
(Yen
)
         
    
52,992,817
 
   
64,728,719
 
   
68,791,479
 
   
$
578,080
 
    
  
  
  
 
The accompanying notes are an integral part of the financial information.

2

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
For the six months
ended June 30,
     
For the six months ended
June 30,
2002
  
    
2001
     
2002
     
    
(Yen
)
   
(Yen
)
         
Net sales
   
12,939,355
 
   
20,507,019
 
   
$
172,328
 
Cost of sales
   
732,229
 
   
1,195,693
 
   
 
10,048
 
    
  
  
Gross profit
   
12,207,126
 
   
19,311,326
 
   
 
162,280
 
    
  
  
Operating expenses:
                       
Selling
   
3,224,430
 
   
5,914,684
 
   
 
49,703
 
Research and development
   
1,481,962
 
   
1,838,592
 
   
 
15,451
 
General and administrative
   
4,240,357
 
   
5,207,805
 
   
 
43,763
 
Goodwill write-off
   
2,253,559
 
   
—  
 
   
 
—  
 
    
  
  
    
11,200,308
 
   
12,961,081
 
   
 
108,917
 
    
  
  
Operating income
   
1,006,818
 
   
6,350,245
 
   
 
53,363
 
    
  
  
Other income (expenses):
                       
Interest income
   
202,267
 
   
185,155
 
   
 
1,556
 
Interest expense
   
(135,172
)
   
(157,560
)
   
 
(1,324
)
Loss on sales of marketable securities
   
—  
 
   
(58,421
)
   
 
(491
)
Foreign exchange gain (loss), net
   
256,830
 
   
(95,126
)
   
 
(799
)
Other income (expense), net
   
(107,200
)
   
181,563
 
   
 
1,526
 
    
  
  
    
216,725
 
   
55,611
 
   
 
468
 
    
  
  
                        
Income before income taxes and equity in gain (loss) of affiliated companies
   
1,223,543
 
   
6,405,856
 
   
 
53,831
 
    
  
  
Income taxes (benefit):
                       
Current
   
491,658
 
   
2,969,102
 
   
 
24,951
 
Deferred
   
73,174
 
   
(215,107
)
   
 
(1,808
)
    
  
  
    
564,832
 
   
2,753,995
 
   
 
23,143
 
    
  
  
Income from consolidated companies
   
658,711
 
   
3,651,861
 
   
 
30,688
 
Equity in gain (loss) of affiliated companies
   
(104,850
)
   
2,587
 
   
 
22
 
    
  
  
                      
Net income
   
(Yen)
553,861
 
 
   
(Yen)
3,654,448
 
 
   
$
30,710
 
    
  
  
                        
Per share data:
   
Yen
 
   
Yen
 
   
 
U.S. dollars
 
    
  
  
Net income
                       
—basic
   
(Yen)
4.22
 
 
   
(Yen)
27.65
 
 
   
$
0.23
 
—diluted
   
4.14
 
   
27.53
 
   
 
0.23
 
Cash dividends
   
—  
 
   
—  
 
   
 
—  
 
 
The accompanying notes are an integral part of the financial information.

3

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
For the six months
ended June 30,
     
For the six months ended
June 30, 2002
  
    
2001
     
2002
     
Cash flows from operating activities:
                       
Net income
   
(Yen) 553,861
  
   
(Yen) 3,654,448
  
   
$
30,710
 
Adjustments to reconcile net income to net cash
provided by operating activities—  
                       
Depreciation and amortization
   
2,728,584
 
   
950,428
 
   
 
7,987
 
Pension and severance costs, less payments
   
56,660
 
   
31,592
 
   
 
265
 
Deferred income taxes
   
73,174
 
   
(215,107
)
   
 
(1,808
)
Loss on sales of marketable securities
   
—  
 
   
58,421
 
   
 
491
 
Changes in assets and liabilities:
                       
Increase in deferred revenue
   
1,197,419
 
   
2,059,265
 
   
 
17,305
 
Decrease in notes and accounts receivable, trade, net of allowances
   
1,323,967
 
   
1,817,470
 
   
 
15,273
 
(Increase) decrease in inventories
   
113,719
 
   
(141,097
)
   
 
(1,186
)
Increase (decrease) in notes and accounts payable, trade
   
(261,766
)
   
585
 
   
 
5
 
Decrease in accrued corporate taxes and other
   
(1,413,131
)
   
(1,227,563
)
   
 
(10,316
)
Decrease (increase) in other current assets
   
(103,212
)
   
122,017
 
   
 
1,025
 
(Decrease) increase in accounts payable, other
   
40,311
 
   
(341,474
)
   
 
(2,869
)
Increase in other current liabilities
   
88,517
 
   
151,475
 
   
 
1,273
 
Increase in other assets
   
(333,368
)
   
(630,586
)
   
 
(5,299
)
Other
   
126,182
 
   
(14,589
)
   
 
(123
)
    
  
  
Net cash provided by operating activities
   
4,190,917
 
   
6,275,285
 
   
 
52,733
 
    
  
  
Cash flows from investing activities:
                       
Payments for purchases of fixed assets
   
(1,228,759
)
   
(892,234
)
   
 
(7,498
)
Proceeds from sales of marketable securities
   
2,611,426
 
   
152,316
 
   
 
1,280
 
Payments for purchases of marketable securities
   
(2,648,926
)
   
(681,974
)
   
 
(5,731
)
Increase in investments in affiliated companies
   
(32,000
)
   
—  
 
   
 
—  
 
Payments for / Proceeds from time deposits
   
(65,511
)
   
5,971
 
   
 
51
 
    
  
  
Net cash used in investing activities
   
(1,363,770
)
   
(1,415,921
)
   
 
(11,898
)
    
  
  
Cash flows from financing activities:
                       
Issuance of common stock pursuant to exercise of stock options
   
870,797
 
   
800,966
 
   
 
6,731
 
Tax benefit from exercise of non-qualified stock options
   
411,301
 
   
492,028
 
   
 
4,135
 
Proceeds from long-term debt
   
6,500,000
 
   
4,000,000
 
   
 
33,613
 
Purchase of treasury bonds
   
—  
 
   
(4,008,800
)
   
 
(33,687
)
Repayment of long-term debt
   
(828,600
)
   
—  
 
   
 
—  
 
Purchase of / Proceeds from sales of treasury stock, net
   
9,525
 
   
(227,391
)
   
 
(1,911
)
    
  
  
Net cash provided by financing activities
   
6,963,023
 
   
1,056,803
 
   
 
8,881
 
    
  
  
Effect of exchange rate changes on cash and cash equivalents
   
327,561
 
   
(708,229
)
   
 
(5,952
)
    
  
  
Net increase in cash and cash equivalents
   
10,117,731
 
   
5,207,938
 
   
 
43,764
 
Cash and cash equivalents at beginning of period
   
24,435,503
 
   
40,782,650
 
   
 
342,712
 
    
  
  
Cash and cash equivalents at end of period
   
(Yen) 34,553,234
  
   
(Yen) 45,990,588
  
   
$
 386,476
 
    
  
  
 
The accompanying notes are an integral part of the financial information.

4

Table of Contents
 
TREND MICRO INCORPORATED
AND CONSOLIDATED SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
 
(Unaudited)
 
1.    Basis of presentation
 
The consolidated financial information of Trend Micro Incorporated and its subsidiaries (collectively “the Company”) are unaudited. The financial information have been prepared in accordance with U.S. GAAP. The unaudited financial information furnished include all adjustments that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results for the year ended December 31, 2002.
 
2.    Recent pronouncements
 
From the fiscal year beginning January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“FAS No.141”) “Business Combinations” which supersedes Accounting Principles Board Opinion (“APB”) No. 16 “Business Combination” and FAS No.142 “Goodwill and Other Intangible Assets” which supersedes APB No. 17 “Intangible assets.” FAS No.141 requires the use of purchase method of accounting for business combinations and prohibits the use of the pooling of interests method, which was previously permitted under APB No.16, for business combinations initiated after June 30, 2001. FAS No.141 also refines the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of future business combinations may be different than the allocation that would have resulted under the old rules. FAS No.142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. The new rules also prohibit the amortization of goodwill associated with business combinations that close after June 30, 2001. These new requirements will impact future period net income by an amount adjusted for any differences between the old and new rules for defining intangible assets on future business combinations. Although FAS No.142 requires to perform an initial transition impairment test in 2002, the Company did not have any goodwill balances as of December 31, 2001. The adoption of FAS No.141 and FAS No.142 did not have a material effect on the Company’s financial position and results of operations.
 
From the fiscal year beginning January 1, 2002, the Company adopted FAS No.144 “Accounting for the Impairment or Disposal of Long-Lived Assets” . FAS No. 144 addresses significant issues relating to the implementation of FAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ”, and develops a single accounting model, based on the framework established in FAS No. 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. FAS No. 144 also modifies the accounting and reporting rules for discontinued operations. The adoption of FAS No.144 did not have a material effect on the Company’s financial position and results of operations.
 
In August 2001, the FASB issued FAS No.143 “Accounting for Asset Retirement Obligations”. FAS No. 143 provides accounting and reporting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or normal operation of a long-lived asset. The standard is effective January 1, 2003. The Company is reviewing the provisions of this standard. Its adoption is not expected to have a material effect on the financial statements.
 
In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FAS No. 13, and Technical Corrections”, effective for the fiscal years beginning or transactions occurring after May 15, 2002. This statement rescinds certain authoritative pronouncements and amends, clarifies or describes the applicability of others. The Company is in the process of assessing the impact that the statement will have on the Company’s financial position and results of operations.
 
In July 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. FAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No.94-3 (“EITF No. 94-3”), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of FAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company is evaluating the effect of the new standard, if any, on its financial position and results of operations.

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Table of Contents
 
3.    Reclassifications
 
Certain prior year amounts have been reclassified to conform to the 2002 presentation.
 
4.    U.S. dollar amounts
 
U.S. dollar amounts presented in the financial information are included solely for the convenience of the reader. These translations should not be construed as representations that the yen amounts actually represent, or have been or could be converted into, U.S. dollars. As the amounts shown in U.S. dollars are for convenience only, the approximate current rate at June 30, 2002 ((Yen)119.00 = U.S. $1) has been used for the purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial information.
 
5.    Net income per share
 
Net income per share amounts were computed based on Statements of Financial Accounting Standards No. 128. For the six months ended June 30, 2001 and 2002, weighted average shares used for computation of basic net income per share were 131,340 thousand shares and 132,153 thousand shares, respectively, and the weighted average shares used for diluted net income per share were 133,676 thousand shares and 132,747 thousand shares, respectively. The weighted average shares outstanding for diluted net income per share calculation were increased to include additional shares from the assumed exercise of stock warrants and options which had dilutive effect.
 
6.    Comprehensive income
 
Changes in shareholders’ interest that do not result directly from transactions with shareholders are as follows:
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
For the six months
ended June 30,
     
For the six months ended June 30,
  
    
2001
     
2002
     
2002
  
Net income
   
(Yen) 553,861
  
   
(Yen) 3,654,448
  
   
$
30,710
 
    
  
  
Other comprehensive income, net of tax:
                       
Unrealized gain on debt and equity securities:
                       
Unrealized holding gains (losses) arising during period
   
495,407
 
   
(206,134
)
   
 
(1,732
)
Less reclassification adjustment for losses included in net income
   
—  
 
   
58,098
 
   
 
488
 
    
  
  
    
495,407
 
   
(148,036
)
   
 
(1,244
)
Foreign currency translation adjustments
   
410,317
 
   
(658,078
)
   
 
(5,530
)
    
  
  
Other comprehensive income, before tax
   
905,724
 
   
(806,114
)
   
 
(6,774
)
Income tax expense related to items of other comprehensive income
   
(208,410
)
   
62,249
 
   
 
523
 
    
  
  
Other comprehensive income, net of tax
   
697,314
 
   
(743,865
)
   
 
(6,251
)
    
  
  
Comprehensive income
   
(Yen) 1,251,175
  
   
(Yen) 2,910,583
  
   
$
24,459
 
    
  
  

6

Table of Contents
 
7.    Supplemental cash flow information
 
Cash payments for income taxes were (Yen)1,618,952 thousand and (Yen)3,624,846 thousand ($30,461 thousand) for the six months ended June 30, 2001 and 2002, respectively. In these respective periods, interest payments were (Yen)122,593 thousand and (Yen)161,755 thousand ($1,359 thousand).

7

Table of Contents
 
8.    Marketable securities
 
Cash equivalents and marketable securities (current and non-current) include money market funds, mutual funds and debt and equity securities for which the aggregate fair value, gross unrealized gains and losses and cost pertaining to “available-for-sale” investments as of June 30 and December 31,2001 and June 30,2002 were as follows:
 
    
Thousands of yen
  
    
June 30, 2001
  
           
Gross unrealized
         
    
Cost
     
Gains
     
Losses
     
Fair value
  
Available for sale:
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
Mutual funds
   
 
970,802
 
   
 
—  
 
   
 
32,900
 
   
 
937,902
 
Equity securities
   
 
862,830
 
   
 
192,976
 
   
 
—  
 
   
 
1,055,806
 
Debt securities
   
 
1,700,000
 
   
 
68,510
 
   
 
—  
 
   
 
1,768,510
 
    
  
  
  
Total
   
 
 
(Yen
3,533,632
)
 
   
 
 
(Yen
261,486
)
 
   
 
 
(Yen
32,901
)
 
   
 
 
(Yen
3,762,218
)
 
    
  
  
  
    
Thousands of yen
  
    
December 31, 2001
  
           
Gross unrealized
         
    
Cost
     
Gains
     
Losses
     
Fair value
  
Available for sale:
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
Mutual funds
   
 
960,806
 
   
 
—  
 
   
 
253,417
 
   
 
707,389
 
Equity securities
   
 
951,830
 
   
 
—  
 
   
 
254,537
 
   
 
697,293
 
Debt securities
   
 
1,700,000
 
   
 
46,920
 
   
 
—  
 
   
 
1,746,920
 
    
  
  
  
Total
   
 
 
(Yen
3,612,636
)
 
   
 
 
(Yen
46,920
)
 
   
 
 
(Yen
507,954
)
 
   
 
 
(Yen
3,151,602
)
 
    
  
  
  
    
Thousands of yen
  
    
June 30, 2002
  
           
Gross unrealized
         
    
Cost
     
Gains
     
Losses
     
Fair value
  
Available for sale:
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
   
 
(Yen
)
Mutual funds
   
 
960,806
 
   
 
—  
 
   
 
253,417
 
   
 
707,389
 
Equity securities
   
 
875,393
 
   
 
—  
 
   
 
245,989
 
   
 
629,404
 
Debt securities
   
 
2,247,675
 
   
 
—  
 
   
 
109,664
 
   
 
2,138,011
 
    
  
  
  
Total
   
 
 
(Yen
4,083,874
)
 
   
 
 
(Yen
—  
)
 
   
 
 
(Yen
609,070
)
 
   
 
 
(Yen
3,474,804
)
 
    
  
  
  
    
Thousands of U.S. dollars
  
    
June 30, 2002
  
           
Gross unrealized
         
    
Cost
     
Gains
     
Losses
     
Fair value
  
Available for sale:
                                    
Mutual funds
   
$
8,074
 
   
$
—  
 
   
$
2,129
 
   
$
5,945
 
Equity securities
   
 
7,356
 
   
 
—  
 
   
 
2,067
 
   
 
5,289
 
Debt securities
   
 
18,888
 
   
 
—  
 
   
 
922
 
   
 
17,966
 
    
  
  
  
Total
   
$
34,318
 
   
$
—  
 
   
$
5,118
 
   
$
29,200
 
    
  
  
  

8

Table of Contents
 
Fair value of money market funds approximates cost due to the short-term maturities of these investments.
 
At June 30, 2001 and 2002, debt securities contain bonds issued by a related party (SOFTBANK). The cost and fair value of “available-for sale” debt securities by contractual maturity at June 30 and December 31,2001 and June 30,2002 are as follows:
 
    
Thousands of yen
  
    
June 30, 2001
     
December 31, 2001
     
June 30, 2002
  
    
Available-for sale
     
Available-for sale
     
Available-for-sale
  
    
Cost
     
Fair value
     
Cost
     
Fair value
     
Cost
     
Fair value
  
Due within one year
   
(Yen
—  
)
 
   
(Yen
—  
)
 
   
(Yen
—  
)
 
   
(Yen
—  
)
 
   
(Yen
1,700,000
)
 
   
(Yen
1,645,770
)
 
Due after one year
   
1,700,000
 
   
1,768,510
 
   
1,700,000
 
   
1,746,920
 
   
547,675
 
   
492,241
 
    
  
  
  
  
  
    
(Yen
1,700,000
)
 
   
(Yen
1,768,510
)
 
   
(Yen
1,700,000
)
 
   
(Yen
1,746,920
)
 
   
(Yen
2,247,675
)
 
   
(Yen
2,138,011
)
 
    
  
  
  
  
  
 
    
Thousands of U.S. dollars
    
June 30, 2002
    
Available-for-sale
    
Cost
   
Fair value
Due within one year
   
$
14,286
   
$
13,830
Due after one year
   
 
4,602
   
 
4,136
    
  
    
$
18,888
   
$
17,966
    
  
 
Proceeds from sales of ”available-for-sale” securities for the six months ended June 30, 2001 and 2002 were (Yen)2,611,426 and (Yen)152,316 thousand ($1,280 thousand).
 
Equity securities of (Yen)160,000 thousand which had previously been recorded as “Securities investments” under investments and other assets was reclassified to “Marketable securities” under current assets at June 30, 2001.

9

Table of Contents
 
9.    Transactions with related parties
 
Account balances and transactions with SOFTBANK and its affiliated companies are as follows:
 
    
Thousands of yen
   
Thousands of U.S. dollars
    
June 30, 2001
   
December 31,
2001
   
June 30,
2002
   
June 30, 2002
    
(Yen)
   
(Yen)
   
(Yen)
     
Accounts receivable, trade
   
1,335,247
   
4,074,617
   
2,606,359
   
$
21,902
Securities investments
   
1,768,510
   
1,746,920
   
1,645,770
   
 
13,830
Accounts payable, other
   
2,802
   
217,334
   
109,520
   
 
920
Sales for the six months ended
   
2,580,812
   
—  
   
4,871,663
   
 
40,938
Purchase and expense for the six months ended
   
56,483
   
—  
   
16,849
   
 
142
Interest income on security investments
   
25,290
   
—  
   
25,290
   
 
213
 
The Company believes that each of these transactions has been negotiated on an arm’s length basis and done at fair value based on market pricing.

10

Table of Contents
 
10.    Short-term borrowings and long-term debt
 
At June 30, 2002, the Company had unused lines of credit amounting to ¥800,000 thousand relating to bank overdraft and other short-term loan agreements. Under these overdraft agreements, the Company is authorized to obtain short-term financing at prevailing interest rates for periods not in excess of one year.
 
Long-term debt comprises the following:
 
    
Thousands of yen
     
Thousands of U.S. dollars
  
    
June 30,
2001
     
December 31,
2001
     
June 30,
2002
     
June 30, 2002
  
Unsecured bank loan of a consolidated subsidiary due 2001 with a weighted average interest rate of 2.175% per annum
   
(Yen) 28,600
  
   
(Yen)
—  
 
 
   
(Yen)
—  
 
 
   
$
—  
 
Unsecured bank loan of a consolidated subsidiary due 2003 with a weighted average interest rate of 2.175% per annum
   
99,900
 
   
—  
 
   
—  
 
   
 
—  
 
Unsecured 2.5% bonds, due 2002 with detachable warrants
   
3,900,000
 
   
3,800,000
 
   
3,800,000
 
   
 
31,933
 
Unsecured 2.1% bonds, due 2003 with detachable warrants
   
5,000,000
 
   
5,000,000
 
   
5,000,000
 
   
 
42,017
 
Unsecured 1.75% bonds, due 2004 with detachable warrants
   
5,000,000
 
   
5,000,000
 
   
5,000,000
 
   
 
42,017
 
Unsecured 1.5% bonds, due 2004 with detachable warrants
Unsecured 1.75% bonds, due 2004 with detachable warrants
Unsecured 1.9% bonds, due 2006 with detachable warrants
   
1,500,000
—  
—  
 
 
 
   
1,500,000
6,000,000
—  
 
 
 
   
1,500,000
6,000,000
4,000,000
 
 
 
   
 
 
 
12,605
50,420
33,613
 
 
 
    
  
  
  
    
15,528,500
 
   
21,300,000
 
   
25,300,000
 
   
 
212,605
 
Less—treasury bonds:
Unsecured 2.5% bonds, due 2002 with detachable warrants
Unsecured 1.75% bonds, due 2004 with detachable warrants
Unsecured 1.9% bonds, due 2006 with detachable warrants
   
—  
—  
—  
 
 
 
   
(800,000
(6,000,000
—  
)
)
 
   
(800,000
(6,000,000
(4,000,000
)
)
)
   
 
 
 
(6,723
(50,420
(33,613
)
)
)
    
  
  
  
Less—portion due within one year
   
15,528,500
(57,200
 
)
   
14,500,000
(3,000,000
 
)
   
14,500,000
(8,000,000
 
)
   
 
 
121,849
(67,227
 
)
    
  
  
  
    
(Yen) 15,471,300
  
   
(Yen)
11,500,000
 
 
   
(Yen)
6,500,000
 
 
   
$
54,622
 
    
  
  
  

11

Table of Contents
 
11.    Stock warrants
 
Based on the Company’s 1997, 1998 and 1999 incentive plans, the Company issued the following bonds with detachable warrants to SOFTBANK.
 
1.
  
Board meeting/
               
   
(Shareholders’ meeting)
approval
   
March 17, 1998
(March 28, 1998)
   
May 28, 1998
(May 29, 1998)
   
June 30, 1999
2.
  
Date of bond issuance
   
April 15, 1998
   
June 15, 1998
   
July 29, 1999
3.
  
Amount of each bond (Thousands of yen)
   
(Yen)412,965
   
(Yen)196,650
   
(Yen)6,000,000
4.
  
Date on which the bonds were fully redeemed
   
April 15, 1998
   
June 15, 1998
   
—  
5.
  
Exercise price per each warrant
   
(Yen)142.5
   
(Yen)142.5
   
(Yen)3,200
6.
  
Warrant exercise period
   
April 27, 1998 to April 5, 2002
   
June 25, 1998 to June 7, 2002
   
August 20, 1999 to July 22, 2002
7.
  
Number of shares represented by warrants
   
2,898,000
   
1,380,000
   
1,875,000
8.
  
Outstanding as of
June 30, 2001
   
549,600
   
539,400
   
1,174,182
9.
  
Outstanding as of
December 31, 2001
   
500,400
   
505,800
   
1,169,062
10.
  
Outstanding as of
June 30, 2002
   
—  
   
—  
   
923,869
 
Based on the Company’s 2000, 2001 and 2002 incentive plan, the Company issued following bonds with detachable warrants to public.
 
1.
  
Board meeting approval
   
June 1, 2000
   
February 15, 2001
   
May 8, 2001
2.
  
Date of bond issuance
   
June 26, 2000
   
March 19, 2001
   
June 4, 2001
3.
  
Amount of each bond (Thousands of yen)
   
(Yen)5,000,000
   
(Yen)5,000,000
   
(Yen)1,500,000
4.
  
Date on which the bonds were fully redeemed
   
—  
   
—  
   
—  
5.
  
Exercise price per each warrant
   
(Yen)7,850
   
(Yen)5,675
   
(Yen)5,760
6.
  
Warrant exercise period
   
July 21, 2000 to
June 19, 2003
   
April 12, 2001 to March 12, 2004
   
May 17, 2002 to May 28, 2004
7.
  
Number of shares represented by warrants
   
636,942
   
881,057
   
260,416
8.
  
Outstanding as of
June 30, 2001
   
636,942
   
873,128
   
256,076
9.
  
Outstanding as of
December 31, 2001
   
636,942
   
873,128
   
256,076
10.
  
Outstanding as of
June 30, 2002
   
636,942
   
873,128
   
256,076
1.
  
Board meeting approval
   
October 25, 2001
   
March 26, 2002
     
2.
  
Date of bond issuance
   
November 19, 2001
   
April 18, 2002
     
3.
  
Amount of each bond (Thousands of yen)
   
(Yen)6,000,000
   
(Yen)4,000,000
     
4.
  
Date on which the bonds were fully redeemed
   
—  
   
—  
     
5.
  
Exercise price per each warrant
   
(Yen)2,590
   
(Yen)3,450
     
6.
  
Warrant exercise period
   
November 2, 2002 to November 12, 2004
   
April 3, 2003 to April 11, 2006
     
7.
  
Number of shares represented by warrants
   
2,316,602
   
1,159,420
     
8.
  
Outstanding as of
June 30, 2001
   
—  
   
—  
     
9.
  
Outstanding as of
December 31, 2001
   
2,316,602
   
—  
     
10.
  
Outstanding as of
June 30, 2002
   
2,316,602
   
1,159,420
     

12

Table of Contents
 
Upon issuance of each bond, the Company bought all of the warrants and distributed them to the directors and certain employees of the Company and its subsidiaries as a part of their remuneration.
 
These transactions were accounted for both as an issuance of debt to SOFTBANK and the public, and as an issuance of warrants to the directors and certain employees of the Company and its subsidiaries. The issuance of the warrants to the directors and employees was accounted for under APB 25.
 
Warrant activity was as follows:
 
      
Thousands of shares represented by warrants
  
Outstanding at December 31, 1998
     
7,891
 
Granted
     
1,875
 
Exercised
     
(4,672
)
Cancelled
     
—  
 
Redeemed
     
—  
 
      
Outstanding at December 31, 1999
     
5,094
 
Granted
     
637
 
Exercised
     
(1,435
)
Cancelled
     
—  
 
Redeemed
     
—  
 
      
Outstanding at December 31, 2000
     
4,296
 
Granted
     
3,458
 
Exercised
     
(898
)
Cancelled
     
(12
)
Redeemed
     
(552
)
      
Outstanding at December 31, 2001
     
6,292
 
Granted
     
1,159
 
Exercised
     
(440
)
Cancelled
     
—  
 
Redeemed
     
(845
)
      
Outstanding at June 30, 2002
     
6,166
 
      
 
Balances were as follows:
 
    
Thousands of shares
    
June 30
2001
     
December 31
2001
   
June 30
2002
Authorized and outstanding
   
4,864
     
6,292
   
6,166
Exercisable
   
3,278
     
2,356
   
1,537
 
For the above stock warrants granted on April 15, 1998 and June 15, 1998, management calculated deferred compensation expense during fiscal 1998. Such deferred compensation will be amortized over the vesting period, which is generally 24 months. This deferred compensation expense was amortized during fiscal 1998, 1999 and 2000 respectively. The grants of October 17, 1997, July 29, 1999, June 26, 2000 March 19,2001, June 4, 2001, November 19, 2001 and April 18, 2002 with respect to which the vesting period is generally 24 months, did not result in deferred compensation.
 
In July 1999, the subsidiary in the United States introduced the U.S. program of the Company’s incentive plan. Under the U.S. program, STG Incentive Company L.L.C., a Delaware limited company organized for the program by three principal shareholders of the Company, grants stock options to purchase shares of the Company’s common stock, which vest one year from the date of grant and which are exercisable for the 3 years subsequent to the vesting date, to directors and certain employees of the subsidiary in the United States. The grants of options to the directors

13

Table of Contents
and employees were accounted for under APB 25. Option activity under the U.S. program for the year ended December 31, 2001 and for the period ended June 30,2002 was as follows:
 
      
Thousands of shares
represented by options
  
Outstanding at December 31, 2000
     
1,507.0
 
Granted
     
—  
 
Exercised
     
(45.5
)
Cancelled
     
—  
 
Redeemed
     
—  
 
Outstanding at December 31, 2001
     
1,461.5
 
Granted
     
—  
 
Exercised
     
(100.0
)
Cancelled
     
—  
 
Redeemed
     
—  
 
Outstanding at June 30, 2002
     
1,361.5
 
 
The exercise price per share for the options granted was determined as equivalent to the fair market value of the Company’s shares at the time of the grants. The weighted average exercise price per share for the option granted for the six months ended June 30, 2002 was (Yen)3,258. Consequently, the grants of the option did not result in deferred compensation.
 
In February 2001, the Company introduced the stock option plan qualified under Article 280-19 of the Commercial Code of Japan. This stock option plan grants subscription rights to the Company’s shares of common stock, which are exercisable from April 1, 2002 to March 31, 2009, to certain directors and employees of the Company and its subsidiaries qualifying for the special related business as defined in Paragraph 1 of Article 9 of the Corporate Rehabilitation Law of Japan. The exercise price per share for the options granted was determined as equivalent to the fair market value of the Company’s shares at the time of the grants. The exercise price per share for the option granted for is (Yen)5,760. Consequently, the grants of the option did not result in deferred compensation. Option activity qualified under the Commercial Code of Japan for the period ended June 30, 2002 was as follows:
 
      
Thousands of shares
represented by options
  
Outstanding at December 31, 2000
     
—  
 
Granted
     
725
 
Exercised
     
—  
 
Cancelled
     
(18
)
Redeemed
     
—  
 
Outstanding at December 31, 2001
     
707
 
Granted
     
—  
 
Exercised
     
—  
 
Cancelled
     
—  
 
Redeemed
     
—  
 
Outstanding at June 30, 2002
     
707
 

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12.    Commitments and contingent liabilities
 
The Company and its subsidiaries have no significant commitments outstanding, and no material pending litigation or claims threatened against them.
 
13.    Segment information
 
The Company and its consolidated subsidiaries operate principally in two business segments: the “Security software business” and the “Internet-related products/service business”. However, business segment information was not disclosed for the six months ended June 30,2001 since more than 90% of sales, operating income and assets in all segments are from the “security software business”. Afterwards, ipTrend Incorporated, which has operated the “Internet-related product/service business”, was liquidated in year ended December 31, 2001 and ipTrend Incorporated (Taiwan) has been processed to liquidate. Thus, from the six months ended June 30, 2002, the company and its subsidiaries are specialized in the “Security software business”. Net sales are attributed to countries based on the location of the Company or the relevant consolidated subsidiary. Geographic information concerning the Company’s net sales to external customers and long-lived assets for the six months ended June 30, 2001 and 2002 is as follows:
 
Taiwan had been disclosed separately. However, the sales volume in Taiwan has been decreasing and it is expected to decline more. In addition, strictly considering geographical proximity, it is rational to disclose Taiwan together with Korea, Australia, Hong Kong, Malaysia, New Zealand and China.Therefore, from the six months ended June 30, 2002, they are disclosed as “Asia Pacific”. Segment information for the six months ended June 30, 2001 in the current way of classification and allocation are disclosed for comparison as follows.
 
    
Thousands of yen
    
For the six
months ended
June 30,
2001
Net sales to external customers:
   
(Yen)
Japan
   
4,487,538
U.S.A.
   
4,017,816
Taiwan
   
883,544
Europe
   
2,796,600
Other
   
753,857
    
Total
   
(Yen) 12,939,355
    
Long-lived assets:
   
(Yen)
Japan
   
1,701,329
U.S.A.
   
658,108
Taiwan
   
643,413
Europe
   
211,118
Other
   
79,932
    
Total
   
(Yen) 3,293,900
    

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Thousands of yen
   
Thousands of U.S. dollars
    
For the six months ended June 30,
   
For the six months ended June 30,
2002
    
2001
   
2002
   
Net sales to external customers:
   
(Yen)
   
(Yen)
       
Japan
   
4,487,538
   
8,570,556
   
$
72,021
U.S.A.
   
4,017,816
   
4,667,439
   
 
39,222
Asia Pacific
   
1,216,371
   
1,984,284
   
 
16,675
Europe
   
2,796,600
   
4,681,702
   
 
39,342
Other
   
421,030
   
603,038
   
 
5,068
    
  
  
Total
   
  (Yen) 12,939,355
   
(Yen) 20,507,019
   
$
172,328
    
  
  
Long-lived assets:
   
(Yen)
   
(Yen)
       
Japan
   
1,701,329
   
1,775,262
   
$
14,918
U.S.A.
   
658,108
   
617,823
   
 
5,192
Asia Pacific
   
698,436
   
976,137
   
 
8,203
Europe
   
211,118
   
430,815
   
 
3,620
Other
   
24,909
   
21,243
   
 
179
    
  
  
Total
   
(Yen) 3,293,900
   
(Yen) 3,821,280
   
$
32,112
    
  
  
 
Long-lived assets for a particular geographic segment are those assets used in the geographic segment.
 
14.    Acquisition and divesture
 
In February 2000, the company acquired a controlling interest in ipTrend Incorporated (“ipTrend”) for the purpose of making inroads into UNIX-based operating systems, and Internet platform technology, especially into Linux systems. ipTrend effectively became a wholly owned subsidiary upon acquisition of the remaining minority interest in November 2000.The total purchase price was (Yen) 2,800,000 thousand and (Yen) 2,527,636 thousand was allocated to goodwill. However, based on a revaluation of the Company’s strategy for ipTrend’s business and the performance of ipTrend, the Company decided to curtail ipTrend’s business. ipTrend was liquidated in December 2001 after transferring the main business of ipTrend to IPSQUARE, an unrelated third party, and the Security Appliance Server business to the parent company in August 2001. The assets of (Yen) 40,000 thousand and the liabilities of (Yen) 29,000 thousand were transferred to or assumed by IPSQUARE at their carrying amount without any gain or loss on the transaction. As a result of the curtailment of ipTrend’s business, the Company wrote off the unamortized goodwill balance of (Yen) 2,253,559 thousand. The write-off of (Yen) 2,253,559 thousand were included in operating income for the six months ended June 30, 2001.
 
15.    Subsequent events
 
On June 13, 2002 Trend Micro adopted at the meeting of the Board of Directors the following resolutions regarding Share Options set forth in Article 280-20 and Article 280-21 of the Japanese Commercial Code to be issued without compensation in order to introduce the stock option plan, subject to the resolution of the extraordinary general shareholders’ meeting of the Company scheduled for September 12, 2002. Afterwards the resolution of the extraordinary general meeting of shareholders scheduled for September 12, 2002 was made.
 
The person to be granted:

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The directors, employees, consultants and persons proposed to be employed as employees of the Company and its subsidiaries
 
Class of shares subject to the exercise of share options:
Common shares of the Company
 
Number of shares subject to the exercise of share options:
The total number of shares shall be limited to a maximum of 2,000,000 shares.
 
Exercise period of share options:
The exercise period of the share options shall be from November 1, 2003 to October 31, 2007.

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