SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________
XX Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the quarterly period
ended June 30, 1997, 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 1-10139
NETEGRITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2911320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Winter Street
Waltham, MA 02154
(Address of principal executive offices) (Zip Code)
(617)890-1700
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 other 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 XX Yes No
As of July 31, 1997 there were 9,269,446 shares of Common Stock
outstanding.
<PAGE>
FORM 10-Q
QUARTERLY REPORT
----------------
TABLE OF CONTENTS
Facing Sheet. . . . . . . . . . . . . . . . . . . . . . . 1
Table of Contents . . . . . . . . . . . . . . . . . . . . 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . 3
Consolidated Statements of Operations. . . . . . 5
Consolidated Statements of Cash Flows. . . . . . 7
Notes to Consolidated Financial Statements . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . .11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . .16
Item 2. Changes in Securitities. . . . . . . . . . . . .16
Item 3. Defaults Upon Senior Securities. . . . . . . . .16
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . .16
Item 5. Other Information. . . . . . . . . . . . . . . .18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . .18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . .19
Exhibit 11 - Computation of earnings per share . . . . . .20
<PAGE>
PART I. - FINANCIAL INFORMATION
NETEGRITY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1997 December 31,
(unaudited) 1996
CURRENT ASSETS:
Cash and cash equivalents $4,620,286 $ 6,791,057
Escrow receivable 600,000 600,000
Accounts receivable-trade, net of
allowance for doubtful accounts
of $74,797 and $67,797 at June 30
1997 and December 31, 1996,
respectively 501,619 787,780
Other current assets 553,627 559,230
TOTAL CURRENT ASSETS 6,275,532 8,738,067
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 501,497 287,323
CAPITALIZED SOFTWARE COSTS 344,189 ---
OTHER ASSETS:
Investment in Encotone, Inc. 106,252 210,000
Investment in Encotone, LTD. --- 1,000,000
Other 33,922 23,360
TOTAL OTHER ASSETS 140,174 1,233,360
TOTAL ASSETS $7,261,392 $10,258,750
The accompanying notes are an integral part of the financial
statements.
<PAGE>
NETEGRITY, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1997 December 31,
(unaudited) 1996
CURRENT LIABILITIES:
Accounts payable-trade $ 1,562,431 $ 2,099,436
Other accrued expenses 2,016,977 2,009,890
Capital lease obligation 30,058 ---
TOTAL LIABILITIES 3,609,466 4,109,326
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY:
Common stock, voting, $.01 par
value, authorized 25,000,000
shares: 9,269,446 shares
issued and 9,244,345 shares
outstanding at June 30, 1997;
9,204,946 shares issued and
9,179,845 shares outstanding
at December 31, 1996 92,699 92,049
Additional paid-in capital 10,569,354 10,460,554
Cumulative translation adjustment 28,028 28,028
Cumulative deficit (6,754,498) (4,147,550)
Loan to officer (200,000) (200,000)
3,735,583 6,233,081
Less - Treasury Stock, at cost:
25,101 shares (83,657) (83,657)
TOTAL STOCKHOLDERS' EQUITY 3,651,926 6,149,424
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,261,392 $10,258,750
The accompanying notes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
June 30,
1997 1996
Net revenues $1,183,656 $1,129,972
Cost of revenues 699,702 751,836
Gross profit 483,954 378,136
Selling, general & administrative
expenses 1,457,545 445,845
Loss from operations of continuing
operations (973,591) (67,709)
Interest income 62,656 11,095
Share of loss from investment
in Encotone, Inc. (47,704) ---
Write off of investment in
Encotone, LTD. (1,000,000) ---
Loss from operations of continuing
operations (1,958,639) (56,614)
Loss from operations of discontinued
operations --- (520,245)
Gain on sale of assets of
discontinued operations --- 6,000,000
(Loss) income before provision for
income taxes (1,958,639) 5,423,141
Provision for income taxes --- 19,000
NET (LOSS) INCOME $(1,958,639) $5,404,141
Earnings (loss) per share:
Loss from continuing operations $(0.21) $(0.01)
Loss from operations of discontinued
operations --- (0.05)
Gain on sale of assets of
discontinued operations --- 0.62
NET(LOSS)INCOME PER SHARE $(0.21) $0.56
Weighted average shares outstanding 9,269,446 9,747,000
The accompanying notes are an integral part of the financial
statements.
<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended
June 30,
1997 1996
Net revenues $2,170,250 $2,458,883
Cost of revenues 1,234,953 1,506,884
Gross profit 935,297 951,999
Selling, general & administrative
expenses 2,479,067 844,631
Research and development costs 101,148 ---
Income (loss) from operations of
continuing operations (1,644,918) 107,368
Interest income 141,718 17,429
Share of loss from investment in
Encotone, Inc. (103,748) ---
Write off of investment in
Encotone, LTD. (1,000,000) ---
(Loss) income from continuing
operations (2,606,948) 124,797
Loss from operations of
discontinued operations --- (734,698)
Gain on sale of assets of
discontinued operations --- 6,000,000
(Loss) income before provision for
income taxes (2,606,948) 5,390,099
Provision for income taxes --- 19,000
NET (LOSS) INCOME $(2,606,948) $5,371,099
Earnings (loss) per share:
(Loss) income from continuing
operations $(0.28) $0.01
Loss from operations of
discontinued operations --- (0.08)
Gain on sale of assets of
discontinued operations --- 0.66
NET (LOSS) INCOME PER SHARE $(0.28) $0.59
Weighted average shares outstanding 9,265,279 9,052,000
The accompanying notes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
1997 1996
OPERATING ACTIVITIES:
Net(loss) income from continuing
operations $(2,606,948) $ 105,797
Adjustments to reconcile (loss)
income to net cash (used for)
provided by operating activities:
Share of loss from investment in
Encotone, Inc. 103,748 ---
Write off of investment in
Encotone, LTD. 1,000,000 ---
Depreciation and amortization 44,494 10,981
Provision for doubtful accounts
receivable 7,000 8,000
Change in operating assets and
liabilities:
Accounts receivable 279,161 184,688
Other current assets 5,603 (203,549)
Other assets (10,562) ---
Accounts payable (537,005) 383,570
Other accrued expenses 48,542 199,054
Accrued income taxes --- (180,000)
Intangible assets --- (42,417)
Total adjustments 940,981 360,327
Net cash (used for) provided by
continuing operating activities (1,665,967) 466,124
Net cash (used for) provided by
discontinued operating activities (41,455) 2,721,713
Net cash (used for) provided by
operating activities $(1,707,422) $3,187,837
The accompanying notes are an integral part of the financial
statements.
<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(Unaudited)
For the six months ended
June 30,
1997 1996
INVESTING ACTIVITIES:
Capitalized software costs $ (344,189) ---
Capital expenditures for equipment
and leasehold improvements (226,294) $ (231,858)
Proceeds from sale of certain assets --- 6,159,455
Net cash (used for) provided by
investing activities (570,483) 5,927,597
FINANCING ACTIVITIES:
Net proceeds from issuance of stock 109,450 44,234
Principal payments under capital leases (2,316) (17,700)
Net payments on line of credit --- 41,248
Principal debt payments --- (22,092)
Net cash provided by financing
activities 107,134 45,690
Effect of exchange rate changes
on cash --- (13,807)
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (2,170,771) 9,147,317
Cash and cash equivalents at
beginning of period 6,791,057 1,258,061
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $4,620,286 $10,405,378
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 424 $ 64,293
Income taxes paid $ 63,557 ---
Supplemental disclosure of non cash
investing and financing activities:
Write off of investment in
Encotone, LTD. $1,000,000 ---
Purchase of equipment under
capital lease obligation $ 32,374 ---
The accompanying notes are an integral part of the financial
statements.
<PAGE>
NETEGRITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The unaudited financial information furnished herein
reflects all adjustments which are of a normal recurring nature,
which in the opinion of management are necessary to fairly state
the Company's financial position, cash flows and the results of
its operations for the periods presented. Certain information
and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. This information
should be read in conjunction with the Company's audited
financial statements for the fiscal year ended December 31, 1996,
included in Form 10-K filed on March 17, 1997.
Note 2 - The results of operations for the three-month and
six-month periods ended June 30, 1997 are not necessarily
indicative of the results to be expected for the entire year
ending December 31, 1997.
Note 3 - Minority interest represents the minority
shareholders' proportionate share of their equity of Personal
Computing Tools, Inc. (PCT). At June 30, 1997, the Company owned
94% of the capital stock of PCT.
Note 4 - Net income per share is based upon the weighted
average number of common shares outstanding including the
dilutive effects of options and warrants.
Note 5 - The Company provides for income taxes during interim
reporting periods based on reported earnings before income taxes
using an estimate of the annual effective tax rate. Deferred
income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for tax purposes.
These deferred taxes are measured by applying currently enacted
tax laws.
Note 6 - As of June 28, 1996, the Company completed the
ivestiture of its catalog related business, consisting of The
rogrammer's SuperShop ("TPS")catalog, the TPS web site, the
corporate sales group, the German subsidiary ("SDC Germany") and
SDC Communications. The Company completed the transaction for an
aggregate price of $10,035,000. The aggregate price consisted of
payment of $9,300,000 in immediately available funds and the
deposit of $735,000 under an escrow arrangement. As of August
12, 1996, $135,000 of the escrow has been returned to the
Company. The final purchase price of $10,035,000 was a
negotiated settlement. Prior to the closing, the parties had a
dispute as to how catalog revenue should be measured under the
Agreement.
The aggregate price of $10,035,000 assumed that the Company
transferred to the Purchaser as of the Closing date, tangible net
assets of the catalog related business that equaled to
$1,500,000. These net assets are currently being audited and the
Company expects no material adjustments.
The Company incurred $2,587,000 in expenses and write-offs
related to the divestiture. These expenses were primarily
comprised of write-off of goodwill, severance costs, professional
fees and facility shut-down costs for its corporate offices and
distribution facility. The Company reported a gain of $6,000,000
from the sale of the assets of its catalog related business.
Note 7 - Effective February 1, 1997, the company began to
capitalize eligible software costs as required by FASB Statement
No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." The Company capitalizes eligible
software costs upon establishing product technological easibility
and will amortize these costs on a product-by-product basis,
commencing upon release of the products to customers, on a
straight-line basis over the economic life of the product. Costs
related to research, design and development of computer software
are charged to research and development expense as incurred.
Note 8 - In October 1996 the Company made an early stage
investment in Encotone, LTD. with the anticipation that its first
product, TeleID , a credit card-sized acoustical smart card,
would be able to penetrate into the large long distance carrier
market. To date, Encotone, LTD. has not shown any material
penetration in this market. The Company evaluates the value of
its investments on an ongoing basis and relies on a number of
factors including, operating results, business plans, budgets and
economic projections. As such, the Company has determined that a
write off of its investment in Encotone, LTD. in the amount of
$1,000,000, or $(0.11) per share, at June 30, 1997, is
appropriate.
The Company continues to maintain its original 10% equity
interest in Encotone, LTD., as well as its 50% equity interest in
Encotone, Inc. the joint venture formed with Encotone, LTD. in
1996 to market TeleID in North, Central, and South America. At
June 30, 1997, the Company's investment in Encotone, Inc., under
the equity method, is $106,252.
Although there is a possibility for Encotone, LTD. to become
successful in the TeleID market, the Company believes that the
potential is less today than it was when its original investment
in Encotone, LTD. was made in 1996. The Company will continue to
work with Encotone, LTD. for an indefinite period of time in
order to recover its investment. The Company has held
preliminary discussions with Encotone, LTD. with respect to
potential reorganizations of both investments, and on July 16,
1997, the Company, as part of a majority shareholders' action,
advanced Encotone, LTD. $49,015. Terms of the loan agreement
include an option for the Company to either convert the loan to
ordinary shares in Encotone, LTD., or receive quarterly payments
of principle and interest at 1.5% above the LIBOR rate, beginning
June 30, 1998 through March 31, 1999.
<PAGE>
NETEGRITY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Private Securities Litigation Reform Act of 1995
contains certain safe harbors regarding forward-looking
statements. In that context, the discussion in this Item
contains forward-looking statements which involve certain degrees
of risk and uncertainties, including statements relating to
liquidity and capital resources. Except for the historical
information contained herein, the matters discussed in this
section are such forward-looking statements that involve risks
and uncertainties, including the impact of competitive pricing
within the software industry, the effect any reaction to such
competitive pressures has on current inventory valuations, the
need for and effect of any business restructuring, the presence
of competitors with greater financial resources, capacity and
supply constraints or difficulties, and the Company's continuing
need for improved profitability and liquidity.
The following overview reflects the divestiture of the
Company's catalog related business. Any comments relating to
operating results or issues are reflective of the continuing
network security business. The Company's revenues were generated
by the sale of network security products, integration and support
services to companies doing business on the Internet and internal
networks. The divestiture of the Company's catalog related
business is recorded as discontinued operations in the
accompanying unaudited financial statements.
The Company plans to develop and introduce new products to
address the changing needs of the evolving network security
market. There can be no assurance that the Company will be able
to develop new products or that such products will achieve market
acceptance, or, if market acceptance is achieved, that the
Company will be able to maintain such acceptance for a
significant period of time.
<PAGE>
RESULTS OF CONTINUING OPERATIONS
The following information should be read in conjunction with
the consolidated financial statements and notes thereto:
For the three months % to Net Revenue % Change
ended June 30, 1997 1996 97 v. 96
Net Revenues:
Product sales 100% 100% ---
Gross Margins:
Product sales 41% 33% 8%
Selling, general and
administrative expenses 123% 39% 84%
Income (loss) from
continuing operations (165%) (5%) (161%)
Revenues: Total net revenues for the second quarter ended June
30, 1997 increased by $53,684, or 4.8%, to $1,183,656 from
$1,129,972 in the second quarter ended June 30, 1996. This growth
in revenue was due to the increase in sales of Check Point
Software's FireWall-1 product and related maintenance. This
increase was offset by the Company's decision to eliminate
hardware sales to its customers and reduce the distribution of
Firewall-1 to other resellers in the industry. Such portions of
the business were eliminated or reduced because they yield low
margins and do not fit with the Company's longer-term strategic
plan.
Gross Profit: Total gross profit dollars for the second quarter
ended June 30, 1997 increased by $105,818, or 28%, to $483,954
compared with $378,136 in the second quarter ended June 30, 1996.
This increase can be attributed to the corresponding increase in
net revenues and elimination and reduction of low margin
business, discussed above.
Selling, General and Administrative Expenses: Selling, General
and Administrative (SG&A) expenses increased 227% to $1,457,545
for the second quarter ended June 30, 1997 from $445,845 in the
quarter ended June 30, 1996. This increase was a result of the
Company continuing the building of its management and employee
infrastructure to bring to market its proprietary product line
and address the growing network security marketplace.
Research and Development Costs: Research and Development
expenditures for the second quarter ended June 30, 1997 were
$185,350 as compared to $0 for the quarter ended June 30, 1996.
Beginning February 1, 1997, research and development expenditures
are being capitalized as a result of the Company realizing
technological feasibility. The Company is continuing the
development of new products to address the changing needs of the
evolving network security market. Research and Development Costs
are expensed as incurred, and are capitalized upon establishing
technological feasibility on a product-by-product basis.
Interest Income: Net interest income increased in the quarter
ended June 30, 1997 to $62,656 from $11,095 in the same period
last year. This increase is mainly attributable to available
cash being invested at prevailing rates of interest.
Write Off of Investment in Encotone, LTD.: In October 1996 the
Company made an early stage investment in Encotone, LTD. with the
anticipation that its first product, TeleID , a credit card-sized
acoustical smart card, would be able to penetrate into the large
long distance carrier market. To date, Encotone, LTD. has not
shown any material penetration in this market. The Company
evaluates the value of its investments on an ongoing basis and
relies on a number of factors including, operating results,
business plans, budgets and economic projections. As such, the
Company has determined that a write off of its investment in
Encotone, LTD. in the amount of $1,000,000, or $(0.11) per share,
at June 30, 1997, is appropriate.
The Company continues to maintain its original 10% equity
interest in Encotone, LTD., as well as its 50% equity interest in
Encotone, Inc. the joint venture formed with Encotone, LTD. in
1996 to market TeleID in North, Central, and South America. At
June 30, 1997, the Company's investment in Encotone, Inc., under
the equity method, is $106,252.
Although there is a possibility for Encotone, LTD. to become
successful in the TeleID market, the Company believes that the
potential is less today than it was when its original investment
in Encotone, LTD. was made in 1996. The Company will continue to
work with Encotone, LTD. for an indefinite period of time in
order to recover its investment. The Company has held
preliminary discussions with Encotone, LTD. with respect to
potential reorganizations of both investments, and on July 16,
1997, the Company, as part of a majority shareholders' action,
advanced Encotone, LTD. $49,015. Terms of the loan agreement
include an option for the Company to either convert the loan to
ordinary shares in Encotone, LTD., or receive quarterly payments
of principle and interest at 1.5% above the LIBOR rate, beginning
June 30, 1998 through March 31, 1999.
For the six months % to Net Revenue % Change
ended June 30, 1997 1996 97 v. 96
Net Revenues:
Product sales 100% 100% ---
Gross Margins:
Product sales 43% 39% 4%
Selling, general and
administrative expenses 114% 34% 80%
Research and development
costs 5% --- 5%
Income (loss) from
continuing operations (120%) 5% (125%)
Revenues: Total net revenues for the six months ended June 30,
1997 decreased by $288,633, or 11.7%, to $2,170,250 from
$2,458,833 in the six months ended June 30, 1996. This decrease
was the net result of an increase in sales of Check Point
Software's FireWall-1 product and related maintenance, offset by
the Company's decision to eliminate hardware sales and reduce its
distribution of Firewall-1 to other resellers in the industry.
These portions of the business were eliminated or reduced because
they yield low margins and do not fit with the Company's
longer-term strategic plan.
Gross Profit: Total gross profit dollars for the six months ended
June 30, 1997 decreased by $16,702, or 2%, to $935,297 from
$951,999 in the six months ended June 30, 1996. This decrease can
be attributed to the corresponding decrease in net revenues and
the Company's elimination and reduction of low margin business,
as described above.
Selling, General and Administrative Expenses: Selling, General
and Administrative (SG&A) expenses increased 194% to $2,479,067
for the six months ended June 30, 1997 from $884,631 in the six
months ended June 30, 1996. This increase was a result of the
Company continuing the building of its management and employee
infrastructure to bring to market its proprietary product line
and address the growing network security marketplace.
Research and Development Costs: Research and Development
expenditures for the first six months ended June 30, 1997 were
$445,337 as compared to $0 for the six months ended June 30,
1996. Beginning February 1, 1997, $344,189 of these expenditures
were capitalized as a result of the Company realizing
technological feasibility. The Company is continuing the
development of new products to address the changing needs of the
evolving network security market. Research and Development Costs
are expensed as incurred, and are capitalized upon establishing
technological feasibility on a product-by-product basis.
Interest Income: Net interest income increased in the six month
period ended June 30, 1997 to $141,718 from $17,429 in the same
period last year. This increase is mainly attributable to
available cash being invested at prevailing rates of interest.
The Company's quarterly operating results have varied and may
continue to vary significantly depending on external factors.
Substantially all of the Company's revenue in a quarter is
derived from orders received in that quarter. Accordingly,
delays in orders are likely to result in the associated revenue
not being realized by the Company in the period. Moreover, the
Company's expense levels are based in part on expectations of
future revenue levels, and a shortfall in expected revenue could
therefore result in a disproportionate decrease in the Company's
net income.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
June 30, December 31,
Financial Condition as of 1997 1996
Cash and cash equivalents $4,620 $6,791
Working capital 2,667 4,629
Current ratio 1.74 2.13
Cash Flow Activity Summary for June 30, June 30,
the Six Months Ended 1997 1996
Net cash (used for) provided by
continuing operating activities (1,606) 466
Net (cash used for) provided by
investing activities (570) 5,928
Net cash provided by financing
activities 107 46
The Company's net cash balance decreased by $2,171,000 to
$4,620,000 at June 30, 1997 from $6,791,000 at December 31, 1996.
This decrease was primarily attributable to increased
expenditures related to building the Company's infrastructure and
the research and development costs associated with bringing its
flagship product to market.
Accounts receivable-trade decreased 36% to $502,000 at June
30, 1997 from $788,000 at December 31, 1996. This decrease
resulted partially from the corresponding decrease in net
revenues discussed above, coupled with a stringent corporate
collection policy, which resulted in a 25% decrease in
accounts receivable collection days outstanding from 64 days at
December 31, 1996 to 48 days at June 30, 1997.
Working capital decreased by $1,962,000 to $2,667,000 at
June 30, 1997 from $4,629,000 at December 31, 1996. This
decrease was primarily attributable to increased expenditures
related to building the Company's infrastructure and the research
and development costs associated with bringing its flagship
product to market.
The Company anticipates that its existing cash resources
and cash flow from operations will be sufficient to fund its
operations through the Company's current fiscal year ending
December 31, 1997. Additionally, the Company currently
anticipates that its available cash, expected cash flows from
operations, and its borrowing capacity will be sufficient to fund
operations through 1998.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in securities during the quarter
ended June 30, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 16, 1997, the Board of Directors caused to be
distributed to stockholders of record as of April 8, 1997 a
Notice of Special Meeting in Lieu of Annual Meeting of
Stockholders, Proxy and a Proxy Statement for the Special Meeting
on May 22, 1997. On that record date, the Company had
outstanding 9,264,446 shares of Common Stock (excluding treasury
shares) that were entitled to vote.
At the meeting, the stockholders acted upon the following
proposals:
(1) to elect a Board of Directors;
(2) to amend the company's By-Laws to eliminate the ability of
the Company's stockholders to act by consent without a meeting;
(3) to amend the Company's By-Laws to provide that stockholders
of the Company may call a special meeting of stockholders only by
written application by one or more stockholders who hold 30% in
interest of the capital stock of the Company entitled to vote
thereat;
(4) to amend the Company's By-Laws to revise provisions
regarding director and officer indemnification;
(5) to adopt and approve a 1997 Stock Option Plan pursuant to
which 500,000 shares of the Company's Common Stock shall be
reserved for issuance subject to the 1997 Plan;
(6) to amend the Company's 1994 Stock Plan to increase the
number of shares of Common Stock reserved for issuance subject to
said Plan to 1,813,300.
Votes "for" represent affirmative votes and do not include
"abstentions" or broker "non-votes". Votes "withheld" from any
nominee, abstentions and broker non-votes are counted as present
or represented for purposes of determining a quorum. Abstentions
are included in the number of shares present or represented and
voting on each matter, however, broker non-votes are not so
included. In cases where a signed proxy was submitted without
direction, the shares represented by the proxy were voted "for"
each proposal in the manner disclosed in the proxy statement and
proxy.
Voting results were as follows:
(1) Election of Directors:
FOR WITHHELD
Stephen L. Watson 7,530,066 17,277
Barry N. Bycoff 7,530,066 17,277
Milton J. Pappas 7,530,066 17,277
Ralph B. Wagner 7,530,066 17,277
Michael L. Mark 7,530,066 17,277
Eric R. Giler 7,530,066 17,277
Richard J. Kosinski 7,525,066 22,277
(2) To amend the company's By-Laws to eliminate the ability of
the Company's stockholders to act by consent without a meeting:
FOR AGAINST ABSTAIN
3,443,515 1,205,606 27,768
(3) To amend the Company's By-Laws to provide that stockholders
may call a special meeting of stockholders only by written
application by one or more stockholders who hold 30% in interest
of capital stock:
FOR AGAINST ABSTAIN
3,318,259 1,310,951 47,679
(4) To amend the Company's By-Laws to revise provisions
regarding director and officer indemnification:
FOR AGAINST ABSTAIN
6,986,873 174,106 34,204
(5) To adopt and approve a 1997 Stock Option Plan:
FOR AGAINST ABSTAIN
4,353,352 200,008 35,168
(6) To amend the Company's 1994 Stock Plan:
FOR AGAINST ABSTAIN
4,328,863 211,297 35,368
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NETEGRITY, INC.
Date: August 8, 1997 By:/s/ Barry N. Bycoff
Barry N. Bycoff
President and Chief
Executive Officer
(Principal Executive
Officer)
Date: August 8, 1997 By:/s/ James O'Connor, Jr.
James O'Connor, Jr.
Vice President, Finance
and Chief Financial
Officer (Principal
Financial and Chief
Accounting Officer)
<PAGE>
EXHIBIT 11.00
NETEGRITY, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per share data)
Three months ended
June 30,
1997 1996
Weighted average shares outstanding 9,269 8,955
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using the average market price --- 792
Total 9,269 9,747
Net loss from continuing operations $ (1,959) $ (57)
Net loss from discontinued operations --- (520)
Gain on sale of assets of discontinued
operations --- 6,000
Net (loss) income for EPS computation $(1,959) $5,423
Per share amounts:
Loss from continuing operations $(0.21) $(0.01)
Loss from discontinued operations --- (0.05)
Gain on sale of assets of discontinued
operations --- 0.62
NET LOSS (INCOME) PER SHARE $(0.21) $0.56
<PAGE>
EXHIBIT 11.00
NETEGRITY, INC.
COMPUTATION OF EARNINGS PER SHARE (cont.)
(UNAUDITED)
(In thousands, except per share data)
Six months ended
June 30,
1997 1996
Weighted average shares outstanding 9,265 8,490
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using the average market price --- 562
Total 9,265 9,052
Net (loss) income from continuing
operations $(2,607) $ 106
Net loss from discontinued operations --- (735)
Gain on sale of assets of discontinued
operations --- 6,000
Net (loss) income for EPS computation $(2,607) $5,371
Per share amounts:
(Loss) income from continuing operations $(0.28) $0.01
Loss from discontinued operations --- (0.08)
Gain on sale of assets of discontinued
operations --- 0.66
NET (LOSS) INCOME PER SHARE $(0.28) $0.59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Attached is the Financial Data Schedule for Netegrity, Inc. (Nasdaq: NETE) for
the second quarter ended June 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,620,286
<SECURITIES> 0
<RECEIVABLES> 576,416
<ALLOWANCES> 74,797
<INVENTORY> 0
<CURRENT-ASSETS> 6,275,532
<PP&E> 582,449
<DEPRECIATION> 80,952
<TOTAL-ASSETS> 7,261,392
<CURRENT-LIABILITIES> 3,609,466
<BONDS> 0
0
0
<COMMON> 92,699
<OTHER-SE> 3,559,227
<TOTAL-LIABILITY-AND-EQUITY> 7,261,392
<SALES> 2,170,250
<TOTAL-REVENUES> 2,170,250
<CGS> 812,702
<TOTAL-COSTS> 2,479,067
<OTHER-EXPENSES> 101,148
<LOSS-PROVISION> 7,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,606,948)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,606,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,606,948)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)<F1>
<FN>
<F1>The Company took a one-time write off of on its investment in Encotone, Ltd. in
the amount of $1,000,000, or $(0.11) per share.
</FN>
</TABLE>
