SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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XX Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, For the quarterly
period ended September 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
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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, MASSACHUSETTS 02154
(Address of principal executive offices) (Zip Code)
(781)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 November 7, 1996 there were 9,271,846 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. Financial Statements
Balance Sheets . . . . . . . . . . . 3
Statements of Operations . . . . . . 5
Statements of Cash Flows . . . . . . 7
Notes to Financial Statements . . . . 9
Item 2. Management's Discussion and Analysis of
FinancialCondition and Results of
Operations . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . 18
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit 11.00 - Computation of earnings per share. . . 20
<PAGE>
PART I. - FINANCIAL INFORMATION
NETEGRITY, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $2,961,045 $ 6,791,057
Escrow receivable 600,000 600,000
Accounts receivable-trade,
net of allowance for doubtful
accounts of $66,460 and
$67,797 at September 30,1997
and December 31, 1996,
respectively 622,432 787,780
Other current assets 346,602 559,230
TOTAL CURRENT ASSETS 4,530,079 8,738,067
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 536,321 287,323
CAPITALIZED SOFTWARE COSTS 344,189 ---
OTHER ASSETS:
Investment in Encotone, Inc. 86,075 210,000
Investment in Encotone, LTD. --- 1,000,000
Other 35,418 23,360
TOTAL OTHER ASSETS 121,493 1,233,360
TOTAL ASSETS $5,532,082 $10,258,750
The accompanying footnotes are an integral part of the financial
statements.
<PAGE>
NETEGRITY, INC.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
CURRENT LIABILITIES:
Accounts payable-trade $ 1,168,320 $ 2,099,436
Other accrued expenses 1,968,810 2,009,890
Capital lease obligation 26,464 ---
TOTAL LIABILITIES 3,163,594 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 September 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 (8,037,936) (4,147,550)
Loan to officer (200,000) (200,000)
2,452,145 6,233,081
Less - Treasury Stock, at cost:
25,101 shares (83,657) (83,657)
TOTAL STOCKHOLDERS' EQUITY 2,368,488 6,149,424
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,532,082 10,258,750
The accompanying footnotes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
1997 1996
Net revenues $1,120,260 $1,075,961
Cost of revenues 570,892 611,772
Gross profit 549,368 464,189
Selling, general and
administrative expenses 1,501,965 785,440
Research and development costs 304,432 446,245
(1,257,029) (767,496)
Interest income (expense), net 42,919 90,872
Share of loss from investment
in Encotone, Inc. (20,177) ---
Write-off of investment in
Encotone, LTD. (49,151) ---
Loss from operations (1,283,438) (676,624)
Net loss $(1,283,438) $ (676,624)
Earnings (loss) per share $(0.14) $(0.07)
Weighted average shares outstanding 9,269,446 9,745,000
The accompanying notes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Cont.)
(Unaudited)
For the nine months ended
September 30,
1997 1996
Net revenues $3,290,510 $3,534,844
Cost of revenues 1,805,844 2,118,656
Gross profit 1,484,666 1,416,188
Selling, general and
administrative expenses 3,981,033 1,630,071
Research and development costs 405,580 446,245
(2,901,947) (660,128)
Interest income (expense), net 184,637 108,301
Share of loss from investment in
Encotone, Inc. (123,925) ---
Write off of investment in
Encotone, LTD. (1,049,151) ---
Loss from continuing operations (3,890,386) (551,827)
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 (3,890,386) 4,713,475
Provision for income taxes --- 19,000
Net (loss) income $(3,890,386) $4,694,475
Earnings (loss) per share:
Loss from continuing operations $(0.42) $(0.06)
Loss from operations of
discontinued operations --- (0.08)
Gain on sale of assets of
discontinued operations --- 0.62
Net (loss) income $(0.42) $0.48
Weighted average shares outstanding 9,266,668 9,739,000
The accompanying notes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
1997 1996
OPERATING ACTIVITIES:
Net (loss)income from continuing
operations $(3,890,386) $ (570,827)
Adjustments to reconcile net
(loss) income to net cash
provided by operating activities:
Share of loss from investment
in Encotone, Inc. 123,925 ---
Write off of investment in
Encotone, LTD. 1,000,000 ---
Depreciation and amortization 77,942 24,583
Provision for doubtful accounts
receivable (1,337) 15,500
Changes in operating assets and
liabilities:
Accounts receivable 166,685 411,037
Inventory --- 21,400
Other current assets 212,628 (169,070)
Other assets (12,058) 2,679
Intangible assets --- (42,417)
Accounts payable (931,115) 497,877
Other accrued expenses 5,160 (140,198)
Accrued payroll --- (866,404)
Accrued income taxes --- (180,000)
Total adjustments 641,830 (425,013)
Net cash used for continuing
operating activities (3,248,556) (995,840)
Net cash provided by discontinued
operating activities (46,241) 1,063,674
Net cash (used for) provided by
operating activities $(3,294,797) $ 67,834
The accompanying footnotes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
1997 1996
INVESTING ACTIVITIES:
Capitalized software costs $ (344,189) ---
Capital expenditures for
equipment and leasehold
improvements (294,566) $ (272,142)
Proceeds from sale of certain
assets --- 9,300,000
Net cash provided by
(used for)investing
activities (638,755) 9,027,858
FINANCING ACTIVITIES:
Net proceeds from issuance of stock 109,450 211,737
Principal payments under capital
leases (5,910) (17,700)
Net payments on line of credit --- (1,441,248)
Principal debt payments --- (22,092)
Notes payable-related party --- (300,000)
Net cash provided by
financing activities 103,540 (1,569,303)
Effect of exchange rate changes
on cash --- (13,807)
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (3,830,012) 7,512,582
Cash and cash equivalents at
beginning of period 6,791,057 1,258,061
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,961,045 $8,770,643
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 2,118 $ 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 ---
Collection of products in
satisfaction of accounts
receivable-product --- $ 108,012
The accompanying footnotes are an integral part of the financial
statements.<PAGE>
NETEGRITY, INC.
NOTES TO 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 February 28, 1997.
Note 2 - The results of operations for the three-month and
nine-month periods ended September 30, 1997 are not necessarily
indicative of the results to be expected for the period ending
December 31, 1997.
Note 3 - Net income per share is based upon the weighted
average number of common shares outstanding including the
dilutive effects of options and warrants.
Note 4 - 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 applyingcurrently
enacted tax laws.
Note 5 - As of June 28, 1996, the Company completed the
divestiture of its catalog related business, consisting of The
Programmer'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 assumes that the Company will
transfer to the Purchaser as of the Closing date, tangible net
assets of the catalog related business that equal $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 6 - 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
feasibility 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. For
the nine-months ended September 30, 1997, the Company has
capitalized $344,189 in eligible software costs.
Note 7 - In October 1996 the Company made an early stage
investment in Encotone, LTD. with the anticipation that its first
product, TeleID(TM), 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, was
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
September 30, 1997, the Company's investment in Encotone, Inc.,
under the equity method, is $86,075.
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. $49,151. 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.
At September 30, 1997, the Company determined that a write-off of
the $49,151 loan was appropriate. The Company further decided to
write off $139,800 in pre-paid products to SG&A expenses due to
the decreased market value for these products.
Note 8 - New Accounting Standard: In 1997. The Financial
Accounting Standards Board released Statement of Financial
Accounting Standards No. 128, Earnings Per Share (FAS 128), which
changes the calculation and presentation of earnings per share
(EPS). FAS 128 is effective for periods ending after December
15, 1997 and requires restatement of all prior-period EPS data
presented. FAS 128 is not expected to have any significant
impact on the Company's EPS calculation.
<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 former 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:
Period to Period
% Increase/decrease
Three months ended
For the three months % to Net Revenue September 30,
ended September 30, 1997 1996 1997 vs. 1996
Net Revenues:
Product sales 100% 100% ---
Gross Margins:
Product sales 49% 43% 18%
Selling, general &
administrative expenses 134% 73% 91%
Research & development costs 27% 42% (32%)
Income (loss) from
continuing operations (115%) (63%) 90%
Revenues: Total net revenues for the third quarter ended
September 30, 1997 increased $44,299 or 4%, to $1,120,260 from
$1,075,961 for the third quarter ended September 30, 1996. This
increase was primarily due to an increase in revenue generated by
the Company's network security consulting business. Consulting
revenue for the third quarter ended September 30, 1997 increased
$168,000 or 1050%, to $184,000 from the third quarter ended
September 30, 1996. The increase was somewhat offset by a
decrease in the Company's reseller business of Check Point
Software Technologies, LTD.'s (Check Point) FireWall-1(TM)
product. Last year, the Company decided 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 increased by $85,179,
or 18%, to $549,368 in the three month period ended September 30,
1997 from $464,189 in the same period last year. This increase
can be attributed to the corresponding increase in net revenues
and the elimination and reduction of low margin business,
discussed above.
Selling, General and Administrative Expenses: Selling, General
and Administrative (SG&A) expenses increased by $716,525, or 91%
to $1,501,965 for the third quarter ended September 30, 1997 from
$785,440 in the quarter ended September 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 and a write off of $139,800 in pre-paid Encotone
products (as discussed in Note 7).
Research and Development Costs: Research and Development expenses
for the third quarter ended September 30, 1997 decreased
$141,813, or 32% to $304,432 as compared to $446,245 for the
quarter ended September 30, 1996. Following the rules of FAS 86,
research and development expenditures have been capitalized as a
result of the Company realizing technologicalfeasibility. The
Company is continuing the development of new products to address
the changing needs of the evolving network security market.
Certain research and development expenditures are incurred
substantially in advance of the related revenue, and in some
cases, do not generate revenue.
Interest Income (Expense): Net interest income (expense) in the
quarter ended September 30, 1997 decreased $47,953, or 53% to
$42,919 from $90,872 in the same period last year. This decrease
is mainly attributable to a lower average cash and investment
portfolio balance. The prior year's third quarter portfolio
balance was favorably impacted by proceeds received from the
divestiture of the Company's catalog-related business.
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
September 30, 1997, the Company's investment in Encotone, Inc.,
under the equity method, is $86,075.
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. $49,151. 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.
At September 30, 1997, the Company determined that a
write-off of the $49,151 loan was appropriate. The Company
further decided to write off $139,800 in pre-paid products to
SG&A expenses due to the decreased market value for these
products.
Period to Period
% Increase/decrease
Nine months ended
For the nine months % to Net Revenue September 30,
ended September 30, 1997 1996 1997 vs. 1996
Net Revenues:
Product sales 100% 100% ---
Gross Margins:
Product sales 45% 40% 5%
Selling, general &
administrative expenses 121% 46% 144%
Research & development costs 12% 13% (9%)
Income (loss) from
continuing operations (118%) (16%) (605%)
Revenues: Total net revenues for the nine months ended September
30, 1997 decreased by $244,334, or 7%, to $3,290,510 from
$3,534,844 in the nine months ended September 30, 1996. This
decrease was the net result of the Company's decision to
eliminate hardware sales and reduce its distribution of Check
Point 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. This was somewhat offset by an increase in
revenue from the Company's network services consulting business
and maintenance revenue relating to Check Point FireWall-1.
Gross Profit: Total gross profit dollars for the nine months
ended September 30, 1997 increased by $68,478, or 5%, to
$1,484,666 from $1,416,188 in the nine months ended September 30,
1996. This increase can be attributed to the Company's
elimination and reduction of low margin business, as described
above, and to the increase in network consulting revenues which
yields higher margins.
Selling, General and Administrative Expenses: Selling, General
and Administrative (SG&A) expenses increased 144% to $3,981,033
for the nine months ended September 30, 1997 from $1,630,071 in
the nine months ended September 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 (net of capitalized software) for the first nine
months ended September 30, 1997 decreased by $40,665, or 9% to
$405,580 as compared to $446,245 for the nine months ended
September 30, 1996. During the first and second quarter of 1997,
$344,189 of research and development 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. Certain research and development expenditures
are incurred substantially in advance of the related revenue, and
in some cases, do not generate revenue.
Interest Income: Net interest income increased in the nine month
period ended September 30, 1997 by $76,336, or 71%, to $184,637
from $108,301 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
Financial Condition as of
September 30, December 31,
1997 1996
Cash and cash equivalents $2,961 $6,791
Working capital 1,366 4,629
Current ratio 1.43 2.13
Cash Flow Activity Summary for
the Nine Months Ended
September 30, September 30,
1997 1996
Net cash (used for) provided
by continuing operating
activities $(3,249) $ (996)
Net cash provided by (used
for) investing activities (639) 9,028
Net cash provided by (used
for) financing activities 104 (1,569)
The Company's net cash balance decreased by $3,830,012, or
56% to $2,961,045 at September 30, 1997 from $6,791,057 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 by $165,348, or 21%, to
$622,432 at September 30, 1997 from $787,780 at December 31,
1996. This decrease resulted primarily from the corresponding
decrease in net revenues discussed above.
Working capital decreased by $3,262,256, or 71% to
$1,366,485 at September 30, 1997 from $4,628,741 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.
<PAGE>
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 September 30, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders,
whether through the solicitation of proxies or otherwise, during
the quarter ended September 30, 1997.
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
September 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: November 12, 1997 By: /s/ Barry N. Bycoff
Barry N. Bycoff
President and Chief
Executive Officer
(Principal Executive
Officer)
Date: November 12, 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
(In thousands, except per share data)
Three months ended
September 30,
1997 1996
Weighted average shares outstanding 9,269 9,109
Net effect of dilutive stock options
and warrants - based on the treasury
stock method using the average
market price --- 636
Total 9,269 9,745
Net (loss) income from continuing
operations $(1,283) $ (677)
Net income for EPS computation $(1,283) $ (677)
NET INCOME PER SHARE $(0.14) $(0.07)
Nine months ended
September 30,
1997 1996
Weighted average shares outstanding 9,267 9,176
Net effect of dilutive stock options
and warrants - based on the treasury
stock method using the average
market price --- 563
Total 9,267 9,739
Net (loss) income from continuing
operations $(3,890) $ (552)
Net income(loss) from discontinued
operations --- (735)
Gain on sale of assets from
discontinued operations --- 6,000
Provision for income taxes --- (19)
Net income for EPS computation $(3,890) $4,694
Per share amounts:
(Loss) income from continuing
operations $(0.42) $(0.06)
Income from discontinued operations --- (0.08)
Gain on sale of assets from
discontinued operations --- 0.62
NET INCOME PER SHARE $(0.42) $(0.48)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The attached Financial Data Schedule should be read in conjunction with
Netegrity, Inc.'s Form 10-Q for the period ending September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,961,045
<SECURITIES> 0
<RECEIVABLES> 688,892
<ALLOWANCES> 66,460
<INVENTORY> 0
<CURRENT-ASSETS> 4,530,079
<PP&E> 68,271
<DEPRECIATION> (33,448)
<TOTAL-ASSETS> 5,532,082
<CURRENT-LIABILITIES> 3,163,594
<BONDS> 0
0
0
<COMMON> 92,699
<OTHER-SE> 2,275,789
<TOTAL-LIABILITY-AND-EQUITY> 5,532,082
<SALES> 1,120,260
<TOTAL-REVENUES> 1,120,260
<CGS> 570,892
<TOTAL-COSTS> 2,072,857
<OTHER-EXPENSES> 304,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,255
<INCOME-PRETAX> (1,283,438)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,283,438)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,283,438)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
