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 September 30, 1998, or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the transition
period fromm ------------ 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)
(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 6, 1998 there were 9,405,446 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. 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 . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . 17
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . 17
Item 5. Other Information . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . 18
Exhibit 11.00 - Computation of earnings per share 19
<PAGE>
PART I. - FINANCIAL INFORMATION
NETEGRITY, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1998 1997
--------------------------
CURRENT ASSETS:
Cash and cash equivalents $2,631,528 $2,133,586
Escrow receivable --- 600,000
Accounts receivable-trade, net of
allowance for doubtful accounts of
$58,470 and $64,460 at September 30,
1998 and December 31, 1997,
respectively 1,010,771 791,369
Other current assets 260,395 312,971
--------- ---------
TOTAL CURRENT ASSETS 3,902,694 3,837,926
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 693,647 585,055
CAPITALIZED SOFTWARE COSTS 248,671 309,891
OTHER ASSETS:
Investment in Encotone, Inc. --- 78,199
Other 52,542 37,438
-------- --------
TOTAL OTHER ASSETS 52,542 115,637
TOTAL ASSETS $4,897,554 $4,848,509
========= =========
The accompanying notes are an integral part of the financial
statements.NETEGRITY, INC.<PAGE>
BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1998 1997
---------------------------
CURRENT LIABILITIES:
Accounts payable-trade $ 943,122 $ 1,507,071
Other accrued expenses 767,858 1,355,533
Accrued compensation 278,805 279,722
Deferred revenue 707,566 667,416
Current portion of capitalized lease
obligations --- 19,068
TOTAL CURRENT LIABILITIES 2,697,351 3,828,810
Long-term capital lease obligations --- 3,653
COMMITMENTS AND CONTINGENCIES --- ---
TOTAL LIABILITIES 2,697,351 3,832,463
STOCKHOLDERS' EQUITY:
Series D Preferred Stock, $.01 par
value 3,333,333 shares authorized
and outstanding as of
September 30, 1998 33,333 ---
Common stock, voting, $.01 par
value, authorized 25,000,000
shares: 9,397,526 shares issued
and 9,372,425 shares outstanding
at September 30, 1998; 9,279,346
shares issued and 9,254,245
shares outstanding at
December 31, 1997 93,975 92,793
Additional paid-in capital 15,688,021 10,578,330
Cumulative translation adjustment 28,028 28,028
Cumulative deficit (13,359,497) (9,399,448)
Loan to officer (200,000) (200,000)
---------- ---------
2,283,860 1,099,703
Less - Treasury Stock, at cost:
25,101 shares (83,657) (83,657)
TOTAL STOCKHOLDERS' EQUITY 2,200,203 1,016,046
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,897,554 $ 4,848,509
========== ==========
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,
1998 1997
--------------------------
Net revenues $1,257,061 $1,120,260
Cost of revenues 431,464 570,892
--------- ---------
Gross profit 825,597 549,368
Selling, general and
administrative expenses 1,503,794 1,501,965
Research and development costs 500,290 304,432
--------- ---------
(1,178,487) (1,257,029)
Interest income, net 31,246 42,919
Share of loss from investment
in Encotone, Inc. --- (20,177)
Write-off of investment in
Encotone, LTD. --- (49,151)
--------- ----------
Net loss $(1,147,241) $(1,283,438)
========= =========
Basic loss per share $(0.12) $(0.14)
Weighted average shares
outstanding (basic) 9,397,526 9,269,446
Diluted loss per share $(0.12) $(0.14)
Weighted average shares
outstanding (diluted) 9,397,526 9,269,446
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,
1998 1997
-------------------------
Net revenues $3,121,316 $3,290,510
Cost of revenues 1,185,111 1,805,844
--------- ---------
Gross profit 1,936,205 1,484,666
Selling, general and
administrative expenses 4,623,015 3,981,033
Research and development costs 1,373,143 405,580
--------- ---------
(4,059,953) (2,901,947)
Interest income, net 99,903 184,637
Share of loss from investment in
Encotone, Inc. --- (123,925)
Write off of investment in
Encotone, LTD. --- (1,049,151)
--------- ---------
Net loss $(3,960,050) $(3,890,386)
========= =========
Basic loss per share $(0.42) $(0.42)
Weighted average shares
outstanding (basic) 9,348,455 9,266,668
Diluted loss per share $(0.42) $(0.42)
Weighted average shares
outstanding (diluted) 9,348,455 9,266,668
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,
1998 1997
-------------------------
OPERATING ACTIVITIES:
Net loss from continuing
operations $(3,960,050) $(3,890,386)
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 160,519 77,942
Provision for doubtful accounts
receivable (5,990) (1,337)
Changes in operating assets
and liabilities:
Accounts receivable (225,392) 166,685
Escrow receivable 600,000 ---
Other current assets 52,576 212,628
Other assets 63,095 (12,058)
Accounts payable (563,949) (931,115)
Other accrued expenses (548,442) 5,160
--------- ---------
Total adjustments (467,583) 641,830
Net cash used for continuing
operating activities (4,427,632) (3,248,556)
Net cash provided by discontinued
operating activities --- (46,241)
--------- ---------
Net cash (used for) provided by
operating activities $(4,427,632) $(3,294,797)
========= =========
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,
1998 1997
-------------------------
INVESTING ACTIVITIES
Capitalized software costs $ 61,220 $ (344,189)
Capital expenditures for equipment
and leasehold improvements (282,993) (294,566)
Proceeds from sale of certain assets 25,863 ---
--------- --------
Net cash provided by (used for)
investing activities (195,910) (638,755)
FINANCING ACTIVITIES
Net proceeds from issuance of
preferred stock 4,950,001 ---
Net proceeds from issuance of
common stock 194,205 109,450
Principal payments under
capital leases (22,721) (5,910)
--------- ---------
Net cash provided by financing
activities 5,121,485 103,540
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 497,942 (3,830,012)
Cash and cash equivalents at
beginning of period 2,133,586 6,791,057
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,631,528 $2,961,045
========= =========
Supplemental Disclosures of Cash
Flow Information:
Interest paid --- $ 2,118
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 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, 1997,
included in Form 10-K.
Certain amounts for 1997 have been reclassified to conform to the
1998 presentation.
NOTE 2 - The results of operations for the three-month and
nine-month periods ended September 30, 1998 are not necessarily
indicative of the results to be expected for the entire year
ending December 31, 1998.
NOTE 3 - The Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" and has
retroactively restated the earnings per share (EPS) for the third
quarter and year-to-date 1997. SFAS 128 requires presentation of
basic and diluted EPS. Basic EPS is computed by dividing net
income by the number of weighted average common shares
outstanding. Diluted EPS reflects potential dilution from
outstanding stock options and warrants, using the treasury stock
method. For the periods that options are anti-dilutive, they are
not included in the calculation of earnings per share.
NOTE 4 - The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income
Taxes." Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the unexpected future tax consequences of
events that have been included in the financial statements or
tax returns. The amount of deferred tax asset or liability is
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
NOTE 5 - The Company has adopted AICPA Statement of Position
97-2, "Software Revenue Recognition." Adoption of this
pronouncement did not have a material effect on the revenue
recognition practices of the Company.
NOTE 6 - On January 6, 1998, the Company, entered into a
Preferred Stock and Warrant Purchase Agreement (the "Agreement")
with Pequot Private Equity Fund, L.P., a Delaware limited
partnership ("PPEF") and Pequot Offshore Private Equity Fund,
Inc., a British Virgin Islands corporation (together with
PPEF, the "Pequot Entities"). Pursuant to the terms of the
Agreement, on January 7, 1998, the Company sold 1,666,667 shares
of Series D Preferred Stock, at $1.50 per share, and 750,393
Warrants to the Pequot Entities for an aggregate purchase price
of $2,500,000.50. The Series D Preferred Stock is automatically
convertible into Common Stock on a one-for-one basis, subject to
adjustment. In addition, the Series D Preferred Stock is subject
to mandatory conversion into Common Stock upon certain
circumstances.
The Company entered into an amendment on June 5, 1998 to the
Preferred Stock and Warrant Purchase Agreement with the Pequot
Entities. Pursuant to the terms of the amended Agreement, on
September 5, 1998, the Company sold 833,333 shares of Series D
Preferred Stock, at $1.50 per share, and 375,197 Warrants to the
Pequot Entities for an aggregate purchase price of $1,250,001. On
June 30, 1998, the Company sold an additional 833,333 shares of
Series D Preferred Stock, at $1.50 per share, and 375,197
Warrants to the Pequot Entities for an aggregate purchase price
of $1,250,000.
As part of the Agreement with the Pequot Entities, James
McNiel joined the Board of Directors of the Company, as designee
of the Pequot Entities, and has agreed to provide certain
consulting services to the Company. In addition to consulting
fees in connection with such service, the Company granted Mr.
McNiel warrants for the purchase of 100,000 shares of Common
Stock.
NOTE 7 - In June 1997, the Financial Accounting Standards
Board issued (SFAS) No. 130, "Reporting Comprehensive Income" and
(SFAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information".
SFAS 130 requires the presentation of an additional financial
statement in the format prescribed by the standard.
SFAS 131 requires disclosure about the Company's operations on a
disaggregated basis consistent with management's internal
reporting structure.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which establishes
standards for derivative
Instruments and for hedging activities. It requires an entity to
recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
SFAS 133 is effective for fiscal years beginning after June 15,
1999.
The Company does not expect the adoption of the new standards to
result in material changes to previously reported amounts or to
have a material impact on its financial position or results of
operations.
NOTE 8 - During the third quarter ended September 30, 1998,
the Company reached a settlement with Programmers Paradise, Inc.
("Programmer's") with regard to a valuation dispute arising from
the 1996 divestiture of Software Developer's Company.
The case was settled with the release of the escrow account
($600,000) to Programmer's and a payment of $50,000. The full
amount was charged to a reserve maintained specifically for this
purpose.
<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 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 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
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.
RESULTS OF OPERATIONS
<PAGE>
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, 1998 1997 1998 vs. 1997
- -------------------- ---------------- ------------------
Net Revenues:
Product sales 100% 100% 12%
Gross Margins:
Product sales 66% 49% 50%
Selling, general and
administrative expenses 120% 134% ---
Research and development
costs 40% 27% 64%
(Loss) from operations (91%) (115%) (11%)
REVENUES: Total net revenues for the third quarter ended
September 30, 1998 increased by $136,801, or 12%, to $1,257,061
from $1,120,260 in the third quarter ended September 30, 1997.
This was due to a 58% increase in product and related service
revenue generated from the Company's SiteMinder product line.
This increase was partially offset by a decline in revenue
associated with the Company's firewall reseller business as a
result of the Company's earlier de-emphasis on this portion of
its business.
GROSS PROFIT: Total gross profit dollars for the third quarter
ended September 30, 1998 increased by $276,229, or 50%, to
$825,597 compared with $549,368 in the third quarter ended
September 30, 1997. This increase can be attributed to higher
gross margins relating to sales of the Company's SiteMinder
product and services during the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, General
and Administrative (SG&A) expenses increased by $1,829, or 0% to
$1,503,794 for the third quarter ended September 30, 1998 from
$1,501,965 in the quarter ended September 30, 1997. During the
quarter ended September 30, 1998, the Company continued to build
its SG&A infrastructure to support the sales and support of its
SiteMinder product. Total SG&A expenses were relatively flat
over the same period a year ago due to a one-time charge related
to the write-off of the Company's investment in Encotone, Inc. in
the period ended September 30, 1997.
RESEARCH AND DEVELOPMENT COSTS: Research and Development
expenditures for the third quarter ended September 30, 1998
increased by $195,858, or 64% to $500,290 as compared to $304,432
for the quarter ended September 30, 1997. The Company continues
to develop and enhance its product line to address the changing
needs of the evolving web access control 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 (expense) for the third
quarter ended September 30, 1998 decreased $11,673, or 27%, to
$31,246 from $42,919 for the same period last year. This
decrease is mainly attributable to a lower average cash and
investment portfolio balance.
Period to Period %
Increase/(Decrease)
Nine Months Ended
For the nine months % to Net Revenue September 30,
ended September 30, 1998 1997 1998 vs. 1997
- ------------------- ---------------- ------------------
Net Revenues:
Product sales 100% 100% (5%)
Gross Margins:
Product sales 62% 45% 30%
Selling, general and
administrative expenses 148% 121% 16%
Research and development
costs 44% 12% 239%
(Loss) from operations (127%) (118%) 2%
REVENUES: Total net revenues for the nine months ended September
30, 1998 decreased by $169,194, or 5%, to $3,121,316 from
$3,290,510 in the nine months ended September 30, 1997. This
decrease was due to a decline in the Company's firewall reseller
business as a result of the Company's continued de-emphasis on
this portion of its business. This was significantly offset by
revenue achieved from the Company's SiteMinder product and
related services during the nine months ended September 30, 1998.
GROSS PROFIT: Total gross profit dollars for the nine months
ended September 30, 1998 increased by $451,539, or 30%, to
$1,936,205 from $1,484,666 in the nine months ended September 30,
1997. This increase can be attributed to higher gross margins
relating to sales of the Company's SiteMinder product and
services during the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, General
and Administrative (SG&A) expenses increased by $641,982, or 16%,
to $4,623,015 for the nine months ended September 30, 1998 from
$3,981,033 in the nine months ended September 30, 1997. This
increase was a result of the Company continuing to build its
sales, marketing and technical support infrastructure to support
the growth in sales of the Company's SiteMinder product and
services.
RESEARCH AND DEVELOPMENT COSTS: Research and Development
expenditures for the first nine months ended September 30, 1998
increased by $967,563, or 239% to $1,373,143 as compared to
$405,580 for the nine months ended September 30, 1997. The
Company continues to develop and enhance its product line to
address the changing needs of the evolving web access control
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 (expense) for the nine
months ended September 30, 1998 decreased $84,734, or 46%, to
$99,903 from $184,637 for the same period last year. This
decrease is mainly attributable to a lower average cash and
investment portfolio balance.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
September 30, December 31,
Financial Condition as of 1998 1997
- ------------------------- ------------- ------------
Cash and cash equivalents $2,632 $2,134
Working capital 1,205 9
Current ratio 1.45 1.00
Cash Flow Activity Summary for September 30, September 30,
the Nine Months Ended 1998 1997
- ------------------------------ ------------ ------------
Net cash (used for) provided by
continuing operating activities $(4,428) $(3,249)
Net cash provided by (used for)
investing activities (196) (639)
Net cash provided by (used for)
financing activities 5,121 104
The Company's net cash balance increased by $497,942 to
$2,631,528 at September 30, 1998 from $2,133,586 at December 31,
1997. This increase was attributable to proceeds from preferred
stock offerings entered into with the Pequot Entities consummated
through September 30, 1998 (see Note 6), offset by expenditures
related to building its sales, marketing, and development
infrastructure for its SiteMinder product business.
Accounts receivable-trade (net of allowance for doubtful
accounts) increased 28% to $1,010,771 at September 30, 1998 from
$791,369 at December 31, 1997. This increase resulted primarily
from the increased volume of SiteMinder related sales closed
during the last month of the third quarter ended September 30,
1998.
Working capital increased by $1,196,227 to $1,205,343 at
September 30, 1998 from $9,116 at December 31, 1997. This
increase was primarily attributable to proceeds from preferred
stock offerings entered into with the Pequot Entities consummated
through June 30, 1998 (see Note 6), offset by expenditures
related to building its sales, marketing, and development
infrastructure for its SiteMinder product business.
The Company anticipates that its existing cash resources and
anticipated cash flow from operations will be sufficient to fund
its operations through the Company's current fiscal year ending
December 31, 1998.
YEAR 2000 COMPLIANCE DISCLOSURE
The Year 2000 issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. This could result in a system failure or
miscalculations if a computer program recognizes a date of "00"
as the year 1900 instead of 2000. If not corrected, many computer
systems could fail or create erroneous results in 2000. The
following disclosure is as required by SEC Release No. 33-7558.
Company's State of Readiness
The Company is in the process of completing a preliminary
assessment of all of its internal and external systems and
processes with respect to the "Year 2000" issue. The Company
plans to continuously test all of its internal and external
systems and processes (and the associated Year 2000 "fixes") for
Year 2000 compliance during 1999. As part of this process, the
Company has preliminarily assessed the potential impact of Year
2000 failures from vendors and outside parties upon its business
and is currently taking steps to minimize that risk. Based on the
Company's current state of readiness and the steps currently
being taken (i.e., developing backup processes), the Company does
not believe that the Year 2000 problem will have a material
adverse effect on the Company's financial position, liquidity, or
operations.
In addition to computers and related systems, the operation
of office and facilities equipment, such as fax machines,
photocopiers, telephone switches, security systems, and other
common devices may be affected by the Year 2000 problem. The
Company is currently assessing the potential effect of, and costs
of remedying the Year 2000 problem on its office and facilities
equipment.
The Company is in the process of developing a plan to reduce
the probability of operational difficulties due to Year 2000
related failures. The Company believes it is on track towards a
timely completion of this task. Overall, management estimates
that it has completed approximately 75% of the Year 2000 issue
identification process with no remediating required.
Internal Systems (IT)
The process the Company will follow to achieve Year 2000
compliance for internal IT systems is as follows:
1. Develop an inventory of all IT components (hardware,
software)
2. Determine the Year 2000 compliance status of each component.
3. Determine the importance of Year 2000 compliance for each
component (implications of failure).
4. Prioritize non-compliant components based on importance.
5. Determine method to be used to achieve compliance for each
component (modify, replace, cease use).
6. Complete planned action.
7. Test each component.
Company's Costs of Year 2000 Compliance
All costs related to Year 2000 issues will be expensed as
incurred and the Company does not expect the total costs of
evaluation and testing to be material. Other potential costs may
include updating of computer software and hardware, as well as
other out-of-pocket costs.
Company's Risks of Year 2000 Issues
The Company believes that its current internally developed
products, as well as third-party products with which the Company
has material relationships are Year 2000 compliant. Therefore,
the Company does not believe that the Company's products, will be
adversely affected by date changes in the Year 2000. However,
there can be no assurances that the Company's current products do
not contain undetected errors or defects associated with Year
2000 date functions that may result in material costs to the
Company.
While the Company believes that its products, as well as
third-party products with which the Company has material
relationships are Year 2000 compliant, certain factors may result
in a third-party application used in conjunction with the
Company's products may not be Year 2000 compliant. Users must
test their unique combination of hardware, system software, and
transaction and application software in order for Year 2000
compliance to be achieved.
Additionally, the Company has begun assessing the Year 2000 issue
with regard to its internal financial and operational systems and
is not currently aware of any material issues or costs associated
with preparing its internal systems for the Year 2000. There can
be no assurance that the Company will not experience
unanticipated negative consequences or costs caused by undetected
errors or defects in the technology used in its internal
operation.
Company's Contingency Plans
The Company has not yet developed a detailed contingency plan,
but intends to evaluate the necessity of such plans based on the
outcome of its assessment and testing of its Year 2000 readiness
that will be completed in 1999. Any vendors found not to be Year
2000 compliant will be replaced with vendors that are Year 2000
compliant.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the third quarter ended September 30, 1998, the
Company reached a settlement with Programmers Paradise, Inc.
("Programmer's") with regard to a valuation dispute arising from
the 1996 divestiture of Software Developer's Company.
The case was settled with the release of the escrow account
($600,000) to Programmer's and a payment of $50,000. The full
amount was charged to a reserve maintained specifically for this
purpose.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in securities during the quarter
ended September 30, 1998.
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, 1998.
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, 1998.
(A) Exhibit 11.00 - Computation of Earnings Per Share
(B) Exhibit 27.00 - Financial Data Schedule (Edgar only)
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, 1998 By:/s/ Barry N. Bycoff
Barry N. Bycoff
President and Chief
Executive Officer
(Principal Executive
Officer)
Date: November 12, 1997 By:/s/ James E. Hayden
James E. Hayden
Vice President,
Finance and
Administration, and
Chief Financial Officer
(PrincipalFinancial and
Chief Accounting
Officer)
EXHIBIT 11.00
NETEGRITY, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per share data)
Three months ended
September 30,
1998 1997
------------------
BASIC:
Average Common shares outstanding 9,398 9,269
Net loss $(1,147) $(1,283)
Per share amount $(0.12) $(0.14)
DILUTED:
Average Common shares outstanding 9,398 9,269
Net effect of dilutive stock options
and warrants based on treasury
stock method --- ---
Total 9,398 9,269
Net loss $(1,147) $(1,283)
Per share amount $(0.12) $(0.14)
Nine months ended
September 30,
1998 1997
-----------------
BASIC:
Average Common shares outstanding 9,348 9,267
Net loss $(3,960) $(3,890)
Per share amount $(0.42) $(0.42)
DILUTED:
Average Common shares outstanding 9,348 9,267
Net effect of dilutive stock
options and warrants based on
treasury stock method --- ---
Total 9,348 9,267
Net loss $(3,960) $(3,890)
Per share amount $(0.42) $(0.42)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,631,528
<SECURITIES> 0
<RECEIVABLES> 1,069,241
<ALLOWANCES> 58,470
<INVENTORY> 0
<CURRENT-ASSETS> 3,902,694
<PP&E> 693,647
<DEPRECIATION> 308,153
<TOTAL-ASSETS> 4,897,554
<CURRENT-LIABILITIES> 2,697,351
<BONDS> 0
0
33,333
<COMMON> 93,975
<OTHER-SE> 2,072,895
<TOTAL-LIABILITY-AND-EQUITY> 4,897,554
<SALES> 1,257,061
<TOTAL-REVENUES> 1,257,061
<CGS> 431,464
<TOTAL-COSTS> 2,435,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,147,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,147,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,147,241)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
