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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1999.
[ ] 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 02451
(Address of principal executive offices) (Zip Code)
(781) 890-1700
(Registrant's Telephone Number)
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 [X] Yes No [ ]
As of October 15, 1999 there were 14,416,279 shares of Common Stock outstanding,
exclusive of Treasury stock.
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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....................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 22
Item 2. Changes in Securities and Use of Proceeds................. 22
Item 3. Submission of Matters to a Vote of Securityholders........ 22
Item 4. Other Information......................................... 24
Item 5. Exhibits and Reports on Form 8-K.......................... 24
SIGNATURES .......................................................... 24
Exhibit 3.0............................................................ 25
Exhibit 11............................................................. 37
Exhibit 27............................................................. 38
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PART I. - FINANCIAL INFORMATION
NETEGRITY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
1999 December 31,
(unaudited) 1998
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $11,211,960 $1,174,625
Accounts receivable-trade, net of
allowance for doubtful accounts
of $529,905 and $247,063 September 30,
1999 and December 31, 1998, respectively 2,875,408 1,746,645
Deferred maintenance asset 302,472 308,926
Prepaid expenses 88,560 30,163
Other current assets 61,789 15,848
----------- ----------
TOTAL CURRENT ASSETS 14,540,189 3,276,207
----------- ----------
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 1,000,029 736,341
CAPITALIZED SOFTWARE COSTS --
175,629
Other Assets 53,219 37,114
----------- ----------
TOTAL ASSETS $15,593,437 $4,225,291
=========== ==========
The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1999 December 31,
(unaudited) 1998
----------- -----------
CURRENT LIABILITIES:
Accounts payable-trade $ 910,774 $ 897,734
Deferred maintenance liability 885,049 938,004
Deferred revenue 150,104 285,857
Accrued employer expenses 172,563 180,328
Other accrued expenses 980,049 766,898
Accrued compensation 455,292 160,687
----------- -----------
TOTAL CURRENT LIABILITIES 3,553,831 3,229,508
----------- -----------
TOTAL LIABILITIES 3,553,831 3,229,508
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value 5,000,000 shares
authorized and none outstanding as of September
30, 1999; 3,333,333 Series D Preferred shares
authorized and outstanding as of December 31, 1998 -- 33,333
Common stock, voting, $.01 par value,
authorized 40,000,000 as of September 30, 1999;
14,441,379 shares issued and 14,416,279 shares
outstanding as of September 30, 1999; 9,425,446
shares issued and 9,400,345 shares
outstanding at December 31, 1998 144,163 94,254
Additional paid-in capital 31,285,741 15,780,049
Cumulative deficit (19,106,641) (14,628,196)
Loan to officer (200,000) (200,000)
----------- -----------
12,123,263 1,079,440
Less - Treasury Stock, at cost:
25,101 shares (83,657) (83,657)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,039,606 995,783
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,593,437 $ 4,225,291
=========== ===========
The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
1999 1998
---- ----
Revenues:
SiteMinder software $ 2,008,493 $ 410,873
SiteMinder services 600,582 109,761
Other 719,070 736,427
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Total revenues 3,328,145 1,257,061
Cost of revenues 838,487 431,464
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Gross profit 2,489,658 825,597
Selling, general and administrative expenses 3,218,816 1,503,794
Research and development costs 1,011,707 500,290
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Loss from operations (1,740,865) (1,178,487)
Interest income (expense), net 51,767 31,246
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Net loss $(1,689,098) $(1,147,241)
=========== ===========
Basic and diluted loss per share $ (0.16) $ (0.12)
Weighted average shares outstanding
(basic and diluted) 10,575,516 9,397,526
The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended
September 30,
1999 1998
---- ----
Revenues
SiteMinder software $ 4,476,094 $ 783,673
SiteMinder services 1,405,609 236,381
Other 2,144,970 2,101,262
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Total revenues 8,026,673 3,121,316
Cost of revenues 2,331,442 1,348,426
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Gross profit 5,695,231 1,736,890
Selling, general and administrative expenses 7,806,460 4,423,700
Research and development costs 2,486,126 1,373,143
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Loss from operations (4,597,355) (4,059,953)
Interest income (expense), net 118,912 99,903
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Net loss $(4,478,443) $(3,960,050)
=========== ===========
Basic and diluted loss per share $ (0.44) $ (0.42)
Weighted average shares outstanding
(basic and diluted) 10,272,682 9,348,455
The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net(loss) income from continuing operations $(4,478,443) $(3,960,050)
----------- -----------
Adjustments to reconcile (loss) income to
net cash (used for) provided by operating
activities:
Depreciation and amortization 245,913 160,519
Provision for doubtful accounts receivable 282,842 (5,990)
Change in operating assets and liabilities:
Accounts receivable (1,411,605) (225,392)
Other current assets (97,884) 652,576
Other assets (16,105) 63,095
Accounts payable 13,040 (563,949)
Other accrued expenses 311,283 (548,442)
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Total adjustments (672,516) (467,583)
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Net cash used for continuing
operating activities (5,150,959) (4,427,632)
Net cash used for operating
activities $(5,150,959) $(4,427,632)
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The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited)
For the nine months ended
September 30,
1999 1998
---- ----
INVESTING ACTIVITIES:
Capitalized software costs $ 175,629 $ 61,220
Capital expenditures for equipment and
leasehold improvements (509,603) (282,993)
Proceeds from sale of certain assets -- 25,863
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Net cash used for investing activities (333,974) (195,910)
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FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock -- 4,950,001
Net proceeds from issuance of stock 15,522,268 194,205
Principal payments under capital leases -- (22,721)
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Net cash provided by financing activities 15,522,268 5,121,485
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 10,037,335 497,942
Cash and cash equivalents at beginning of period 1,174,625 2,133,586
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,211,960 $2,631,528
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The accompanying notes are an integral part of the financial statements.
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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 results of 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, 1998,
included in Form 10-K/A filed on September 16, 1999.
NOTE 2 - The results of operations for the three months and nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the entire year ending December 31, 1999.
NOTE 3 - On July 7, 1999, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 137 ("SFAS 137"), "Accounting for
Derivative Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement No. 133 - an amendment of FASB Statement No. 133." SFAS 137
defers the implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS
137, is effective for fiscal quarters beginning after January 1, 2000 for the
Company, and its adoption is not expected to have a material effect on the
Company's financial position or results of operations.
NOTE 4 -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. Effective December
15, 1998, SOP 98-9 amended SOP 98-4, Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition, to extend the deferral of
the application of certain passages of SOP 97-2 provided by SOP 98-4 to fiscal
quarters beginning after January 1, 2000 for the Company.
NOTE 5 - On February 8, 1999, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with an institutional investor, the
Pequot Entities and the parties named therein. Pursuant to the terms of the
Stock Purchase Agreement, the Company sold 795,651 shares of Common Stock at
$5.75 per share for total gross proceeds of $4,574,993 and subsequently filed a
registration statement on Form S-3.
NOTE 6 - Certain 1998 information has been reclassified to conform with 1999
financial statement presentation. Such reclassifications have no impact on the
results of operations in 1998.
NOTE 7 - On September 9, 1999, the Company sold 534,242 shares of common stock
to certain investors in a private placement at a price of $20.59 per share. The
Company received net proceeds of approximately $10.3 million from the private
placement, after deducting the placement agent's fee and the Company's estimated
expenses.
NOTE 8 - In September 1999 the holders of all of the Company's outstanding
preferred stock surrendered their shares for conversion into common stock. On
October 7, 1999, the stockholders of the Company approved and the Company filed
an amendment to the Company's certificate of incorporation increasing the number
of authorized shares of the Company's common stock to 55,000,000.
NOTE 9 - On June 4, 1999, a suit was brought in the Delaware Court of Chancery,
purportedly on behalf of the Company's common stockholders, alleging that
certain amendments to the Company's certificate of incorporation previously
adopted by the Company's stockholders increasing the authorized shares of
various classes of stock were invalid because the Company did not obtain the
required statutory votes. On August 5, 1999, the parties entered into a
settlement agreement, subject to court approval and approval from the holders of
the Company's preferred stock and common stock, in separate class votes, of the
previously adopted amendments. The settlement was approved by the Court of
Chancery at a hearing held on September 24, 1999. The appeal period for this
approval will expire on October 25, 1999. The holders of the Company's preferred
and common stock approved the previously adopted amendments at a meeting of the
Company's stockholders held on October 7, 1999. The Company believes that the
costs associated with this settlement will not have a material effect on the
Company's results of operations, assets or financial condition.
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2. Management's Discussion & Analysis of Financial Condition and Results of
Operations
FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This report and the documents incorporated in it by reference contain
forward-looking statements about our plans, objectives, expectations and
intentions. You can identify these statements by words such as "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," "may," "will"
and "continue" or similar words. You should read statements that contain
these words carefully. They discuss our future expectations, contain
projections of our future results of operations or our financial condition
or state other forward-looking information, and may involve known and
unknown risks over which we have no control. You should not place undue
reliance on forward-looking statements. We cannot guarantee any future
results, levels of activity, performance or achievements. Moreover, we
assume no obligation to update forward-looking statements or update the
reasons actual results could differ materially from those anticipated in
forward-looking statements. The factors discussed in the sections captioned
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Company Description" in this report and the
documents incorporated in it by reference identify important factors that
may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Our forward-looking statements
are based on a number of assumptions, including increasing worldwide
business use of the Internet, the growth in the number of web access devices
per user, the absence of any failure of the Internet, and the continued
improvement of security on the Internet. If any of these assumptions is
incorrect, actual results may differ from the projections based on those
assumptions.
RISK FACTORS
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. Risk factors which may impact on our results include the
following:
WE HAVE INCURRED SUBSTANTIAL LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
In recent years, we have incurred substantial operating losses in every fiscal
period. We cannot predict when we will become profitable, if at all, and if we
do, that we will remain profitable for any substantial period of time. Failure
to achieve profitability within the time frame expected by investors may
adversely affect the market price of our common stock. In the nine months ended
September 30, 1999, we had a net loss of $4.5 million. As a result of ongoing
operating losses, at September 30, 1999, we had an accumulated deficit of $19.1
million. We have generated relatively small amounts of SiteMinder revenues until
recent fiscal quarters, while increasing expenditures in all areas, particularly
in research and development and sales and marketing, in order to execute our
business plan. Although we have experienced revenue growth in connection with
SiteMinder in recent periods, the growth has been off of a small base, and it is
unlikely that the recent growth rates are sustainable.
DISAPPOINTING QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO FALL SUBSTANTIALLY.
Our quarterly revenues and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenues or
operating results fall below the expectations of investors, the price of our
common stock could fall substantially.
Our quarterly revenues may fluctuate for several reasons, including the
following:
- market acceptance of our SiteMinder products;
- our success in obtaining follow-on sales to existing customers;
- the long sales and deployment cycle for sales of SiteMinder licenses;
- our ability to hire and retain personnel, particularly in services and
sales and marketing;
- the release of new versions of SiteMinder or other products; and
- the development of our direct and indirect sales channels.
In addition, because our revenues from services are largely correlated with our
SiteMinder software revenues, a decline in SiteMinder software revenues could
also cause a decline in our SiteMinder services revenues in the same quarter or
in subsequent quarters. Other factors, many of which are outside our control,
could also cause variations in our quarterly revenues and operating results.
Most of our expenses, such as employee compensation and rent, are relatively
fixed. Moreover, our expense levels are based, in part, on our expectations
regarding future revenue increases. As a result, any shortfall in revenues in
relation to our expectations could cause significant changes in our operating
results from quarter to quarter and could result in increased quarterly losses.
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OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO MARKET SITEMINDER AND RELATED
SERVICES SUCCESSFULLY.
The sale of SiteMinder licenses and related services provides a substantial
majority of our total revenues. These sales accounted for 73% of our total
revenues in the nine months ended September 30, 1999. We expect that our future
financial performance will depend on SiteMinder sales. Prior to the release of
SiteMinder 3.0 in June 1998, there had been very few commercial installations of
SiteMinder. Since June 1998, all commercial deployments of SiteMinder have
supported business-to-business web applications. Broad market acceptance of
SiteMinder will depend on the development of the market for secure user
management, including usage of SiteMinder for business-to-consumer applications,
and customer demand for the specific functionality of SiteMinder. We cannot be
sure that either will occur. Like most technology products at an early stage of
development, SiteMinder may require extensive reengineering or upgrading if it
fails to meet the performance needs or expectations of our customers when
shipped or contains significant software defects or bugs. If we fail in
marketing SiteMinder products and services, for whatever reason, our business
would be harmed.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ENHANCE OUR SITEMINDER PRODUCT LINE
AND DEVELOP NEW PRODUCTS.
We believe our success is dependent, in large part, on our ability to enhance
and broaden our SiteMinder product line to meet the evolving needs of both the
business-to-business and business-to-consumer market. We cannot be sure that we
will be able to respond effectively to technological changes or new industry
standards or developments. In the past, we have been forced to delay
introduction of several new product versions. In the future, we could be
adversely affected if we incur significant delays or are unsuccessful in
enhancing our SiteMinder product line or developing new products, or if any of
our enhancements or new products do not gain market acceptance.
OUR PERFORMANCE DEPENDS ON OUR ABILITY TO OBTAIN FOLLOW-ON SALES.
Customers typically place small initial orders for SiteMinder installations to
allow them to evaluate its performance. Our strategy is to pursue more
significant follow-on sales after these initial installations. Our financial
performance depends on successful initial deployments of SiteMinder that, in
turn, lead to follow-on sales. We cannot be sure that initial deployments of
SiteMinder by our customers will be successful, or that we will be able to
obtain follow-on sales.
WE FACE SIGNIFICANT COMPETITION FROM THE INTERNAL EFFORTS OF POTENTIAL CUSTOMERS
AND FROM OTHER TECHNOLOGY COMPANIES AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.
The market for secure user management products and services is relatively
immature and highly competitive. We expect the level of competition to increase
as a result of the anticipated growth of e-commerce. Until recently, our primary
source of competition was from secure user management software developed
in-house. Many of our potential customers have the resources to establish
in-house software development capabilities, and some of them, from time to time,
may choose to develop their own secure user management technology that is
competitive with ours. In addition, we have faced competition from web
development professional services organizations. Today our primary competitors
include e-Commerce and the partnership between IBM and DASCOM. In addition, a
number of other security and software companies have indicated that they offer
products which may compete with ours. We expect that additional competitors will
emerge in the future. Current and potential competitors have established, or may
in the future establish, cooperative relationships with third parties to
increase the availability of their products to the marketplace. It is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Potential competitors may have significantly greater financial,
marketing, technical and other competitive resources than we have. If, in the
future, a competitor chooses to bundle a competing secure user management
product with other e-commerce applications, the demand for our products might be
substantially reduced. Many of these factors are out of our control, and there
can be no assurance that we can maintain or enhance our competitive position
against current and future competitors.
THE DEVELOPMENT OF A MARKET FOR SITEMINDER IS UNCERTAIN.
We provide secure user management solutions for web-based e-commerce
applications. Our market is new and rapidly evolving. If the market for secure
user management solutions does not grow at a significant rate, this will have a
material adverse effect on our business, operating results and financial
condition. As is typical for new and rapidly evolving industries, customer
demand for recently introduced secure user management products is highly
uncertain.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME A VIABLE
AND SUBSTANTIAL COMMERCIAL MEDIUM.
Our future success depends heavily on the acceptance and wide use of the
Internet for e-commerce. If e-commerce does not continue to grow or grows more
slowly than expected, significant demand for SiteMinder and related services may
fail to develop. Consumers and businesses may reject the Internet as a viable
commercial medium for a number of reasons, including potentially inadequate
network infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. In addition, delays in the development
or adoption of new standards and protocols required to handle increased levels
of e-commerce, or increased government regulation or taxation, could cause the
Internet to lose its viability as a commercial medium.
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REGULATIONS OR CONSUMER CONCERNS REGARDING THE USE OF "COOKIES" ON THE INTERNET
COULD REDUCE THE FUNCTIONALITY OF SITEMINDER.
SiteMinder uses cookies to support its single sign-on functionality. A cookie is
information keyed to a specific user that is stored on the hard drive of the
user's computer, typically without the user's knowledge. Cookies are generally
removable by the user, and can be refused by the user at the point at which the
information would be stored on the user's hard drive. A number of governmental
bodies and commentators in the United States and abroad have urged passage of
laws limiting or abolishing the use of cookies. The passage of laws limiting or
abolishing the use of cookies, or the widespread deletion or refusal of cookies
by web site users, could reduce or eliminate the effectiveness of single sign-on
and could reduce market demand for SiteMinder.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET.
Qualified personnel are in great demand throughout the software industry. Our
success depends, in large part, upon our ability to attract, train, motivate and
retain highly skilled employees, particularly software engineers, professional
services personnel, sales and marketing personnel, and other senior personnel.
Our failure to attract and retain the highly trained technical personnel that
are integral to our product development, professional services and direct sales
teams may limit the rate at which we can generate sales and develop new products
or product enhancements. This could have a material adverse effect on our
business, operating results and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP OUR DIRECT SALES AND INDIRECT
DISTRIBUTION CHANNELS.
To increase our revenues, we must develop our direct sales channel and increase
the number of our indirect channel partners. A failure to do so could have a
material adverse effect on our business, operating results and financial
condition. There is intense competition for sales personnel in our business, and
we cannot be sure that we will be successful in attracting, integrating,
motivating and retaining sales personnel. In addition, we must increase the
number of strategic partnerships and other third-party relationships with
vendors of Internet-related systems and application software, resellers and
systems integrators. Our existing or future channel partners may choose to
devote greater resources to marketing and supporting the products of other
companies. In addition, we will need to resolve potential conflicts among our
sales force and channel partners.
OUR FAILURE TO EXPAND OUR PROFESSIONAL SERVICES RESOURCES COULD LIMIT THE
SUCCESS OF SITEMINDER.
Our professional services organization provides critical support to our
customers' installation and deployment of SiteMinder. If we fail to expand our
professional services resources, our ability to increase sales of SiteMinder may
be limited. In addition, if we cannot adequately support SiteMinder
installations, our customers' use of our products may fail, which could harm our
reputation and hurt our business.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING
RESULTS.
We have a long sales cycle because we generally need to educate potential
customers regarding the use and benefits of SiteMinder. Our sales cycle varies
depending on the size and type of customer contemplating a purchase and whether
we have conducted business with a potential customer in the past. These
potential customers frequently need to obtain approvals from multiple decision
makers prior to making purchase decisions. Our long sales cycle, which can range
from several weeks to several months or more, makes it difficult to predict the
quarter in which sales will occur. Delays in sales could cause significant
variability in our revenues and operating results for any particular period.
OUR FAILURE TO MANAGE OUR RAPID GROWTH EFFECTIVELY COULD HURT OUR BUSINESS.
Our failure to manage our rapid growth effectively could have a material adverse
effect on the quality of our products, our ability to retain key personnel and
our business, operating results and financial condition. We have been
experiencing a period of rapid growth that has been placing a significant strain
on all of our resources. From December 31, 1997 to September 30, 1999, the
number of our employees increased from 40 to 109. To manage future growth
effectively we must maintain and enhance our financial and accounting systems
and controls, integrate new personnel and manage expanded operations.
IF WE LOSE THE SERVICES OF BARRY BYCOFF OR ANY OTHER MEMBER OF OUR MANAGEMENT
TEAM, OUR BUSINESS COULD SUFFER.
Our future success depends, to a significant degree, on the skill, experience
and efforts of Barry Bycoff, our chief executive officer, and the rest of our
management team. The loss of any member of our management team could have a
material adverse effect on our business, operating results and financial
condition. We also depend on the ability of our officers and key employees to
work effectively as a team.
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AS WE EXPAND OUR INTERNATIONAL OPERATIONS, WE WILL FACE NEW RISKS TO OUR
SUCCESS.
Historically, we have not derived a significant portion of our total revenues
from sales to customers outside the United States. However, we intend to expand
our international operations in the future. This expansion will require
additional resources and management attention, and will subject us to new
regulatory, economic and political risks. We have very little experience in
international markets. As a result, we cannot be sure that our expansion into
global markets will be successful. In addition, we will face new risks in doing
business internationally. These risks could reduce demand for our products and
services, increase the prices at which we can sell our products and services, or
otherwise have an adverse effect on our operating results. Among the risks we
believe are most likely to affect us are:
- longer payment cycles and problems in collecting accounts receivable;
- adverse changes in trade and tax regulations, including restrictions on
the import and export of sensitive technologies, such as encryption
technologies, that we use or may wish to use in our software products;
- the absence or significant lack of legal protection for intellectual
property rights;
- difficulties in managing an organization spread over several countries,
including complications arising from cultural, language and time
differences that may lengthen sales and implementation cycles;
- currency risks, including fluctuations in exchange rates; and
- political and economic instability.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
Our success depends to a significant degree upon the protection of our software
and other proprietary technology. The unauthorized reproduction or other
misappropriation of our proprietary technology could enable third parties to
benefit from our technology without paying us for it. This could have a material
adverse effect on our business, operating results and financial condition. We
depend upon a combination of trademark, trade secret and copyright laws, license
agreements and non-disclosure and other contractual provisions to protect
proprietary and distribution rights in our products. In addition, we attempt to
protect our proprietary information and the proprietary information of our
vendors and partners through confidentiality and/or license agreements with our
employees and others. Although we have taken steps to protect our proprietary
technology, they may be inadequate. Existing trade secret, copyright and
trademark laws offer only limited protection. Moreover, the laws of other
countries in which we market our products may afford little or no effective
protection of our intellectual property. If we resort to legal proceedings to
enforce our intellectual property rights, the proceedings could be burdensome
and expensive, even if we were to prevail.
CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD
HURT OUR FINANCIAL CONDITION.
If we discover that any of our products violated third party proprietary rights,
there can be no assurance that we would be able to reengineer our product or to
obtain a license on commercially reasonable terms to continue offering the
product without substantial reengineering. We do not conduct comprehensive
patent searches to determine whether the technology used in our products
infringes patents held by third parties. In addition, product development is
inherently uncertain in a rapidly evolving technology environment in which there
may be numerous patent applications pending, many of which are confidential when
filed, with regard to similar technologies. Any claim of infringement could
cause us to incur substantial costs defending against the claim, even if the
claim is invalid, and could distract our management from our business.
Furthermore, a party making such a claim could secure a judgment that requires
us to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our products. Any of these
events could have a material adverse effect on our business, operating results
and financial condition.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS.
Software products as complex as ours may contain undetected errors or "bugs"
that result in product failures. The occurrence of errors could result in loss
of or delay in revenues, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation, or
damage to our efforts to build brand awareness, any of which could have a
material adverse effect on our business, operating results and financial
condition.
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WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' USE OF OUR PRODUCTS.
Many of the e-commerce applications supported by our products are critical to
the operations of our customers' businesses. Any failure in a customer's web
site or application caused or allegedly caused by our products could result in a
claim for substantial damages against us, regardless of our responsibility for
the failure. Although we maintain general liability insurance, including
coverage for errors and omissions, there can be no assurance that our existing
coverage will continue to be available on reasonable terms or will be available
in amounts sufficient to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim.
IF WE ACQUIRE OTHER COMPANIES OR BUSINESSES, WE WILL BE SUBJECT TO RISKS THAT
COULD HURT OUR COMPANY.
In the future, we may pursue acquisitions to obtain complementary products,
services and technologies. An acquisition may not produce the revenues, earnings
or business synergies that we anticipated, and an acquired product, service or
technology might not perform as we expected. If we pursue any acquisition, our
management could spend a significant amount of time and effort in identifying
and completing the acquisition. If we complete an acquisition, we would probably
have to devote a significant amount of management resources to integrate the
acquired business with our existing business.
To pay for an acquisition, we might use our stock or cash. Alternatively, we
might borrow money from a bank or other lender. If we use our stock, our
stockholders would experience dilution of their ownership interests. If we use
cash or debt financing, our financial liquidity will be reduced.
THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE
AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING
PRICE.
Our stock price, like that of other technology companies, has been extremely
volatile. The announcement of new products, services, technological innovations
or distribution partners by us or our competitors, quarterly variations in our
operating results, changes in revenues or earnings estimates by securities
analysts and speculation in the press or investment community are among the
factors affecting our stock price.
The stock market in general, and the market prices for Internet-related
companies in particular, have experienced extreme volatility that often has been
unrelated to the operating performance of these companies. These broad market
and industry fluctuations may adversely affect the market price of our common
stock, regardless of our operating performance. Recently, when the market price
of a stock has been volatile, holders of that stock have often instituted
securities class action litigation against the company that issued the stock. If
any of our stockholders brought a lawsuit against us, we could incur substantial
costs defending the lawsuit. The lawsuit could also divert the time and
attention of our management.
WE MAY LOSE MONEY ON FIXED-PRICE CONSULTING CONTRACTS.
In the future, an increased portion of our SiteMinder services revenues may be
derived from fixed-price contracts. We work with complex technologies in
compressed time frames and it can be difficult to judge the time and resources
necessary to complete a project. If we miscalculate the resources or time we
need to complete work under fixed-price contracts, our operating results could
be materially harmed.
LOSS OF OUR FIREWALL-1 RESELLER BUSINESS WOULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
While we recently have focused our resources on developing and marketing our
SiteMinder software and services, we continue to generate a significant portion
of our revenues from our sales of Check Point Software Technologies' FireWall-1
product. Our FireWall-1 reseller business experiences competition from companies
that compete with FireWall-1, including Axent Technologies, Cisco Systems and
Trusted Information Systems, as well as from other resellers of FireWall-1. As a
result, we may not be able to maintain the current revenue levels generated by
our FireWall-1 reseller business.
CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF OUR
COMPANY MORE DIFFICULT.
Our corporate documents and Delaware law contain provisions that might enable
our management to resist a takeover of our company. These provisions might
discourage, delay or prevent a change in the control of Netegrity or a change in
our management. These provisions could also discourage proxy contests and make
it more difficult for you and other stockholders to elect directors and take
other corporate actions. The existence of these provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock.
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WE MAY BE ADVERSELY IMPACTED BY UNEXPECTED YEAR 2000 ISSUES.
Computer systems and software must accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, many
software and computer systems may need to be upgraded in order to be Year 2000
compliant. Significant uncertainties exist in the software industry concerning
the potential effects associated with such compliance. We have assessed the
impact of Year 2000 compliance on our products and systems. We cannot, however,
be certain that we have identified all of the potential risks to our business
that could result from matters related to the Year 2000. We have identified the
following risks that you should be aware of:
- Undetected Year 2000 problems that could affect our products. We
believe that all of our versions of our SiteMinder software products were
Year 2000 compliant at the time of installation. Although we have tested
these products for Year 2000 compliance, we cannot be certain that these
tests have detected all potential Year 2000 problems. The failure of our
currently supported products to be fully Year 2000 compliant could result
in claims by or liability to our customers, which could have a material
adverse effect on our business and operating results. In addition, we
have relied on representations of Check Point as to the Year 2000
readiness of FireWall-1. Any failure of FireWall-1 to be Year 2000
compliant may have a material adverse affect on our FireWall-1 reseller
business, our customer relationships and our operating results.
- Year 2000 problems that affect our internal systems. We believe that
our internal software systems are Year 2000 compliant. Although we have
tested these systems for Year 2000 compliance, we cannot be certain that
these tests have detected all potential Year 2000 problems. It is
possible that these systems could contain undetected problems that could
cause serious and costly disruptions which would have a material adverse
effect on our business and operating results.
- Year 2000 problems that affect products and services provided to us by
third parties. We have relied on certifications from our software
vendors and suppliers regarding the Year 2000 readiness of products and
services they provide to us. We have not conducted independent tests of
these products and services. It is possible that these systems could
contain undetected problems that could cause serious and costly
delivery delays which would have a material adverse effect on our
business and operating results.
THE YEAR 2000 ISSUE MAY CAUSE OUR CURRENT AND POTENTIAL CUSTOMERS TO DELAY
IMPLEMENTING OUR SOFTWARE.
Some of our customers and potential customers have implemented policies that
prohibit or discourage changing their internal computer systems until after
January 1, 2000. Our revenues may suffer if potential customers delay the
purchase of our products until after January 1, 2000. Purchasing decisions may
be delayed as potential customers halt development of their internal computer
systems or use their information technology budgets to address Year 2000 issues.
If our potential customers delay purchasing or implementing our products in
preparation for the Year 2000 problem, our business could be seriously harmed.
Company Description
We are a leading provider of software and services that manage and control user
access to web-based e-commerce applications. Our SiteMinder product is part of
the software infrastructure that is used to build and manage an e-commerce web
site. SiteMinder manages the complex process of identifying users and assigning
those users privileges to multiple e-commerce applications on a company's web
site. These assigned privileges determine what information a user can see and
what transactions a user can perform on the web site. SiteMinder enables our
customers to centrally control access to e-commerce web sites requiring secure
log-in, while distributing the administrative responsibilities to the most
appropriate parties. SiteMinder is designed to be scalable and reliable, to
integrate with our customers' existing systems and to accommodate emerging
Internet technology. We offer a wide range of support services that enable our
customers to successfully implement SiteMinder into their organizations. As of
September 30, 1999 we had 109 customers. We sell our products through a direct
sales force and through our distribution partners. To date, most of our
customers' deployments of SiteMinder have supported business-to-business
e-commerce applications, but our customers are beginning to deploy SiteMinder
for business-to-consumer applications.
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RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and notes thereto:
Period to Period %
Increase/(Decrease)
% of Total Revenues Three Months Ended
For the three months September 30,
ended September 30, 1998 1999 1998 vs. 1999
- ------------------- ---- ---- -------------
Revenues:
SiteMinder software 33% 60% 389%
SiteMinder services 9 18 447
Other 58 22 (2)
--- --- ---
Total revenues 100 100 165
Gross profit 66 75 202
Selling, general and
administrative expenses 120 97 114
Research and development costs 40 30 102
--- --- ---
Loss from operations (94%) (52%) 48%
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues. Total revenues increased by $2.0 million, or 165%, to $3.3 million in
the three months ended September 30, 1999, from $1.3 million in the three months
ended September 30, 1998.
SiteMinder software revenues increased by $1.6 million, or 389%, to $2.0 million
in the three months ended September 30, 1999, from $411,000 in the three months
ended September 30, 1998. This increase is due to the continued increase in
market awareness and the acceptance of the SiteMinder product and expansion of
our sales organization. There were no significant revenues from SiteMinder prior
to the release of SiteMinder 3.0 in June 1998.
SiteMinder services revenues increased by $491,000, or 447%, to $601,000 in the
three months ended September 30, 1999, from $110,000 in the three months ended
September 30, 1998. This increase reflects the continued growth in the installed
base of SiteMinder software licenses and the increasing requirement to provide
installation and integration services for customers.
Other revenues decreased by $17,000, or 2%, to $719,000 in the three months
ended September 30, 1999, from $736,000 in the three months ended September 30,
1998.
Gross profit. Gross profit increased by $1.7 million, or 202%, to $2.5 million
in the three months ended September 30, 1999, from $826,000 in the three months
ended September 30, 1998. The increase in SiteMinder software revenues resulted
in higher gross profit due to lower costs associated with SiteMinder software
revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.7 million, or 114%, to $3.2 million in
the three months ended September 30, 1999, from $1.5 million in the three months
ended September 30, 1998. This increase is primarily a result of our continuing
to build our sales and marketing infrastructure to support planned growth in
sales of our SiteMinder product and services.
Research and development costs. Research and development costs increased by
$511,000, or 102%, to $1.0 million in the three months ended September 30, 1999,
from $500,000 in the three months ended September 30, 1998. The increase was
primarily due to our continued development of SiteMinder and our increase in
research and development personnel. We expect to increase the amount spent on
research and development in the foreseeable future as we continue to develop and
enhance our product line to address the evolving needs of customers deploying
large-scale and transaction-based e-commence applications. Research and
development costs may be incurred substantially in advance of the related
revenues and in some cases may not generate revenues. We did not capitalize any
research and development costs in the three months ended September 30, 1998 or
the three months ended September 30, 1999. There was no capitalized software as
of September 30, 1999.
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Interest income (expense), net. Net interest income increased by $21,000, or
66%, to $52,000 in the three months ended September 30, 1999, from $31,000 in
the three months ended September 30, 1998. This increase is mainly attributable
to a higher average cash balance in the three months ended September 30, 1999.
There were no borrowings outstanding during the three months ended September 30,
1998 or the three months ended September 30, 1999.
Period to Period %
Increase/(Decrease)
% of Total Revenues Nine Months Ended
For the nine months September 30,
ended September 30, 1998 1999 1998 vs. 1999
---- ---- -------------
Revenues:
SiteMinder software 25% 56% 471%
SiteMinder services 8 17 495
Other 67 27 2
--- --- ---
Total revenues 100 100 157
Gross profit 56 71 228
Selling, general and
administrative expenses 142 97 76
Research and development costs 44 31 81
--- --- ---
Loss from operations (130%) (57%) (13%)
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues. Total revenues increased by $4.9 million, or 157%, to $8.0 million in
the nine months ended September 30, 1999, from $3.1 million in the nine months
ended September 30, 1998.
SiteMinder software revenues increased by $3.7 million, or 471%, to $4.5 million
in the nine months ended September 30, 1999, from $784,000 in the nine months
ended September 30, 1998. This increase is due to the continued increase in
market awareness and the acceptance of the SiteMinder product and expansion of
our sales organization. There were no significant revenues from SiteMinder prior
to the release of SiteMinder 3.0 in June 1998.
SiteMinder services revenues increased by $1.2 million, or 495%, to $1.4 million
in the nine months ended September 30, 1999, from $236,000 in the nine months
ended September 30, 1998. This increase reflects the continued growth in the
installed base of SiteMinder software licenses and the increasing requirement to
provide installation and integration services for customers.
Other revenues increased by $44,000, or 2%, to $2.1 million in the nine months
ended September 30, 1999, from $2.1 million in the nine months ended September
30, 1998.
Gross profit. Gross profit increased by $4.0 million, or 228%, to $5.7 million
in the nine months ended September 30, 1999, from $1.7 million in the nine
months ended September 30, 1998. The increase in SiteMinder software revenues
resulted in higher gross profit due to lower costs associated with SiteMinder
software revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.4 million, or 76%, to $7.8 million in
the nine months ended September 30, 1999, from $4.4 million in the nine months
ended September 30, 1998. This increase was primarily a result of the continued
development of our sales and marketing infrastructure to support planned growth
in sales of our SiteMinder product and services.
Research and development costs. Research and development costs increased by $1.1
million, or 81%, to $2.5 million in the nine months ended September 30, 1999,
from $1.4 million in the nine months ended September 30, 1998. The increase was
primarily due to our continued development of SiteMinder and our increase in
research and development personnel. We expect to continue to increase the amount
spent on research and development in the foreseeable future as we continue to
develop and enhance our product line to address the evolving needs of customers
deploying large-scale and transaction-based e-commerce applications. Research
and development costs may be incurred substantially in advance of the related
revenues and in some cases may not generate revenues. In the nine months ended
September 30, 1998, we capitalized $249,000 of research and development costs,
net of amortization, as a result of our realizing technological feasibility. We
did not capitalize any research and development costs in the nine months ended
September 30, 1999. There was no capitalized software as of September 30, 1999.
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Interest income (expense), net. Net interest income increased by $19,000, or
19%, to $119,000 in the nine months ended September 30, 1999, from $100,000 in
the nine months ended September 30, 1998. This increase was mainly attributable
to a higher cash balance in the nine months ended September 30, 1999. There were
no borrowings outstanding during the nine months ended September 30, 1998 or the
nine months ended September 30, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
September 30, December 31,
Financial Condition as of 1999 1998
---- ----
Cash and cash equivalents $11,212 $1,175
Working capital 10,986 47
Current ratio 4.09 1.01
Cash Flow Activity Summary for September 30, September 30,
the Nine Months Ended 1999 1998
---- ----
Net cash used for operating activities $(5,151) $(4,428)
Net cash used for investing activities (334) (196)
Net cash provided by
financing activities 15,522 5,121
LIQUIDITY AND CAPITAL RESOURCES
In recent years, we have funded our operations primarily from sales of
securities.
Cash used for operating activities in the nine months ended September 30, 1999
was $5.2 million, primarily due to a net loss of $4.5 million and an increase in
accounts receivable, partially offset by increases in accounts payable and
accrued expenses. Cash used for operating activities in the year ended December
31, 1998 was $5.8 million, primarily due to a net loss of $5.2 million and an
increase in accounts receivable, partially offset by increases in accounts
payable, accrued expenses and deferred revenue.
Cash used for investing activities was $334,000 in the nine months ended
September 30, 1999, and $167,000 in the year ended December 31, 1998. Investing
activities for the periods consisted primarily of the purchases of equipment,
consisting largely of computer servers, workstations and networking equipment.
Cash provided by financing activities in the nine months ended September 30,
1999 was $15.5 million, primarily as a result of our sale of 795,651 shares of
common stock to certain investors in a private placement on February 8, 1999 at
a price of $5.75 per share and 534,242 shares of common stock to certain
investors in a private placement on September 9, 1999 at a price of $20.59 per
share. Cash provided by financing activities in the year ended December 31, 1998
was $5.2 million, primarily due to our issuance of preferred stock and warrants
for net proceeds totaling $5.0 million.
As of September 30, 1999, our primary financial commitments consisted of
obligations outstanding under operating leases.
In recent years, we have significantly increased our operating expenses. We
anticipate that we will continue to experience significant growth in our
operating expenses for the foreseeable future and that our operating expenses
and capital expenditures will constitute a material use of our cash resources.
In addition, we may utilize cash resources to fund acquisitions or investments
in businesses, technologies, products or services that are complementary to our
business. We believe that the net proceeds from our proposed secondary offering
and the existing cash and cash equivalents will be sufficient to meet our
anticipated cash requirements for working capital and capital expenditures for
at least the next twelve months.
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IMPACT OF THE YEAR 2000 ISSUE
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.
State of Readiness
We have completed our initial assessment and testing of products, systems and
processes with respect to the "Year 2000" issue. We plan to continue our
assessment and testing of products, systems and processes throughout the
remainder of 1999.
Products
All dates used within our SiteMinder 3.0 product utilize a standard four-digit
year format. SiteMinder 3.0 has been tested by configuring a test environment
with the system dates on the test computers set to various dates in the
twenty-first century. SiteMinder 3.0 was then put through a regression test and
the output verified with previous test runs with no errors. We have verified
that when used properly and in conformity with the product information we
supply, SiteMinder 3.0 will accurately store, display, process, provide and
receive data from, into and between 1999 and 2000, including leap year
calculations, provided that all other technology used in combination with
SiteMinder 3.0 properly exchanges date data with SiteMinder 3.0.
The assessment of whether a complete system or device in which SiteMinder 3.0 is
embedded will operate correctly for an end user depends in large part on the
year 2000 readiness of the system's other components, most of which are supplied
by parties other than our company. Users must test their unique combination of
hardware, system software, and transaction and application software in order to
assess the Year 2000 capability of a user's particular system. In addition, we
have relied on representations of Check Point Software Technologies as to the
Year 2000 readiness of FireWall-1. Any failure of FireWall-1 to be Year 2000
compliant may have a material adverse effect on our FireWall-1 reseller
business, our customer relationships and our operating results.
Internal Systems and Processes
We have completed our assessment of our internal systems and processes,
including computers and related systems, office and facilities equipment,
including fax machines, photocopiers, telephone switches, security systems and
other common devices that may be affected by the Year 2000 problem. In September
1999, we installed a necessary telephone system upgrade. Based on our assessment
to date, we believe that all of our other internal systems and processes are
Year 2000 capable.
Third-Party Vendors and Suppliers
We have reviewed Year 2000 statements provided by our significant vendors. We
have not independently verified Year 2000 statements made by third parties, and
we can express no assurances as to the Year 2000 compliance status of third
parties. We may not be able to know with certainty whether vendors are
compliant. Failure of critical vendors to achieve Year 2000 compliance could
result in delayed deliveries of products and services to us. If those delays are
extensive, they could have a material adverse effect on our business.
Costs of Year 2000 Compliance
All costs related to Year 2000 issues are being expensed as incurred. We do 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. Costs associated with Year 2000 issues totaled
approximately $100,000 through September 30, 1999. We anticipate that we may
incur up to an additional $100,000 in future costs associated with our Year 2000
readiness.
Risks of Year 2000 Issues
Although we believe we are taking prudent action related to the identification
and resolution of issues related to the Year 2000 problem, our assessment is
still in progress. Our failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, normal business activities. An
interruption or failure could materially and adversely affect our results of
operations, liquidity and financial condition. Due to
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<PAGE> 21
the general uncertainty of the Year 2000 readiness of third parties, we are
unable to determine at this time whether the consequences of Year 2000 failures
will have a material adverse impact on our results of operations, liquidity or
financial position. Our assessment, testing and contingency planning are
expected to reduce, but not eliminate, our level of uncertainty about the Year
2000 issue and the readiness of third parties. We believe that the completion of
our assessment, testing and contingency planning should reduce the possibility
of significant interruptions to normal operations.
Contingency Plan
Based on our assessments to date, we believe our existing internal systems and
procedures, including our standard redundant systems and servers, will enable us
to continue to deliver our software in 2000 without significant interruption. As
a result, we do not intend to formulate a detailed contingency plan for Year
2000 failures. We do not plan to assess the specific Year 2000 compliance of
external forces such as utility and transportation systems or Year 2000
compliance failures that might generally affect industry and commerce. Any Year
2000 failure of this type, or any other significant unforeseen Year 2000
failure, could have a material adverse effect on our business and operating
results.
3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe that it has any material market risk exposure with
respect to derivatives or other financial instruments that would require
disclosure under this item.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 4, 1999 a suit was brought in the Delaware Court of Chancery,
purportedly on behalf of the common stockholders of the Company, alleging that
certain amendments to the Company's Certificate of Incorporation previously
adopted by the stockholders increasing the authorized shares of various classes
of stock were invalid because the Company did not obtain the required statutory
votes. On August 5, 1999 the parties entered into a settlement agreement,
subject to court approval and approval from the holders of the Company's
preferred stock and common stock in separate class votes, of the previously
adopted amendments. The settlement was approved by the Court of Chancery at a
hearing held on September 24, 1999. The appeal period for this approval will
expire on October 25, 1999. The holders of the Company's preferred and common
stock approved the previously adopted amendments at a meeting of the Company's
stockholders held on October 7, 1999. The Company believes that the costs
associated with the settlement will not have a materially adverse affect on the
Company's results of operations, assets or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 9, 1999 the Company completed a private placement of
534,242 shares of common stock to the following investors at a purchase price of
$20.59 per share: Pogue Capital International Fund, Kingdon Associates, L.P.,
Kingdon Partners L.P., M. Kingdon Offshore N.V., Chilton Q.P. Investment
Partners L.P., Chilton Investment Partners L.P., Chilton Opportunity
International L.P., Chilton International L.P., Permal Media & Communication
Fund, L.P., Essex High Technology (Bermuda) Fund, L.P., Essex High Technology
(USA) Fund, L.P., Essex High Technology Offshore II Fund, L.P., Dimensional
Partners L.P. and Dimensional Partners Ltd. The Company recorded net proceeds of
approximately $10.3 million from the private placement, after deducting the
placement agent's fee and the Company's estimated expenses. The Company has
filed with the SEC a registration statement, which was declared effective on
October 8, 1999, covering the 534,242 shares sold in the private placement. The
Commission file number assigned to the registration statement is 333-87247. The
placement did not involve a public offering and was, accordingly, exempt under
ss.4(2) of the Securities Act of 1933.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On September 7, 1999 the Board of Directors caused to be distributed to
stockholders of record as of August 31, 1999 a Notice of Special Meeting of
Stockholders to be held October 7, 1999, together with a Proxy and Proxy
Statement. On the record date, the Company had outstanding 10,436,578 shares of
Common Stock (excluding treasury shares) and 3,333,333 shares of Series D
Preferred Stock, convertible into Common Stock on a one-for-one basis.
At the meeting the stockholders acted upon the following proposals:
1. To consider and act upon a proposal to approve the Amendment to the
Company's Restated Certificate of Incorporation, as amended, to increase the
number of authorized shares of capital stock from 30,000,000 to 45,000,000,
which amendment was approved by the stockholders at their meeting on May 11,
1999. The voting results on this proposal were as follows:
Common Stock (voting as a single class)
For: 8,686,965 Against: 538,138 Abstain: 16,452
Preferred Stock (voting as a single class)
For: 3,333,333 Against: 0 Abstain: 0
Common Stock and Preferred Stock (voting together as a single class)
For: 12,020,298 Against: 538,138 Abstain: 16,452
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<PAGE> 23
2. To consider and act upon a proposal to approve the Amendment to the
Company's Restated Certificate of Incorporation, as amended, to increase the
number of authorized shares of capital stock to 60,000,000. The voting results
on this proposal were as follows:
Common Stock (voting as a single class)
For: 8,505,810 Against: 717,382 Abstain: 18,363
Preferred Stock (voting as a single class)
For: 3,333,333 Against: 0 Abstain: 0
Common Stock and Preferred Stock (voting together as a single class)
For: 11,839,143 Against: 717,382 Abstain: 18,363
23
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ITEM 4. OTHER INFORMATION
In accordance with the provisions of Rule 14a-4(c) promulgated under
the Securities Exchange Act of 1934, if the Company does not receive notice of a
shareholder proposal to be raised at its 2000 annual meeting on or before
February 24, 2000, then in such event, the management proxies shall be allowed
to use their discretionary voting authority when the proposal is raised at the
2000 Annual Meeting of Stockholders.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Restated Certificate of Incorporation of the Company,
as amended October 7, 1999
11. Computation of earnings per share
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on September 17, 1999
announcing the completion of the private placement described
in Item 2 above.
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: October 22, 1999 By: /s/ Barry N. Bycoff
-----------------------
Barry N. Bycoff
President and Chief Executive
Officer (Principal Executive
Officer)
Date: October 22, 1999 By: /s/ James E. Hayden
-----------------------
James E. Hayden
Vice President, Finance and
Administration, and Chief Financial
Officer (Principal Financial and
Chief Accounting Officer)
24
<PAGE> 1
EXHIBIT 3.00
RESTATED CERTIFICATE OF INCORPORATION
OF
THE SOFTWARE DEVELOPER'S COMPANY, INC.
The Software Developer's Company, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), filed its Certificate of Incorporation with the Secretary of
State of the State of Delaware on September 11, 1986. Said Certificate of
Incorporation was further amended by the filing of a Certificate of Agreement of
Merger on October 3,1986. Desiring to further amend its Certificate of
Incorporation, as heretofore amended, and to restate the same, as amended, The
Software Developer's Company, Inc. does hereby certify:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent, duly adopted resolutions proposing and declaring advisable the
amendment and restatement of the Certificate of Incorporation of the Corporation
as hereinafter set forth.
SECOND: That, thereafter, the stockholders of the Corporation, at a
meeting duly called and held at which a quorum was present and acting
throughout, voted the necessary number of shares as required by statute in favor
of the amendment and restatement.
THIRD: That upon the effectiveness of the filing of this Restated
Certificate of Incorporation with the Secretary of State of Delaware (i) each
currently outstanding share of the Corporation's Series A Common Stock, $.01 par
value per share shall be converted into one share of Common Stock, $.01 par
value per share, and (ii) each currently outstanding share of the Corporation's
Series B Common Stock, $.01 par value per share shall be converted into one
share of Common Stock, $.01 par value per share.
FOURTH: That this Restated Certificate of Incorporation has been duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware.
FIFTH: That the text of the Certificate of Incorporation of The
Software Developer's Company,
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<PAGE> 2
Inc. is hereby further amended and restated in full to read as follows:
ARTICLE FIRST: The name of the Corporation is The Software Developer's
Company, Inc.
ARTICLE SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE THIRD: The nature of the business or purposes to be conducted
or promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Four Million (4,000,000) shares,
with Three Million Five Hundred Thousand (3,500,000) shares of Common Stock with
a par value of one cent ($.01) per share (the "Common Stock"), and Five Hundred
Thousand (500,000) shares of Preferred Stock with a par value of one ($.01) per
share (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
A. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as at least two-thirds of the
members of the Board of Directors of the Corporation may determine. Each series
shall be so designated as to distinguish the shares thereof from the shares of
all other series and classes. Except as otherwise provided in this Restated
Certificate of Incorporation, different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purpose of voting by
classes.
The Board of Directors of the Corporation is expressly authorized, by a
vote or written consent of at least two-thirds of the directors then if office,
to provide for the issuance of all or any shares of the Preferred Stock in one
or more series, each with such designations, preferences, voting powers (or no
voting powers),
26
<PAGE> 3
relative, participating, optional or other special rights and privileges and
such qualifications, limitations or restrictions thereof as shall be stated in
the resolution or resolutions adopted by the Board of Directors of the
Corporation to create such series, and a Certificate of Designation of said
resolution or resolutions shall be filed in accordance with the General
Corporation Law of the State of Delaware. The authority of the Board of
Directors of the Corporation with respect to each such series shall include,
without limitation of the foregoing, the right to provide that the shares of
each such series may be: (i) subject to redemption at such time or times and at
such price or prices; (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of capital stock, or of any other series of the same or any
other class or classes of stock of the Corporation at such price or prices or at
such rates of exchange and with such adjustments, if any; (v) entitled to the
benefit of such limitations, if any, on the issuance of additional shares of
such series or shares of any other series of Preferred Stock; or (vi) entitled
to such other preferences, powers, qualifications, rights and privileges, all as
the Board of Directors of the Corporation may deem advisable and as are not
inconsistent with law and the provisions of this Restated Certificate of
Incorporation.
B. COMMON STOCK
1. RELATIVE RIGHTS OF PREFERRED STOCK AND COMMON STOCK. All
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations, or
restrictions of the Common Stock are expressly made subject and subordinate to
those that may be fixed from time to time with respect to any shares of the
Preferred Stock.
2. VOTING RIGHTS. Except as otherwise required by law or this Restated
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of
27
<PAGE> 4
stockholders of the Corporation. Except as otherwise required by law or as set
forth in this Restated Certificate of Incorporation, any further amendment or
restatement thereof, or in any Certificate of Designation filed in accordance
with the General Corporation Law of the State of Delaware with respect to the
Preferred Stock, the holders of Common Stock and Preferred Stock shall vote
together as a single class on all matters submitted to the stockholders for a
vote.
3. DIVIDENDS. Subject to the preferential rights of the Preferred
Stock, if any, the holders of shares of Common Stock shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation,
out of the assets of the Corporation which are by law available therefor,
dividends payable either in cash, in property or in shares of capital stock.
4. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, the holders of Common Stock shall
be entitled to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively, unless
otherwise provided by law or this Amended and Restated Certificate of
Incorporation, any further amendment or restatement thereof, or in any
Certificate of Designation filed in accordance with the General Corporation Law
of the State of Delaware with respect to the Preferred Stock.
ARTICLE FIFTH: The Corporation is to have perpetual existence.
ARTICLE SIXTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
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<PAGE> 5
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
D. Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to the rights of creditors
and the rights expressly provided for particular classes or series of capital
stock, for the distribution among the stockholders of the Corporation of the
assets of the Corporation as provided herein, wholly or in part or in kind,
whether such assets be in cash or other property, and may authorize the Board of
Directors of the Corporation to determine the valuation of the different assets
of the Corporation for the purpose of such liquidation and may divide or
authorize the Board of Directors to divide such assets or any part thereof among
the stockholders of the Corporation, in such manner that every stockholder will
receive a proportionate amount in value (determined as provided herein) of cash
or property of the Corporation upon such liquidation or dissolution even though
each stockholder may not receive a strictly proportionate part of each such
asset.
ARTICLE SEVENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if
29
<PAGE> 6
sanctioned by the court to which the said application has been made, be binding
on all of the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE EIGHTH: SECTION 1. (a) ELIMINATION OF PERSONAL LIABILITY. The
Corporation eliminates the personal liability of each member of its Board of
Directors to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that the foregoing shall not eliminate
the liability of a director (i) for any breach of such director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which such director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended in the
future to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time.
Any repeal or modification of this Article Eighth shall not increase the
personal liability of any director of this Corporation for any act or occurrence
taking place prior to such repeal or modification, or otherwise adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
SECTION 2. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of
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<PAGE> 7
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; PROVIDED, HOWEVER, that except as provided in
paragraph (b) hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); PROVIDED, HOWEVER, that,
if the General Corporation Law so of the State of Delaware requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise (hereinafter
an "undertaking").
(b) RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit or in a suit brought by the Corporation to recover an
31
<PAGE> 8
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) any suit by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee be a defense to such
suit. In any suit brought by the indemnitee to enforce a right hereunder, or by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified or to such advancement of expenses under this Section or otherwise
shall be on the Corporation.
(c) NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
this Restated Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of
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<PAGE> 9
Delaware.
(e) INDEMNIFICATION OF AGENTS OF THE CORPORATION. The Corporation may, to
the extent authorized from time to time by the Board of Directors, grant rights
to indemnification and to the advancement of expenses, to any agent of the
Corporation to the fullest extent of the Provisions of this Section with respect
to the indemnification and advancement of expenses of directors, officers and
employees of the Corporation.
ARTICLE NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
IN WITNESS WHEREOF, The Software Developers Company, Inc. has caused this
certificate to be signed by Bruce W. Lynch, its duly authorized President, and
attested by John M. Hession, its duly authorized Secretary, this 20th day of
October, 1987.
THE SOFTWARE DEVELOPER'S COMPANY, INC.
By: /s/ Bruce W. Lynch
---------------------------------
Bruce W. Lynch, President
ATTEST:
/s/ John M. Hession
- --------------------------
Secretary
33
<PAGE> 10
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE SOFTWARE DEVELOPER'S COMPANY, INC.
--------------------------------------
The Software Developer's Company, Inc. (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Delaware Law"), DOES HEREBY
CERTIFY:
FIRST. The Board of Directors of the Corporation duly adopted a
resolution setting forth and declaring advisable the amendment of Article First
of the Restated Certificate of Incorporation of the Corporation, so that, as
amended, said Article shall read as follows:
First. The name of the corporation is Netegrity, Inc.
SECOND. The foregoing Amendment of the Restated Certificate of
Incorporation has been duly adopted by the written consent of stockholders in
accordance with the provisions of Sections 228 and 242 of the Delaware Law. In
addition, written notice of the adoption of the foregoing Amendment of the
Restated Certificate of Incorporation has been given to those stockholders who
did not consent in writing in accordance with Section 228 of the Delaware Law.
Signed and attested to on June 28, 1996.
THE SOFTWARE DEVELOPER'S COMPANY, INC.
By: /s/ Barry N. Bycoff
---------------------------------
Barry N. Bycoff, President
Attest:
/s/ John Hession
- -------------------------------------
John Hession, Assistant Secretary
34
<PAGE> 11
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NETEGRITY, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Netegrity, Inc. (the "Corporation"), organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
By vote of the Board of Directors of the Corporation, a resolution was
adopted, pursuant to Sections 242 and 141 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment in
accordance with Sections 212, 216 and 242 of the General Corporation Law of the
State of Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That the first paragraph of Article Fourth of the Restated
Certificate of Incorporation of the Corporation be and it
hereby is deleted in its entirety and a new paragraph be
inserted in lieu thereof to read as follows:
"ARTICLE FOURTH. The total number of shares of all classes
of capital stock which the Corporation shall have authority
to issue is 60,000,000 shares, consisting of 55,000,000
shares of Common Stock with a par value of $0.01 per share
(herein called the "Common Stock") and 5,000,000 shares of
Preferred Stock with a par value of $0.01 per share (herein
called the "Preferred Stock")."
[Intentionally Left Blank]
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<PAGE> 12
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President, Barry N. Bycoff, and attested to by
Anthony J. Medaglia, Jr., its Secretary, as of this 7th day of October, 1999.
NETEGRITY, INC.
By: /s/ Barry N. Bycoff
--------------------------
Barry N. Bycoff, President
Attest:
/s/ Anthony J. Medaglia, Jr.
- -----------------------------------
Anthony J. Medaglia, Jr., Secretary
36
<PAGE> 1
EXHIBIT 11.00
NETEGRITY, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per share data)
Three months ended
September 30,
1999 1998
---- ----
BASIC AND DILUTED:
Average Common shares outstanding 10,576 9,398
Net loss $(1,689) $(1,147)
Per share amount $ (0.16) $ (0.12)
Nine months ended
September 30,
1999 1998
---- ----
BASIC AND DILUTED:
Average Common shares outstanding 10,273 9,348
Net loss $(4,478) $(3,960)
Per share amount $ (0.44) $ (0.42)
37
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 11,211,960
<SECURITIES> 0
<RECEIVABLES> 3,405,313
<ALLOWANCES> 529,905
<INVENTORY> 0
<CURRENT-ASSETS> 14,540,189
<PP&E> 1,625,291
<DEPRECIATION> 625,262
<TOTAL-ASSETS> 15,593,437
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<BONDS> 0
0
0
<COMMON> 144,163
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<SALES> 8,026,673
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<INTEREST-EXPENSE> 118,912
<INCOME-PRETAX> (4,478,443)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,597,355)
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