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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1999, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, FOR THE TRANSITION
PERIOD FROM TO
COMMISSION FILE NUMBER 1-10139
NETEGRITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
(781) 890-1700
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such other shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days [X] Yes No [ ]
As of August 11, 1999 there were 10,420,288 shares of Common Stock
outstanding.
FORM 10-Q/A
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FORM 10-Q/A
QUARTERLY REPORT
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TABLE OF CONTENTS
Facing Sheet................................................................. 1
Table of Contents............................................................ 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets ........................... 3
Consolidated Statements of Operations.................. 5
Consolidated Statements of Cash Flows.................. 7
Notes to Consolidated Financial Statements............. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits................................................. 24
SIGNATURES................................................................... 25
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PART I. - FINANCIAL INFORMATION
NETEGRITY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1999 December 31,
(unaudited) 1998
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $3,075,406 $1,174,625
Accounts receivable-trade, net of
allowance for doubtful accounts
of $238,563 and $247,063 June 30,
1999 and December 31, 1998, respectively 2,290,784 1,746,645
Deferred maintenance asset 328,993 308,926
Prepaid expenses 63,560 30,163
Other current assets 9,236 15,848
---------- ----------
TOTAL CURRENT ASSETS 5,767,979 3,276,207
---------- ----------
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 869,012 736,341
CAPITALIZED SOFTWARE COSTS -- 175,629
Other Assets 52,379 37,114
---------- ----------
TOTAL ASSETS $6,689,370 $4,225,291
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The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1999 December 31,
(unaudited) 1998
----------- -----------
CURRENT LIABILITIES:
Accounts payable-trade $ 993,444 $ 897,734
Deferred maintenance liability 1,168,406 938,004
Deferred revenue 173,540 285,857
Accrued employer expenses 151,739 180,328
Other accrued expenses 680,222 766,898
Accrued compensation 485,145 160,687
----------- -----------
TOTAL CURRENT LIABILITIES 3,652,496 3,229,508
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
TOTAL LIABILITIES 3,652,496 3,229,508
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STOCKHOLDERS' EQUITY:
Series D Preferred Stock, $.01 par value
3,333,333 shares authorized and
outstanding as of June 30, 1999 33,333 33,333
Common stock, voting, $.01 par value,
authorized 25,000,000 shares: 10,341,484
shares issued and 10,316,383 shares
outstanding at June 30, 1999; 9,425,446
shares issued and 9,400,345 shares
outstanding at December 31, 1998 103,852 94,254
Additional paid-in capital 20,600,887 15,780,049
Cumulative deficit (17,417,541) (14,628,196)
Loan to officer (200,000) (200,000)
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3,120,531 1,079,440
Less - Treasury Stock, at cost:
25,101 shares (83,657) (83,657)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,036,874 995,783
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,689,370 $ 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
June 30,
1999 1998
---- ----
Revenues
SiteMinder software $ 1,472,666 $ 241,957
SiteMinder services 446,717 87,342
Other 719,112 725,136
----------- -----------
Total revenues 2,638,495 1,054,435
Cost of revenues 777,984 443,752
----------- -----------
Gross profit 1,860,511 610,682
Selling, general and administrative expenses 2,486,525 1,534,649
Research and development costs 775,021 451,997
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Loss from operations (1,401,035) (1,375,964)
Interest income 47,437 36,686
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Net loss $(1,353,598) $(1,339,278)
=========== ===========
Basic and diluted loss per share $ (0.13) $ (0.14)
Weighted average shares outstanding
(basic and diluted) 10,316,383 9,362,876
The accompanying notes are an integral part of the financial statements.
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NETEGRITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended
June 30,
1999 1998
---- ----
Revenues
SiteMinder software $ 2,467,601 $ 372,801
SiteMinder services 805,027 126,621
Other 1,425,901 1,364,833
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Total revenues 4,698,529 1,864,255
Cost of revenues 1,492,955 953,171
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Gross profit 3,205,574 911,084
Selling, general and administrative expenses 4,587,644 2,919,696
Research and development costs 1,474,420 872,853
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Loss from operations (2,856,490) (2,881,465)
Interest income 67,145 68,657
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Net loss $(2,789,345) $(2,812,808)
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Basic and diluted loss per share $ (0.27) $ (0.30)
Weighted average shares outstanding
(basic and diluted) 10,158,342 9,322,896
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 six months ended
June 30,
1999 1998
---- ----
OPERATING ACTIVITIES
Net(loss) income from continuing operations $(2,789,345) $(2,812,808)
----------- -----------
Adjustments to reconcile (loss) income to
net cash (used for) provided by operating
activities:
Depreciation and amortization 165,188 97,976
Provision for doubtful accounts receivable (8,500) (5,990)
Change in operating assets and liabilities:
Accounts receivable (535,639) (57,264)
Other current assets (46,852) 5,214
Other assets (15,265) 69,081
Accounts payable 95,710 (552,298)
Other accrued expenses 327,278 137,232
----------- -----------
Total adjustments (18,080) (306,049)
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Net cash provided by continuing
operating activities (2,807,425) (3,118,857)
Net cash provided by operating
activities $(2,807,425) $(3,118,857)
----------- -----------
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 six months ended
June 30,
1999 1998
---- ----
INVESTING ACTIVITIES:
Capitalized software costs $ 175,629 $ 27,658
Capital expenditures for equipment and
leasehold improvements (297,859) (177,673)
Proceeds from sale of certain assets -- 25,863
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Net cash provided by investing activities (122,230) (124,152)
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FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock -- 4,950,001
Net proceeds from issuance of stock 4,830,436 194,205
Principal payments under capital leases -- (22,721)
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Net cash provided by financing activities 4,830,436 5,121,485
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 1,900,781 1,878,476
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 $3,075,406 $4,012,062
========== ==========
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 the results of its operations for the periods presented. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. This information should be read in conjunction with the
Company's audited financial statements for the fiscal year ended December 31,
1998, included in Form 10-K/A filed on September 16, 1999.
NOTE 2 - The results of operations for the three-month and six month
periods ended June 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, we sold 534,242 shares of common
stock to five investors in a private placement at a price of $20.59 per share.
we received net proceeds of approximately $10.3 million from the private
placement, after deducting the placement agent's fee and our estimated expenses.
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NOTE 8 -On June 4, 1999, a suit was brought in the Court of Chancery
of the State of Delaware styled Applebaum et. al. v. Netegrity, Inc. et al.,
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 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 at a hearing scheduled for
September 24, 1999. If approved by the Court, the settlement agreement requires
that the Company obtain the approval from the holders of its preferred stock and
common stock, in separate class votes, of the previously adopted amendments
which increased the authorized shares of their respective classes of stock. The
Company believes that the costs associated with this settlement will not have a
material effect on its results of operations, assets or financial condition.
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2. Management's Discussion & Analysis of Financial Condition and Results of
Operation
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, including:
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 six months ended
June 30, 1999, we had a net loss of $2.8 million. As a result of ongoing
operating losses, at June 30, 1999, we had an accumulated deficit of $17.4
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.
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 70% of our total
revenues in the six months ended June 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
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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 enCommerce 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.
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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.
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.
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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 August 31, 1999, the
number of our employees increased from 40 to 105. 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.
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
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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.
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.
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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. In addition, our common stock is
listed on the Nasdaq SmallCap Market, which may increase investors' difficulty
in buying and selling our common stock, which could have the effect of
increasing the volatility of 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
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existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
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.
WE MAY USE OUR PROCEEDS FROM THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT AGREE.
We have not identified specific uses for our proceeds from this offering,
and we will have broad discretion in how we use them. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions on how to use our proceeds.
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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 June 30, 1999 we had 87 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)
% to Total Revenues Three Months Ended
For the three months June 30,
ended June 30, 1998 1999 1999 vs. 1998
- -------------- ---- ---- -------------
Revenues:
SiteMinder software 23% 56% 509%
SiteMinder services 8 17 411
Other 69 27 (1)
--- --- ---
Total revenues 100 100 150%
Gross profits 58% 71% 205%
Selling, general and
administrative expenses 146% 94% 62%
Research and development costs 43% 29% 71%
--- --- ---
(Loss) from operations (130%) (53%) 2%
REVENUES: Total revenues increased by $1.6 million, or 150%, to $2.6 million in
the three months ended June 30, 1999, from $1 million in the three months ended
June 30, 1999.
SiteMinder software revenues increased by $1.2 million, or 509%, to $1.5 million
in the three months ended June 30, 1999, from $242,000 in the three months ended
June 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 $359,000, or 411%, to $447,000 in the
three months ended June 30, 1999, from $87,000 in the three months ended June
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 $6,000, or 1%, to $719,000 in the three months
ended June 30, 1999 from $725,000 in the three months ended June 30, 1998.
GROSS PROFIT: Gross profit increased by $1.2 million, or 205%, to $1.9 million
in the three months ended June 30, 1999, from $610,682 in the three months ended
June 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 $951,876, or 62%, to $2.5 million in the
three months ended June 30, 1999, from $1.5 million in the three months ended
June 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
$323,024, or 71%, to $775,021 in the three months ended June 30, 1999, from
$451,997 in the three months ended June 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 June 30, 1999, or the three months
ended June 30, 1998. There was no capitalized software as of June 30, 1999.
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INTEREST INCOME (EXPENSE), NET: Net interest income increased by $10,751, or
29%, to $47,437 in the three months ended June 30, 1999, from $36,686 in the
three months ended June 30, 1998. This increase is mainly attributable to a
higher average cash balance in the three months ended June 30, 1999. There were
no borrowings outstanding during the three months ended June 30, 1998, or the
three months ended June 30, 1999.
Period to Period %
Increase/(Decrease)
% to Total Revenues Six Months Ended
For the six months June 30,
ended June 30, 1998 1999 1999 vs. 1998
- -------------- ---- ---- -------------
Revenues:
SiteMinder 20% 53% 562%
SiteMinder services 7 17 539
Other 73 30 4
--- --- ---
Total revenues 100% 100% 152%
Gross profits 49% 68% 252%
Selling, general and
administrative expenses 157% 98% 57%
Research and development costs 47% 31% 69%
--- --- ---
(Loss) from operations (155%) (61%) (1%)
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Total revenues increased by $2.8 million, or 152%, to $4.7
million in the six months ended June 30, 1999, from $1.9 million in the six
months ended June 30, 1998.
SiteMinder software revenues increased by $2.1 million, or 562%, to $2.5
million in the six months ended June 30, 1999, from $373,000 in the six months
ended June 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 $679,000, or 539%, to $805,000 in
the six months ended June 30, 1999, from $126,000 in the six months ended June
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 $61,000, or 4%, to $1.4 million in the six
months ended June 30, 1999, from $1.4 million in the six months ended June 30,
1998.
Gross profit. Gross profit increased by $2.3 million, or 252%, to $3.2
million in the six months ended June 30, 1999, from $911,000 in the six months
ended June 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 57%, to $4.6 million in
the six months ended June 30, 1999, from $2.9 million in the six
months ended June 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 $601,000, or 69%, to $1.5 million in the six months ended June 30, 1999, from
$873,000 in the six months ended June 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 six months ended
June 30, 1998, we capitalized $282,000 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 six months ended June 30,
1999. There was no capitalized software as of June 30, 1999.
Interest income (expense), net. Net interest income decreased by $2,000,
or 3%, to $67,000 in the six months ended June 30, 1999, from $69,000 in the six
months ended June 30, 1998. This decrease was mainly attributable to lower
interest rates in the six months ended June 30, 1999. There were no borrowings
outstanding during the six months ended June 30, 1998 or the six months ended
June 30, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
June 30, December 31,
Financial Condition as of 1999 1998
- ------------------------- ------ ------
Cash and cash equivalents $3,075 $1,175
Working capital 2,115 47
Current ratio 1.58 1.01
Cash Flow Activity Summary for June 30, June 30,
the Six Months Ended 1999 1998
- -------------------- ------- -------
Net cash used for operating activities $(2,807) $(3,119)
Net cash used for investing activities (122) (124)
Net cash provided by (used for)
financing activities 4,830 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 six months ended June 30, 1999
was $2.8 million, primarily due to a net loss of $2.8 million and an increase in
accounts receivable, partially offset by increases in accounts payable, accrued
expenses and deferred revenue. 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 $122,000 in the six months ended
June 30, 1999, and $301,000 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 six months ended June 30, 1999
was $4.8 million, as a result of our sale of 795,651 shares of common stock to
four investors in a private placement on February 8, 1999 at a price of $5.75
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 June 30, 1999, our primary financial commitments consisted of
obligations outstanding under operating leases.
As of June 30, 1999, we had cash and cash equivalents totaling $3.1
million. On September 9, 1999, we sold 534,242 shares of common stock to five
investors in a private placement at a price of $20.59 per share. We received net
proceeds of approximately $10.3 million from the private placement, after
deducting the placement agent's fee and our estimated expenses.
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 of this offering and our September
1999 sale of stock, together with our existing cash and cash equivalent
balances, will be sufficient to meet our anticipated cash requirements for
working capital and capital expenditures for at least the next twelve months.
Thereafter, if cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities, or obtain additional credit facilities. The issuance of additional
equity or convertible debt securities could result in additional dilution to our
stockholders.
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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 August 31, 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> 23
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.
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PART II -- OTHER INFORMATION
Item 6
EXHIBITS
- --------
23.1 Consent of Independent Accountants
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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: September 16, 1999 By: /s/ Barry N. Bycoff
----------------------------------------
Barry N. Bycoff
President and Chief Executive
Officer (Principal Executive
Officer)
Date: September 16, 1999 By: /s/ James E. Hayden
----------------------------------------
James E. Hayden
Vice President, Finance and
Administration, and Chief Financial
Officer (Principal Financial and
Chief Accounting Officer)
25
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
registration statement on Form 10-QA of our report dated February 8, 1999, on
our audits of the consolidated financial statements of Netegrity, Inc. as of
December 31, 1998 and December 31, 1997 and for each of the three years in the
period ended December 31, 1998 and 1997, and the nine months ended December 31,
1996.
/s/ PricewaterhouseCoopers LLP
September 15, 1999
Boston, Massachusetts
