-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCrYOSjUXiJ+CWBee5WbYWaWopSt5t6SfzO7mJ5rKn9NulQy+SP+RoftoD7tTSnh T08QE38pc80xLgcveQfZPg== 0000840824-97-000002.txt : 19970811 0000840824-97-000002.hdr.sgml : 19970811 ACCESSION NUMBER: 0000840824-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETEGRITY INC CENTRAL INDEX KEY: 0000840824 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 042911320 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10139 FILM NUMBER: 97653667 BUSINESS ADDRESS: STREET 1: 245 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02184 BUSINESS PHONE: 617-890-1700 MAIL ADDRESS: STREET 1: 245 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02184 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE DEVELOPERS CO INC/DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q __________________ XX Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the quarterly period ended June 30, 1997, or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the transition period from ___________ to Commission File Number 1-10139 NETEGRITY, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2911320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 245 Winter Street Waltham, MA 02154 (Address of principal executive offices) (Zip Code) (617)890-1700 (Registrant's Telephone Number) Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such other shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days XX Yes No As of July 31, 1997 there were 9,269,446 shares of Common Stock outstanding. FORM 10-Q QUARTERLY REPORT ---------------- TABLE OF CONTENTS Facing Sheet. . . . . . . . . . . . . . . . . . . . . . . 1 Table of Contents . . . . . . . . . . . . . . . . . . . . 2 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets . . . . . . . . . . 3 Consolidated Statements of Operations. . . . . . 5 Consolidated Statements of Cash Flows. . . . . . 7 Notes to Consolidated Financial Statements . . . 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . .11 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . .16 Item 2. Changes in Securitities. . . . . . . . . . . . .16 Item 3. Defaults Upon Senior Securities. . . . . . . . .16 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . .16 Item 5. Other Information. . . . . . . . . . . . . . . .18 Item 6. Exhibits and Reports on Form 8-K . . . . . . . .18 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . .19 Exhibit 11 - Computation of earnings per share . . . . . .20 PART I. - FINANCIAL INFORMATION NETEGRITY, INC. CONSOLIDATED BALANCE SHEETS ASSETS June 30, 1997 December 31, (unaudited) 1996 CURRENT ASSETS: Cash and cash equivalents $4,620,286 $ 6,791,057 Escrow receivable 600,000 600,000 Accounts receivable-trade, net of allowance for doubtful accounts of $74,797 and $67,797 at June 30 1997 and December 31, 1996, respectively 501,619 787,780 Other current assets 553,627 559,230 TOTAL CURRENT ASSETS 6,275,532 8,738,067 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 501,497 287,323 CAPITALIZED SOFTWARE COSTS 344,189 --- OTHER ASSETS: Investment in Encotone, Inc. 106,252 210,000 Investment in Encotone, LTD. --- 1,000,000 Other 33,922 23,360 TOTAL OTHER ASSETS 140,174 1,233,360 TOTAL ASSETS $7,261,392 $10,258,750 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1997 December 31, (unaudited) 1996 CURRENT LIABILITIES: Accounts payable-trade $ 1,562,431 $ 2,099,436 Other accrued expenses 2,016,977 2,009,890 Capital lease obligation 30,058 --- TOTAL LIABILITIES 3,609,466 4,109,326 COMMITMENTS AND CONTINGENCIES --- --- STOCKHOLDERS' EQUITY: Common stock, voting, $.01 par value, authorized 25,000,000 shares: 9,269,446 shares issued and 9,244,345 shares outstanding at June 30, 1997; 9,204,946 shares issued and 9,179,845 shares outstanding at December 31, 1996 92,699 92,049 Additional paid-in capital 10,569,354 10,460,554 Cumulative translation adjustment 28,028 28,028 Cumulative deficit (6,754,498) (4,147,550) Loan to officer (200,000) (200,000) 3,735,583 6,233,081 Less - Treasury Stock, at cost: 25,101 shares (83,657) (83,657) TOTAL STOCKHOLDERS' EQUITY 3,651,926 6,149,424 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,261,392 $10,258,750 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months ended June 30, 1997 1996 Net revenues $1,183,656 $1,129,972 Cost of revenues 699,702 751,836 Gross profit 483,954 378,136 Selling, general & administrative expenses 1,457,545 445,845 Loss from operations of continuing operations (973,591) (67,709) Interest income 62,656 11,095 Share of loss from investment in Encotone, Inc. (47,704) --- Write off of investment in Encotone, LTD. (1,000,000) --- Loss from operations of continuing operations (1,958,639) (56,614) Loss from operations of discontinued operations --- (520,245) Gain on sale of assets of discontinued operations --- 6,000,000 (Loss) income before provision for income taxes (1,958,639) 5,423,141 Provision for income taxes --- 19,000 NET (LOSS) INCOME $(1,958,639) $5,404,141 Earnings (loss) per share: Loss from continuing operations $(0.21) $(0.01) Loss from operations of discontinued operations --- (0.05) Gain on sale of assets of discontinued operations --- 0.62 NET(LOSS)INCOME PER SHARE $(0.21) $0.56 Weighted average shares outstanding 9,269,446 9,747,000 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the six months ended June 30, 1997 1996 Net revenues $2,170,250 $2,458,883 Cost of revenues 1,234,953 1,506,884 Gross profit 935,297 951,999 Selling, general & administrative expenses 2,479,067 844,631 Research and development costs 101,148 --- Income (loss) from operations of continuing operations (1,644,918) 107,368 Interest income 141,718 17,429 Share of loss from investment in Encotone, Inc. (103,748) --- Write off of investment in Encotone, LTD. (1,000,000) --- (Loss) income from continuing operations (2,606,948) 124,797 Loss from operations of discontinued operations --- (734,698) Gain on sale of assets of discontinued operations --- 6,000,000 (Loss) income before provision for income taxes (2,606,948) 5,390,099 Provision for income taxes --- 19,000 NET (LOSS) INCOME $(2,606,948) $5,371,099 Earnings (loss) per share: (Loss) income from continuing operations $(0.28) $0.01 Loss from operations of discontinued operations --- (0.08) Gain on sale of assets of discontinued operations --- 0.66 NET (LOSS) INCOME PER SHARE $(0.28) $0.59 Weighted average shares outstanding 9,265,279 9,052,000 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, 1997 1996 OPERATING ACTIVITIES: Net(loss) income from continuing operations $(2,606,948) $ 105,797 Adjustments to reconcile (loss) income to net cash (used for) provided by operating activities: Share of loss from investment in Encotone, Inc. 103,748 --- Write off of investment in Encotone, LTD. 1,000,000 --- Depreciation and amortization 44,494 10,981 Provision for doubtful accounts receivable 7,000 8,000 Change in operating assets and liabilities: Accounts receivable 279,161 184,688 Other current assets 5,603 (203,549) Other assets (10,562) --- Accounts payable (537,005) 383,570 Other accrued expenses 48,542 199,054 Accrued income taxes --- (180,000) Intangible assets --- (42,417) Total adjustments 940,981 360,327 Net cash (used for) provided by continuing operating activities (1,665,967) 466,124 Net cash (used for) provided by discontinued operating activities (41,455) 2,721,713 Net cash (used for) provided by operating activities $(1,707,422) $3,187,837 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.) (Unaudited) For the six months ended June 30, 1997 1996 INVESTING ACTIVITIES: Capitalized software costs $ (344,189) --- Capital expenditures for equipment and leasehold improvements (226,294) $ (231,858) Proceeds from sale of certain assets --- 6,159,455 Net cash (used for) provided by investing activities (570,483) 5,927,597 FINANCING ACTIVITIES: Net proceeds from issuance of stock 109,450 44,234 Principal payments under capital leases (2,316) (17,700) Net payments on line of credit --- 41,248 Principal debt payments --- (22,092) Net cash provided by financing activities 107,134 45,690 Effect of exchange rate changes on cash --- (13,807) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,170,771) 9,147,317 Cash and cash equivalents at beginning of period 6,791,057 1,258,061 CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,620,286 $10,405,378 Supplemental Disclosures of Cash Flow Information: Interest paid $ 424 $ 64,293 Income taxes paid $ 63,557 --- Supplemental disclosure of non cash investing and financing activities: Write off of investment in Encotone, LTD. $1,000,000 --- Purchase of equipment under capital lease obligation $ 32,374 --- The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - The unaudited financial information furnished herein reflects all adjustments which are of a normal recurring nature, which in the opinion of management are necessary to fairly state the Company's financial position, cash flows and the results of its operations for the periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information should be read in conjunction with the Company's audited financial statements for the fiscal year ended December 31, 1996, included in Form 10-K filed on March 17, 1997. Note 2 - The results of operations for the three-month and six-month periods ended June 30, 1997 are not necessarily indicative of the results to be expected for the entire year ending December 31, 1997. Note 3 - Minority interest represents the minority shareholders' proportionate share of their equity of Personal Computing Tools, Inc. (PCT). At June 30, 1997, the Company owned 94% of the capital stock of PCT. Note 4 - Net income per share is based upon the weighted average number of common shares outstanding including the dilutive effects of options and warrants. Note 5 - The Company provides for income taxes during interim reporting periods based on reported earnings before income taxes using an estimate of the annual effective tax rate. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Note 6 - As of June 28, 1996, the Company completed the ivestiture of its catalog related business, consisting of The rogrammer's SuperShop ("TPS")catalog, the TPS web site, the corporate sales group, the German subsidiary ("SDC Germany") and SDC Communications. The Company completed the transaction for an aggregate price of $10,035,000. The aggregate price consisted of payment of $9,300,000 in immediately available funds and the deposit of $735,000 under an escrow arrangement. As of August 12, 1996, $135,000 of the escrow has been returned to the Company. The final purchase price of $10,035,000 was a negotiated settlement. Prior to the closing, the parties had a dispute as to how catalog revenue should be measured under the Agreement. The aggregate price of $10,035,000 assumed that the Company transferred to the Purchaser as of the Closing date, tangible net assets of the catalog related business that equaled to $1,500,000. These net assets are currently being audited and the Company expects no material adjustments. The Company incurred $2,587,000 in expenses and write-offs related to the divestiture. These expenses were primarily comprised of write-off of goodwill, severance costs, professional fees and facility shut-down costs for its corporate offices and distribution facility. The Company reported a gain of $6,000,000 from the sale of the assets of its catalog related business. Note 7 - Effective February 1, 1997, the company began to capitalize eligible software costs as required by FASB Statement No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The Company capitalizes eligible software costs upon establishing product technological easibility and will amortize these costs on a product-by-product basis, commencing upon release of the products to customers, on a straight-line basis over the economic life of the product. Costs related to research, design and development of computer software are charged to research and development expense as incurred. Note 8 - In October 1996 the Company made an early stage investment in Encotone, LTD. with the anticipation that its first product, TeleID , a credit card-sized acoustical smart card, would be able to penetrate into the large long distance carrier market. To date, Encotone, LTD. has not shown any material penetration in this market. The Company evaluates the value of its investments on an ongoing basis and relies on a number of factors including, operating results, business plans, budgets and economic projections. As such, the Company has determined that a write off of its investment in Encotone, LTD. in the amount of $1,000,000, or $(0.11) per share, at June 30, 1997, is appropriate. The Company continues to maintain its original 10% equity interest in Encotone, LTD., as well as its 50% equity interest in Encotone, Inc. the joint venture formed with Encotone, LTD. in 1996 to market TeleID in North, Central, and South America. At June 30, 1997, the Company's investment in Encotone, Inc., under the equity method, is $106,252. Although there is a possibility for Encotone, LTD. to become successful in the TeleID market, the Company believes that the potential is less today than it was when its original investment in Encotone, LTD. was made in 1996. The Company will continue to work with Encotone, LTD. for an indefinite period of time in order to recover its investment. The Company has held preliminary discussions with Encotone, LTD. with respect to potential reorganizations of both investments, and on July 16, 1997, the Company, as part of a majority shareholders' action, advanced Encotone, LTD. $49,015. Terms of the loan agreement include an option for the Company to either convert the loan to ordinary shares in Encotone, LTD., or receive quarterly payments of principle and interest at 1.5% above the LIBOR rate, beginning June 30, 1998 through March 31, 1999. NETEGRITY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, the discussion in this Item contains forward-looking statements which involve certain degrees of risk and uncertainties, including statements relating to liquidity and capital resources. Except for the historical information contained herein, the matters discussed in this section are such forward-looking statements that involve risks and uncertainties, including the impact of competitive pricing within the software industry, the effect any reaction to such competitive pressures has on current inventory valuations, the need for and effect of any business restructuring, the presence of competitors with greater financial resources, capacity and supply constraints or difficulties, and the Company's continuing need for improved profitability and liquidity. The following overview reflects the divestiture of the Company's catalog related business. Any comments relating to operating results or issues are reflective of the continuing network security business. The Company's revenues were generated by the sale of network security products, integration and support services to companies doing business on the Internet and internal networks. The divestiture of the Company's catalog related business is recorded as discontinued operations in the accompanying unaudited financial statements. The Company plans to develop and introduce new products to address the changing needs of the evolving network security market. There can be no assurance that the Company will be able to develop new products or that such products will achieve market acceptance, or, if market acceptance is achieved, that the Company will be able to maintain such acceptance for a significant period of time. RESULTS OF CONTINUING OPERATIONS The following information should be read in conjunction with the consolidated financial statements and notes thereto: For the three months % to Net Revenue % Change ended June 30, 1997 1996 97 v. 96 Net Revenues: Product sales 100% 100% --- Gross Margins: Product sales 41% 33% 8% Selling, general and administrative expenses 123% 39% 84% Income (loss) from continuing operations (165%) (5%) (161%) Revenues: Total net revenues for the second quarter ended June 30, 1997 increased by $53,684, or 4.8%, to $1,183,656 from $1,129,972 in the second quarter ended June 30, 1996. This growth in revenue was due to the increase in sales of Check Point Software's FireWall-1 product and related maintenance. This increase was offset by the Company's decision to eliminate hardware sales to its customers and reduce the distribution of Firewall-1 to other resellers in the industry. Such portions of the business were eliminated or reduced because they yield low margins and do not fit with the Company's longer-term strategic plan. Gross Profit: Total gross profit dollars for the second quarter ended June 30, 1997 increased by $105,818, or 28%, to $483,954 compared with $378,136 in the second quarter ended June 30, 1996. This increase can be attributed to the corresponding increase in net revenues and elimination and reduction of low margin business, discussed above. Selling, General and Administrative Expenses: Selling, General and Administrative (SG&A) expenses increased 227% to $1,457,545 for the second quarter ended June 30, 1997 from $445,845 in the quarter ended June 30, 1996. This increase was a result of the Company continuing the building of its management and employee infrastructure to bring to market its proprietary product line and address the growing network security marketplace. Research and Development Costs: Research and Development expenditures for the second quarter ended June 30, 1997 were $185,350 as compared to $0 for the quarter ended June 30, 1996. Beginning February 1, 1997, research and development expenditures are being capitalized as a result of the Company realizing technological feasibility. The Company is continuing the development of new products to address the changing needs of the evolving network security market. Research and Development Costs are expensed as incurred, and are capitalized upon establishing technological feasibility on a product-by-product basis. Interest Income: Net interest income increased in the quarter ended June 30, 1997 to $62,656 from $11,095 in the same period last year. This increase is mainly attributable to available cash being invested at prevailing rates of interest. Write Off of Investment in Encotone, LTD.: In October 1996 the Company made an early stage investment in Encotone, LTD. with the anticipation that its first product, TeleID , a credit card-sized acoustical smart card, would be able to penetrate into the large long distance carrier market. To date, Encotone, LTD. has not shown any material penetration in this market. The Company evaluates the value of its investments on an ongoing basis and relies on a number of factors including, operating results, business plans, budgets and economic projections. As such, the Company has determined that a write off of its investment in Encotone, LTD. in the amount of $1,000,000, or $(0.11) per share, at June 30, 1997, is appropriate. The Company continues to maintain its original 10% equity interest in Encotone, LTD., as well as its 50% equity interest in Encotone, Inc. the joint venture formed with Encotone, LTD. in 1996 to market TeleID in North, Central, and South America. At June 30, 1997, the Company's investment in Encotone, Inc., under the equity method, is $106,252. Although there is a possibility for Encotone, LTD. to become successful in the TeleID market, the Company believes that the potential is less today than it was when its original investment in Encotone, LTD. was made in 1996. The Company will continue to work with Encotone, LTD. for an indefinite period of time in order to recover its investment. The Company has held preliminary discussions with Encotone, LTD. with respect to potential reorganizations of both investments, and on July 16, 1997, the Company, as part of a majority shareholders' action, advanced Encotone, LTD. $49,015. Terms of the loan agreement include an option for the Company to either convert the loan to ordinary shares in Encotone, LTD., or receive quarterly payments of principle and interest at 1.5% above the LIBOR rate, beginning June 30, 1998 through March 31, 1999. For the six months % to Net Revenue % Change ended June 30, 1997 1996 97 v. 96 Net Revenues: Product sales 100% 100% --- Gross Margins: Product sales 43% 39% 4% Selling, general and administrative expenses 114% 34% 80% Research and development costs 5% --- 5% Income (loss) from continuing operations (120%) 5% (125%) Revenues: Total net revenues for the six months ended June 30, 1997 decreased by $288,633, or 11.7%, to $2,170,250 from $2,458,833 in the six months ended June 30, 1996. This decrease was the net result of an increase in sales of Check Point Software's FireWall-1 product and related maintenance, offset by the Company's decision to eliminate hardware sales and reduce its distribution of Firewall-1 to other resellers in the industry. These portions of the business were eliminated or reduced because they yield low margins and do not fit with the Company's longer-term strategic plan. Gross Profit: Total gross profit dollars for the six months ended June 30, 1997 decreased by $16,702, or 2%, to $935,297 from $951,999 in the six months ended June 30, 1996. This decrease can be attributed to the corresponding decrease in net revenues and the Company's elimination and reduction of low margin business, as described above. Selling, General and Administrative Expenses: Selling, General and Administrative (SG&A) expenses increased 194% to $2,479,067 for the six months ended June 30, 1997 from $884,631 in the six months ended June 30, 1996. This increase was a result of the Company continuing the building of its management and employee infrastructure to bring to market its proprietary product line and address the growing network security marketplace. Research and Development Costs: Research and Development expenditures for the first six months ended June 30, 1997 were $445,337 as compared to $0 for the six months ended June 30, 1996. Beginning February 1, 1997, $344,189 of these expenditures were capitalized as a result of the Company realizing technological feasibility. The Company is continuing the development of new products to address the changing needs of the evolving network security market. Research and Development Costs are expensed as incurred, and are capitalized upon establishing technological feasibility on a product-by-product basis. Interest Income: Net interest income increased in the six month period ended June 30, 1997 to $141,718 from $17,429 in the same period last year. This increase is mainly attributable to available cash being invested at prevailing rates of interest. The Company's quarterly operating results have varied and may continue to vary significantly depending on external factors. Substantially all of the Company's revenue in a quarter is derived from orders received in that quarter. Accordingly, delays in orders are likely to result in the associated revenue not being realized by the Company in the period. Moreover, the Company's expense levels are based in part on expectations of future revenue levels, and a shortfall in expected revenue could therefore result in a disproportionate decrease in the Company's net income. LIQUIDITY AND CAPITAL RESOURCES (in thousands, except ratios) June 30, December 31, Financial Condition as of 1997 1996 Cash and cash equivalents $4,620 $6,791 Working capital 2,667 4,629 Current ratio 1.74 2.13 Cash Flow Activity Summary for June 30, June 30, the Six Months Ended 1997 1996 Net cash (used for) provided by continuing operating activities (1,606) 466 Net (cash used for) provided by investing activities (570) 5,928 Net cash provided by financing activities 107 46 The Company's net cash balance decreased by $2,171,000 to $4,620,000 at June 30, 1997 from $6,791,000 at December 31, 1996. This decrease was primarily attributable to increased expenditures related to building the Company's infrastructure and the research and development costs associated with bringing its flagship product to market. Accounts receivable-trade decreased 36% to $502,000 at June 30, 1997 from $788,000 at December 31, 1996. This decrease resulted partially from the corresponding decrease in net revenues discussed above, coupled with a stringent corporate collection policy, which resulted in a 25% decrease in accounts receivable collection days outstanding from 64 days at December 31, 1996 to 48 days at June 30, 1997. Working capital decreased by $1,962,000 to $2,667,000 at June 30, 1997 from $4,629,000 at December 31, 1996. This decrease was primarily attributable to increased expenditures related to building the Company's infrastructure and the research and development costs associated with bringing its flagship product to market. The Company anticipates that its existing cash resources and cash flow from operations will be sufficient to fund its operations through the Company's current fiscal year ending December 31, 1997. Additionally, the Company currently anticipates that its available cash, expected cash flows from operations, and its borrowing capacity will be sufficient to fund operations through 1998. PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. ITEM 2. CHANGES IN SECURITIES There have been no changes in securities during the quarter ended June 30, 1997. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 16, 1997, the Board of Directors caused to be distributed to stockholders of record as of April 8, 1997 a Notice of Special Meeting in Lieu of Annual Meeting of Stockholders, Proxy and a Proxy Statement for the Special Meeting on May 22, 1997. On that record date, the Company had outstanding 9,264,446 shares of Common Stock (excluding treasury shares) that were entitled to vote. At the meeting, the stockholders acted upon the following proposals: (1) to elect a Board of Directors; (2) to amend the company's By-Laws to eliminate the ability of the Company's stockholders to act by consent without a meeting; (3) to amend the Company's By-Laws to provide that stockholders of the Company may call a special meeting of stockholders only by written application by one or more stockholders who hold 30% in interest of the capital stock of the Company entitled to vote thereat; (4) to amend the Company's By-Laws to revise provisions regarding director and officer indemnification; (5) to adopt and approve a 1997 Stock Option Plan pursuant to which 500,000 shares of the Company's Common Stock shall be reserved for issuance subject to the 1997 Plan; (6) to amend the Company's 1994 Stock Plan to increase the number of shares of Common Stock reserved for issuance subject to said Plan to 1,813,300. Votes "for" represent affirmative votes and do not include "abstentions" or broker "non-votes". Votes "withheld" from any nominee, abstentions and broker non-votes are counted as present or represented for purposes of determining a quorum. Abstentions are included in the number of shares present or represented and voting on each matter, however, broker non-votes are not so included. In cases where a signed proxy was submitted without direction, the shares represented by the proxy were voted "for" each proposal in the manner disclosed in the proxy statement and proxy. Voting results were as follows: (1) Election of Directors: FOR WITHHELD Stephen L. Watson 7,530,066 17,277 Barry N. Bycoff 7,530,066 17,277 Milton J. Pappas 7,530,066 17,277 Ralph B. Wagner 7,530,066 17,277 Michael L. Mark 7,530,066 17,277 Eric R. Giler 7,530,066 17,277 Richard J. Kosinski 7,525,066 22,277 (2) To amend the company's By-Laws to eliminate the ability of the Company's stockholders to act by consent without a meeting: FOR AGAINST ABSTAIN 3,443,515 1,205,606 27,768 (3) To amend the Company's By-Laws to provide that stockholders may call a special meeting of stockholders only by written application by one or more stockholders who hold 30% in interest of capital stock: FOR AGAINST ABSTAIN 3,318,259 1,310,951 47,679 (4) To amend the Company's By-Laws to revise provisions regarding director and officer indemnification: FOR AGAINST ABSTAIN 6,986,873 174,106 34,204 (5) To adopt and approve a 1997 Stock Option Plan: FOR AGAINST ABSTAIN 4,353,352 200,008 35,168 (6) To amend the Company's 1994 Stock Plan: FOR AGAINST ABSTAIN 4,328,863 211,297 35,368 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NETEGRITY, INC. Date: August 8, 1997 By:/s/ Barry N. Bycoff Barry N. Bycoff President and Chief Executive Officer (Principal Executive Officer) Date: August 8, 1997 By:/s/ James O'Connor, Jr. James O'Connor, Jr. Vice President, Finance and Chief Financial Officer (Principal Financial and Chief Accounting Officer) EXHIBIT 11.00 NETEGRITY, INC. COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (In thousands, except per share data) Three months ended June 30, 1997 1996 Weighted average shares outstanding 9,269 8,955 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price --- 792 Total 9,269 9,747 Net loss from continuing operations $ (1,959) $ (57) Net loss from discontinued operations --- (520) Gain on sale of assets of discontinued operations --- 6,000 Net (loss) income for EPS computation $(1,959) $5,423 Per share amounts: Loss from continuing operations $(0.21) $(0.01) Loss from discontinued operations --- (0.05) Gain on sale of assets of discontinued operations --- 0.62 NET LOSS (INCOME) PER SHARE $(0.21) $0.56 EXHIBIT 11.00 NETEGRITY, INC. COMPUTATION OF EARNINGS PER SHARE (cont.) (UNAUDITED) (In thousands, except per share data) Six months ended June 30, 1997 1996 Weighted average shares outstanding 9,265 8,490 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price --- 562 Total 9,265 9,052 Net (loss) income from continuing operations $(2,607) $ 106 Net loss from discontinued operations --- (735) Gain on sale of assets of discontinued operations --- 6,000 Net (loss) income for EPS computation $(2,607) $5,371 Per share amounts: (Loss) income from continuing operations $(0.28) $0.01 Loss from discontinued operations --- (0.08) Gain on sale of assets of discontinued operations --- 0.66 NET (LOSS) INCOME PER SHARE $(0.28) $0.59 EX-27 2
5 Attached is the Financial Data Schedule for Netegrity, Inc. (Nasdaq: NETE) for the second quarter ended June 30, 1997. 3-MOS DEC-31-1997 JUN-30-1997 4,620,286 0 576,416 74,797 0 6,275,532 582,449 80,952 7,261,392 3,609,466 0 0 0 92,699 3,559,227 7,261,392 2,170,250 2,170,250 812,702 2,479,067 101,148 7,000 0 (2,606,948) 0 (2,606,948) 0 0 0 (2,606,948) (0.28) (0.28) The Company took a one-time write off of on its investment in Encotone, Ltd. in the amount of $1,000,000, or $(0.11) per share.
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