-----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, KYp662icmKHv5W18JKe+at/C/Fx9XoEoSDOO0JsctHpApY/lSBtHixUz3dVz+UYq 2VogxkNICJUfvrbaImwt9g== 0000840824-97-000004.txt : 19971114 0000840824-97-000004.hdr.sgml : 19971114 ACCESSION NUMBER: 0000840824-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-10139 FILM NUMBER: 97712827 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 September 30, 1997, or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the transition period from ------ to ------ Commission File Number 1-10139 ------------------------------ NETEGRITY, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2911320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 245 WINTER STREET WALTHAM, MASSACHUSETTS 02154 (Address of principal executive offices) (Zip Code) (781)890-1700 (Registrant's Telephone Number) Securities registered pursuant to Section 12(g) of the Act: NONE ----------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such other shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days XX Yes No As of November 7, 1996 there were 9,271,846 shares of Common Stock outstanding. FORM 10-Q QUARTERLY REPORT ---------------- TABLE OF CONTENTS Facing Sheet . . . . . . . . . . . . . . . . . . . . . 1 Table of Contents. . . . . . . . . . . . . . . . . . . 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets . . . . . . . . . . . 3 Statements of Operations . . . . . . 5 Statements of Cash Flows . . . . . . 7 Notes to Financial Statements . . . . 9 Item 2. Management's Discussion and Analysis of FinancialCondition and Results of Operations . . . . . . . . . . . . . . . 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . 18 Item 2. Changes in Securities . . . . . . . . 18 Item 3. Defaults Upon Senior Securities . . . 18 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 18 Item 5. Other Information . . . . . . . . . . 18 Item 6. Exhibits and Reports on Form 8-K. . . 18 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 19 Exhibit 11.00 - Computation of earnings per share. . . 20 PART I. - FINANCIAL INFORMATION NETEGRITY, INC. BALANCE SHEETS (Unaudited) ASSETS September 30, December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents $2,961,045 $ 6,791,057 Escrow receivable 600,000 600,000 Accounts receivable-trade, net of allowance for doubtful accounts of $66,460 and $67,797 at September 30,1997 and December 31, 1996, respectively 622,432 787,780 Other current assets 346,602 559,230 TOTAL CURRENT ASSETS 4,530,079 8,738,067 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 536,321 287,323 CAPITALIZED SOFTWARE COSTS 344,189 --- OTHER ASSETS: Investment in Encotone, Inc. 86,075 210,000 Investment in Encotone, LTD. --- 1,000,000 Other 35,418 23,360 TOTAL OTHER ASSETS 121,493 1,233,360 TOTAL ASSETS $5,532,082 $10,258,750 The accompanying footnotes are an integral part of the financial statements. NETEGRITY, INC. BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31, 1997 1996 CURRENT LIABILITIES: Accounts payable-trade $ 1,168,320 $ 2,099,436 Other accrued expenses 1,968,810 2,009,890 Capital lease obligation 26,464 --- TOTAL LIABILITIES 3,163,594 4,109,326 COMMITMENTS AND CONTINGENCIES --- --- STOCKHOLDERS' EQUITY: Common stock, voting, $.01 par value, authorized 25,000,000 shares: 9,269,446 shares issued and 9,244,345 shares outstanding at September 30, 1997; 9,204,946 shares issued and 9,179,845 shares outstanding at December 31, 1996 92,699 92,049 Additional paid-in capital 10,569,354 10,460,554 Cumulative translation adjustment 28,028 28,028 Cumulative deficit (8,037,936) (4,147,550) Loan to officer (200,000) (200,000) 2,452,145 6,233,081 Less - Treasury Stock, at cost: 25,101 shares (83,657) (83,657) TOTAL STOCKHOLDERS' EQUITY 2,368,488 6,149,424 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,532,082 10,258,750 The accompanying footnotes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months ended September 30, 1997 1996 Net revenues $1,120,260 $1,075,961 Cost of revenues 570,892 611,772 Gross profit 549,368 464,189 Selling, general and administrative expenses 1,501,965 785,440 Research and development costs 304,432 446,245 (1,257,029) (767,496) Interest income (expense), net 42,919 90,872 Share of loss from investment in Encotone, Inc. (20,177) --- Write-off of investment in Encotone, LTD. (49,151) --- Loss from operations (1,283,438) (676,624) Net loss $(1,283,438) $ (676,624) Earnings (loss) per share $(0.14) $(0.07) Weighted average shares outstanding 9,269,446 9,745,000 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Cont.) (Unaudited) For the nine months ended September 30, 1997 1996 Net revenues $3,290,510 $3,534,844 Cost of revenues 1,805,844 2,118,656 Gross profit 1,484,666 1,416,188 Selling, general and administrative expenses 3,981,033 1,630,071 Research and development costs 405,580 446,245 (2,901,947) (660,128) Interest income (expense), net 184,637 108,301 Share of loss from investment in Encotone, Inc. (123,925) --- Write off of investment in Encotone, LTD. (1,049,151) --- Loss from continuing operations (3,890,386) (551,827) Loss from operations of discontinued operations --- (734,698) Gain on sale of assets of discontinued operations --- 6,000,000 (Loss) income before provision for income taxes (3,890,386) 4,713,475 Provision for income taxes --- 19,000 Net (loss) income $(3,890,386) $4,694,475 Earnings (loss) per share: Loss from continuing operations $(0.42) $(0.06) Loss from operations of discontinued operations --- (0.08) Gain on sale of assets of discontinued operations --- 0.62 Net (loss) income $(0.42) $0.48 Weighted average shares outstanding 9,266,668 9,739,000 The accompanying notes are an integral part of the financial statements. NETEGRITY, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the nine months ended September 30, 1997 1996 OPERATING ACTIVITIES: Net (loss)income from continuing operations $(3,890,386) $ (570,827) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Share of loss from investment in Encotone, Inc. 123,925 --- Write off of investment in Encotone, LTD. 1,000,000 --- Depreciation and amortization 77,942 24,583 Provision for doubtful accounts receivable (1,337) 15,500 Changes in operating assets and liabilities: Accounts receivable 166,685 411,037 Inventory --- 21,400 Other current assets 212,628 (169,070) Other assets (12,058) 2,679 Intangible assets --- (42,417) Accounts payable (931,115) 497,877 Other accrued expenses 5,160 (140,198) Accrued payroll --- (866,404) Accrued income taxes --- (180,000) Total adjustments 641,830 (425,013) Net cash used for continuing operating activities (3,248,556) (995,840) Net cash provided by discontinued operating activities (46,241) 1,063,674 Net cash (used for) provided by operating activities $(3,294,797) $ 67,834 The accompanying footnotes are an integral part of the financial statements. NETEGRITY, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the nine months ended September 30, 1997 1996 INVESTING ACTIVITIES: Capitalized software costs $ (344,189) --- Capital expenditures for equipment and leasehold improvements (294,566) $ (272,142) Proceeds from sale of certain assets --- 9,300,000 Net cash provided by (used for)investing activities (638,755) 9,027,858 FINANCING ACTIVITIES: Net proceeds from issuance of stock 109,450 211,737 Principal payments under capital leases (5,910) (17,700) Net payments on line of credit --- (1,441,248) Principal debt payments --- (22,092) Notes payable-related party --- (300,000) Net cash provided by financing activities 103,540 (1,569,303) Effect of exchange rate changes on cash --- (13,807) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,830,012) 7,512,582 Cash and cash equivalents at beginning of period 6,791,057 1,258,061 CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,961,045 $8,770,643 Supplemental Disclosures of Cash Flow Information: Interest paid $ 2,118 $ 64,293 Income taxes paid $ 63,557 --- Supplemental disclosure of non cash investing and financing activities: Write off of investment in Encotone, LTD. $1,000,000 --- Purchase of equipment under capital lease obligation $ 32,374 --- Collection of products in satisfaction of accounts receivable-product --- $ 108,012 The accompanying footnotes are an integral part of the financial statements. NETEGRITY, INC. NOTES TO FINANCIAL STATEMENTS Note 1 - The unaudited financial information furnished herein reflects all adjustments which are of a normal recurring nature, which in the opinion of management are necessary to fairly state the Company's financial position, cash flows and the results of its operations for the periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information should be read in conjunction with the Company's audited financial statements for the fiscal year ended December 31, 1996, included in Form 10-K filed on February 28, 1997. Note 2 - The results of operations for the three-month and nine-month periods ended September 30, 1997 are not necessarily indicative of the results to be expected for the period ending December 31, 1997. Note 3 - Net income per share is based upon the weighted average number of common shares outstanding including the dilutive effects of options and warrants. Note 4 - The Company provides for income taxes during interim reporting periods based on reported earnings before income taxes using an estimate of the annual effective tax rate. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for tax purposes. These deferred taxes are measured by applyingcurrently enacted tax laws. Note 5 - As of June 28, 1996, the Company completed the divestiture of its catalog related business, consisting of The Programmer's SuperShop ("TPS")catalog, the TPS web site, the corporate sales group, the German subsidiary ("SDC Germany") and SDC Communications. The Company completed the transaction for an aggregate price of $10,035,000. The aggregate price consisted of payment of $9,300,000 in immediately available funds and the deposit of $735,000 under an escrow arrangement. As of August 12, 1996, $135,000 of the escrow has been returned to the Company. The final purchase price of $10,035,000 was a negotiated settlement. Prior to the closing, the parties had a dispute as to how catalog revenue should be measured under the Agreement. The aggregate price of $10,035,000 assumes that the Company will transfer to the Purchaser as of the Closing date, tangible net assets of the catalog related business that equal $1,500,000. These net assets are currently being audited and the Company expects no material adjustments. The Company incurred $2,587,000 in expenses and write-offs related to the divestiture. These expenses were primarily comprised of write-off of goodwill, severance costs, professional fees and facility shut-down costs for its corporate offices and distribution facility. The Company reported a gain of $6,000,000 from the sale of the assets of its catalog related business. Note 6 - Effective February 1, 1997, the company began to capitalize eligible software costs as required by FASB Statement No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The Company capitalizes eligible software costs upon establishing product technological feasibility and will amortize these costs on a product-by-product basis, commencing upon release of the products to customers, on a straight-line basis over the economic life of the product. Costs related to research, design and development of computer software are charged to research and development expense as incurred. For the nine-months ended September 30, 1997, the Company has capitalized $344,189 in eligible software costs. Note 7 - In October 1996 the Company made an early stage investment in Encotone, LTD. with the anticipation that its first product, TeleID(TM), a credit card-sized acoustical smart card, would be able to penetrate into the large long distance carrier market. To date, Encotone, LTD. has not shown any material penetration in this market. The Company evaluates the value of its investments on an ongoing basis and relies on a number of factors including, operating results, business plans, budgets and economic projections. As such, the Company has determined that a write off of its investment in Encotone, LTD. in the amount of $1,000,000, or $(0.11) per share, at June 30, 1997, was appropriate. The Company continues to maintain its original 10% equity interest in Encotone, LTD., as well as its 50% equity interest in Encotone, Inc. the joint venture formed with Encotone, LTD. in 1996 to market TeleID in North, Central, and South America. At September 30, 1997, the Company's investment in Encotone, Inc., under the equity method, is $86,075. Although there is a possibility for Encotone, LTD. to become successful in the TeleID market, the Company believes that the potential is less today than it was when its original investment in Encotone, LTD. was made in 1996. The Company will continue to work with Encotone, LTD. for an indefinite period of time in order to recover its investment. The Company has held preliminary discussions with Encotone, LTD. with respect to potential reorganizations of both investments, and on July 16, 1997, the Company, as part of a majority shareholders' action, advanced Encotone, LTD. $49,151. Terms of the loan agreement include an option for the Company to either convert the loan to ordinary shares in Encotone, LTD., or receive quarterly payments of principle and interest at 1.5% above the LIBOR rate, beginning June 30, 1998 through March 31, 1999. At September 30, 1997, the Company determined that a write-off of the $49,151 loan was appropriate. The Company further decided to write off $139,800 in pre-paid products to SG&A expenses due to the decreased market value for these products. Note 8 - New Accounting Standard: In 1997. The Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 128, Earnings Per Share (FAS 128), which changes the calculation and presentation of earnings per share (EPS). FAS 128 is effective for periods ending after December 15, 1997 and requires restatement of all prior-period EPS data presented. FAS 128 is not expected to have any significant impact on the Company's EPS calculation. NETEGRITY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, the discussion in this Item contains forward-looking statements which involve certain degrees of risk and uncertainties, including statements relating to liquidity and capital resources. Except for the historical information contained herein, the matters discussed in this section are such forward-looking statements that involve risks and uncertainties, including the impact of competitive pricing within the software industry, the effect any reaction to such competitive pressures has on current inventory valuations, the need for and effect of any business restructuring, the presence of competitors with greater financial resources, capacity and supply constraints or difficulties, and the Company's continuing need for improved profitability and liquidity. The following overview reflects the divestiture of the Company's former catalog-related business. Any comments relating to operating results or issues are reflective of the continuing network security business. The Company's revenues were generated by the sale of network security products, integration and support services to companies doing business on the Internet and internal networks. The divestiture of the Company's catalog-related business is recorded as discontinued operations in the accompanying unaudited financial statements. The Company plans to develop and introduce new products to address the changing needs of the evolving network security market. There can be no assurance that the Company will be able to develop new products or that such products will achieve market acceptance, or, if market acceptance is achieved, that the Company will be able to maintain such acceptance for a significant period of time. RESULTS OF CONTINUING OPERATIONS The following information should be read in conjunction with the consolidated financial statements and notes thereto: Period to Period % Increase/decrease Three months ended For the three months % to Net Revenue September 30, ended September 30, 1997 1996 1997 vs. 1996 Net Revenues: Product sales 100% 100% --- Gross Margins: Product sales 49% 43% 18% Selling, general & administrative expenses 134% 73% 91% Research & development costs 27% 42% (32%) Income (loss) from continuing operations (115%) (63%) 90% Revenues: Total net revenues for the third quarter ended September 30, 1997 increased $44,299 or 4%, to $1,120,260 from $1,075,961 for the third quarter ended September 30, 1996. This increase was primarily due to an increase in revenue generated by the Company's network security consulting business. Consulting revenue for the third quarter ended September 30, 1997 increased $168,000 or 1050%, to $184,000 from the third quarter ended September 30, 1996. The increase was somewhat offset by a decrease in the Company's reseller business of Check Point Software Technologies, LTD.'s (Check Point) FireWall-1(TM) product. Last year, the Company decided to eliminate hardware sales to its customers and reduce the distribution of FireWall-1 to other resellers in the industry. Such portions of the business were eliminated or reduced because they yield low margins and do not fit with the Company's longer-term strategic plan. Gross Profit: Total gross profit dollars increased by $85,179, or 18%, to $549,368 in the three month period ended September 30, 1997 from $464,189 in the same period last year. This increase can be attributed to the corresponding increase in net revenues and the elimination and reduction of low margin business, discussed above. Selling, General and Administrative Expenses: Selling, General and Administrative (SG&A) expenses increased by $716,525, or 91% to $1,501,965 for the third quarter ended September 30, 1997 from $785,440 in the quarter ended September 30, 1996. This increase was a result of the Company continuing the building of its management and employee infrastructure to bring to market its proprietary product line and address the growing network security marketplace and a write off of $139,800 in pre-paid Encotone products (as discussed in Note 7). Research and Development Costs: Research and Development expenses for the third quarter ended September 30, 1997 decreased $141,813, or 32% to $304,432 as compared to $446,245 for the quarter ended September 30, 1996. Following the rules of FAS 86, research and development expenditures have been capitalized as a result of the Company realizing technologicalfeasibility. The Company is continuing the development of new products to address the changing needs of the evolving network security market. Certain research and development expenditures are incurred substantially in advance of the related revenue, and in some cases, do not generate revenue. Interest Income (Expense): Net interest income (expense) in the quarter ended September 30, 1997 decreased $47,953, or 53% to $42,919 from $90,872 in the same period last year. This decrease is mainly attributable to a lower average cash and investment portfolio balance. The prior year's third quarter portfolio balance was favorably impacted by proceeds received from the divestiture of the Company's catalog-related business. Write Off of Investment in Encotone, LTD.: In October 1996 the Company made an early stage investment in Encotone, LTD. with the anticipation that its first product, TeleID, a credit card-sized acoustical smart card, would be able to penetrate into the large long distance carrier market. To date, Encotone, LTD. has not shown any material penetration in this market. The Company evaluates the value of its investments on an ongoing basis and relies on a number of factors including, operating results, business plans, budgets and economic projections. As such, the Company has determined that a write off of its investment in Encotone, LTD. in the amount of $1,000,000, or $(0.11) per share, at June 30, 1997, is appropriate. The Company continues to maintain its original 10% equity interest in Encotone, LTD., as well as its 50% equity interest in Encotone, Inc. the joint venture formed with Encotone, LTD. in 1996 to market TeleID in North, Central, and South America. At September 30, 1997, the Company's investment in Encotone, Inc., under the equity method, is $86,075. Although there is a possibility for Encotone, LTD. to become successful in the TeleID market, the Company believes that the potential is less today than it was when its original investment in Encotone, LTD. was made in 1996. The Company will continue to work with Encotone, LTD. for an indefinite period of time in order to recover its investment. The Company has held preliminary discussions with Encotone, LTD. with respect to potential reorganizations of both investments, and on July 16, 1997, the Company, as part of a majority shareholders' action, advanced Encotone, LTD. $49,151. Terms of the loan agreement include an option for the Company to either convert the loan to ordinary shares in Encotone, LTD., or receive quarterly payments of principle and interest at 1.5% above the LIBOR rate, beginning June 30, 1998 through March 31, 1999. At September 30, 1997, the Company determined that a write-off of the $49,151 loan was appropriate. The Company further decided to write off $139,800 in pre-paid products to SG&A expenses due to the decreased market value for these products. Period to Period % Increase/decrease Nine months ended For the nine months % to Net Revenue September 30, ended September 30, 1997 1996 1997 vs. 1996 Net Revenues: Product sales 100% 100% --- Gross Margins: Product sales 45% 40% 5% Selling, general & administrative expenses 121% 46% 144% Research & development costs 12% 13% (9%) Income (loss) from continuing operations (118%) (16%) (605%) Revenues: Total net revenues for the nine months ended September 30, 1997 decreased by $244,334, or 7%, to $3,290,510 from $3,534,844 in the nine months ended September 30, 1996. This decrease was the net result of the Company's decision to eliminate hardware sales and reduce its distribution of Check Point FireWall-1 to other resellers in the industry. These portions of the business were eliminated or reduced because they yield low margins and do not fit with the Company's longer-term strategic plan. This was somewhat offset by an increase in revenue from the Company's network services consulting business and maintenance revenue relating to Check Point FireWall-1. Gross Profit: Total gross profit dollars for the nine months ended September 30, 1997 increased by $68,478, or 5%, to $1,484,666 from $1,416,188 in the nine months ended September 30, 1996. This increase can be attributed to the Company's elimination and reduction of low margin business, as described above, and to the increase in network consulting revenues which yields higher margins. Selling, General and Administrative Expenses: Selling, General and Administrative (SG&A) expenses increased 144% to $3,981,033 for the nine months ended September 30, 1997 from $1,630,071 in the nine months ended September 30, 1996. This increase was a result of the Company continuing the building of its management and employee infrastructure to bring to market its proprietary product line and address the growing network security marketplace. Research and Development Costs: Research and Development expenditures (net of capitalized software) for the first nine months ended September 30, 1997 decreased by $40,665, or 9% to $405,580 as compared to $446,245 for the nine months ended September 30, 1996. During the first and second quarter of 1997, $344,189 of research and development expenditures were capitalized as a result of the Company realizing technological feasibility. The Company is continuing the development of new products to address the changing needs of the evolving network security market. Certain research and development expenditures are incurred substantially in advance of the related revenue, and in some cases, do not generate revenue. Interest Income: Net interest income increased in the nine month period ended September 30, 1997 by $76,336, or 71%, to $184,637 from $108,301 in the same period last year. This increase is mainly attributable to available cash being invested at prevailing rates of interest. The Company's quarterly operating results have varied and may continue to vary significantly depending on external factors. Substantially all of the Company's revenue in a quarter is derived from orders received in that quarter. Accordingly, delays in orders are likely to result in the associated revenue not being realized by the Company in the period. Moreover, the Company's expense levels are based in part on expectations of future revenue levels, and a shortfall in expected revenue could therefore result in a disproportionate decrease in the Company's net income. LIQUIDITY AND CAPITAL RESOURCES (in thousands, except ratios) Financial Condition as of September 30, December 31, 1997 1996 Cash and cash equivalents $2,961 $6,791 Working capital 1,366 4,629 Current ratio 1.43 2.13 Cash Flow Activity Summary for the Nine Months Ended September 30, September 30, 1997 1996 Net cash (used for) provided by continuing operating activities $(3,249) $ (996) Net cash provided by (used for) investing activities (639) 9,028 Net cash provided by (used for) financing activities 104 (1,569) The Company's net cash balance decreased by $3,830,012, or 56% to $2,961,045 at September 30, 1997 from $6,791,057 at December 31, 1996. This decrease was primarily attributable to increased expenditures related to building the Company's infrastructure and the research and development costs associated with bringing its flagship product to market. Accounts receivable-trade decreased by $165,348, or 21%, to $622,432 at September 30, 1997 from $787,780 at December 31, 1996. This decrease resulted primarily from the corresponding decrease in net revenues discussed above. Working capital decreased by $3,262,256, or 71% to $1,366,485 at September 30, 1997 from $4,628,741 at December 31, 1996. This decrease was primarily attributable to increased expenditures related to building the Company's infrastructure and the research and development costs associated with bringing its flagship product to market. The Company anticipates that its existing cash resources and cash flow from operations will be sufficient to fund its operations through the Company's current fiscal year ending December 31, 1997. Additionally, the Company currently anticipates that its available cash, expected cash flows from operations, and its borrowing capacity will be sufficient to fund operations through 1998. PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. ITEM 2. CHANGES IN SECURITIES There have been no changes in securities during the quarter ended September 30, 1997. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, whether through the solicitation of proxies or otherwise, during the quarter ended September 30, 1997. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on form 8-K were filed during the quarter ended September 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NETEGRITY, INC. Date: November 12, 1997 By: /s/ Barry N. Bycoff Barry N. Bycoff President and Chief Executive Officer (Principal Executive Officer) Date: November 12, 1997 By: /s/ James O'Connor, Jr. James O'Connor, Jr. Vice President, Finance and Chief Financial Officer (Principal Financial and Chief Accounting Officer) EXHIBIT 11.00 NETEGRITY, INC. COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data) Three months ended September 30, 1997 1996 Weighted average shares outstanding 9,269 9,109 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price --- 636 Total 9,269 9,745 Net (loss) income from continuing operations $(1,283) $ (677) Net income for EPS computation $(1,283) $ (677) NET INCOME PER SHARE $(0.14) $(0.07) Nine months ended September 30, 1997 1996 Weighted average shares outstanding 9,267 9,176 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price --- 563 Total 9,267 9,739 Net (loss) income from continuing operations $(3,890) $ (552) Net income(loss) from discontinued operations --- (735) Gain on sale of assets from discontinued operations --- 6,000 Provision for income taxes --- (19) Net income for EPS computation $(3,890) $4,694 Per share amounts: (Loss) income from continuing operations $(0.42) $(0.06) Income from discontinued operations --- (0.08) Gain on sale of assets from discontinued operations --- 0.62 NET INCOME PER SHARE $(0.42) $(0.48) EX-27 2
5 The attached Financial Data Schedule should be read in conjunction with Netegrity, Inc.'s Form 10-Q for the period ending September 30, 1997. 3-MOS DEC-31-1997 SEP-30-1997 2,961,045 0 688,892 66,460 0 4,530,079 68,271 (33,448) 5,532,082 3,163,594 0 0 0 92,699 2,275,789 5,532,082 1,120,260 1,120,260 570,892 2,072,857 304,432 0 1,255 (1,283,438) 0 (1,283,438) 0 0 0 (1,283,438) (0.14) (0.14)
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