<PAGE>

                  SECURITIES AND EXCHANGE COMMISSION

                        Washington, D.C. 20549

                     -----------------------------

                               FORM 10-Q

        [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 1998

                            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 000-24271

                      NETGRAVITY, INC.
     (Exact name of registrant as specified in its charter)


          DELAWARE                                      77-0410283
--------------------------------              -------------------------------
(State or other jurisdiction of              (IRS Employer Identification No.)
incorporation or organization)


                           1900 S. NORFOLK STREET
                                  SUITE 150
                      SAN MATEO, CALIFORNIA 94403-1151
                               (650) 425-6000
             (Address, including ZIP code, and telephone number)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such 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.

                                                     Yes [ X ] No [  ]

13,531,948 shares of Common Stock, $0.001 par value, were outstanding as of
October 31, 1998.

<PAGE>


                       NETGRAVITY, INC.


                       TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>      <C>                                                                              <C>
PART I - Financial Information


Item 1.  Condensed Consolidated Financial Statements:

            Condensed Consolidated Balance Sheets at September 30, 1998 and
                December 31, 1997                                                          3

            Condensed Consolidated Statements of Operations for the three- and
                nine-months ended September 30, 1998 and 1997                              4

            Condensed Consolidated Statements of Cash Flows for the nine-months
                ended September 30, 1998 and 1997                                          5

            Notes to Condensed Consolidated Financial Statements                           6


Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                                            8


PART II - Other Information                                                               25


Item 1.  Legal Proceedings                                                                25

Item 2.  Changes in Securities and Use of Proceeds                                        25

Item 3.  Default upon Senior Securities                                                   26

Item 4.  Submission of Matters to a Vote of securities Holders                            26

Item 5.  Other Information                                                                26

Item 6.  Exhibits and Reports on Form 8-K                                                 26

Signature                                                                                 27
</TABLE>
                                   2

<PAGE>

                                NETGRAVITY, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                             September 30,         December 31,
                                                                 1998                  1997
                                                                 ----                  ----
<S>                                                          <C>                   <C>
                                     ASSETS
Current assets:
     Cash and cash equivalents                               $   20,509            $     5,637
     Short-term investments                                       4,400                      -
     Accounts receivable, net                                     3,728                  2,739
     Prepaid expenses and other current assets                      300                    155
                                                             -----------------------------------
     Total current assets                                        28,937                  8,531

Property and equipment, net                                       2,186                  1,356
Other assets                                                      2,299                      -
                                                             -----------------------------------
     Total assets                                            $   33,422            $     9,887
                                                             -----------------------------------
                                                             -----------------------------------


                      LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities:
     Current portion of notes payable                               485                  1,140
     Accounts payable                                               823                    305
     Accrued liabilities                                          2,292                  1,344
     Deferred revenue                                             5,041                  3,520
                                                             -----------------------------------
        Total current liabilites                                  8,641                  6,309

Notes payable, less current portion                                 363                    727

Stockholders  equity:
     Convertible preferred stock                                      -                     11
     Common stock                                                    20                      4
     Additional paid-in capital                                  46,811                 16,209
     Deferred compensation                                       (2,076)                (1,669)
     Accumulated deficit                                        (20,337)               (11,704)
                                                             -----------------------------------
        Total stockholders' equity                               24,418                  2,851

                                                             -----------------------------------
        Total liabilities and stockholders' equity               33,422                  9,887
                                                             -----------------------------------
                                                             -----------------------------------
</TABLE>

    See accompanying notes to the condensed consolidated financial statements.

                                       3
<PAGE>

                                NETGRAVITY, INC
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended                     Nine Months Ended
                                                                   September 30,                         September 30,
                                                               1998               1997             1998               1997
<S>                                                      <C>                   <C>               <C>              <C>
Revenues:
     Software licenses                                   $        956          $     824         $  2,608         $   2,199
     Software upgrades                                            697                303            1,626               754
     Consulting and support                                     1,406                614            3,161             1,542
                                                         ---------------------------------------------------------------------
         Total revenues                                         3,059              1,741            7,395             4,495


Cost of revenues:
     Cost of software licenses                                      7                  7               42                35
     Cost of consulting and support                             1,207                728            3,457             1,481
                                                         ---------------------------------------------------------------------
         Total cost of revenues                                 1,214                735            3,499             1,516
                                                         ---------------------------------------------------------------------
         Gross profit                                           1,845              1,006            3,896             2,979
                                                         ---------------------------------------------------------------------

Operating costs and expenses:
Research and development                                        1,298                677            3,358             2,137
Sales and marketing                                             2,859              1,558            7,254             4,309
General and administrative                                        794                310            2,256               904
                                                         ---------------------------------------------------------------------
     Total operating costs and expenses                         4,951              2,545           12,868             7,350
                                                         ---------------------------------------------------------------------
Loss from operations                                           (3,106)            (1,539)          (8,972)           (4,371)
Other income (expense), net                                       283                (27)             339               (41)
                                                         ---------------------------------------------------------------------
Net loss                                                 $     (2,823)         $  (1,566)        $ (8,633)        $  (4,412)
                                                         ---------------------------------------------------------------------
                                                         ---------------------------------------------------------------------
Per share of common stock:
     Basic and diluted net loss                          $      (0.22)         $   (0.61)        $  (1.17)        $   (1.87)
                                                         ---------------------------------------------------------------------
                                                         ---------------------------------------------------------------------
Weighted average shares used in per share
     calculation of basic and diluted net loss                 12,631              2,579            7,380             2,362
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                      4

<PAGE>

                              NETGRAVITY, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (Unaudited)

<TABLE>
<CAPTION>
                                                                                          Nine months ended
                                                                                             September 30,
                                                                                      1998                1997
                                                                                      ----                ----
<S>                                                                               <C>                  <C>
Cash Flows from operating activities:
     Net loss                                                                      $   (8,633)           $  (4,412)
     Adjustments to reconcile net loss to net cash used
        in operating activities:
          Depreciation                                                                    637                  390
          Amortization of deferred stock compensation                                   1,020                   26
          Changes in operating assets and liabilities
              Accounts receivavble, net                                                  (989)              (1,833)
              Prepaid expenses and other assets                                          (145)                   2
              Accounts payable                                                            518                   (1)
              Accrued liabilities                                                         948                  376
              Deferred revenue                                                          1,521                1,702
                                                                                   ----------------------------------
                       Net cash used in operating activities                           (5,123)              (3,750)
                                                                                   ----------------------------------
Cash flows from investing activities:
     Capital expenditures                                                              (1,467)                (969)
     Purchase of short-term investments                                                (4,400)                   -
     Acquisition of Intangibles                                                        (2,000)                   -
     Other assets                                                                        (299)                  44
                                                                                   ----------------------------------
                       Net cash used in investing activities                           (8,166)                (925)
                                                                                   ----------------------------------
Cash flows from financing activities:
     Proceeds from notes payable                                                            -                  615
     Repayment of notes payable                                                        (1,019)                   -
     Proceeds from issuance of preferred stock, net                                     3,249                4,281
     Proceeds from issuance of common stock, net                                       25,951                   31
     Repurchases of common stock                                                          (20)                (108)
                                                                                   ----------------------------------
                       Net cash provided by financing activities                       28,161                4,819
                                                                                   ----------------------------------
Net increase in cash and cash equivalents                                              14,872                  144
Cash and cash equivalents at beginning of period                                        5,637                1,020
                                                                                   ----------------------------------
Cash and cash equivalents at end of period                                             20,509                1,164
                                                                                   ----------------------------------
                                                                                   ----------------------------------
Supplemental disclosure of cash flow information:
     Cash paid for interest                                                                94                   65
                                                                                   ----------------------------------
                                                                                   ----------------------------------
Non-cash financing activities:
     Deferred compensation cost on employee stock option grants                    $    1,428            $     368
                                                                                   ----------------------------------
                                                                                   ----------------------------------
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                      5

<PAGE>

NOTE 1.  BASIS OF PRESENTATION

         The condensed consolidated financial statements of NetGravity, Inc. and
subsidiaries (the "Company") reflect all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary for a
fair presentation of interim period results. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Registration Statement on Form S-1
as declared effective by the Securities and Exchange Commission on June 11, 1998
(the "Form S-1"). The December 31, 1997 condensed consolidated balance sheet
included herein was derived from audited financial statements, but does not
include all disclosures, including notes, required by generally accepted
accounting principles.

         The results of operations for the current interim period are not
necessarily indicative of results to be expected for the entire current year or
other future interim periods.


NET LOSS PER SHARE

         Basic and diluted net loss per share are computed using the weighted
average number of outstanding shares of common stock. Pursuant to SEC Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock issued
for nominal consideration, prior to the effective date of the IPO, are included
in the calculation of basic and diluted net loss per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.

         Net loss per share for the three- and nine-months ended September 30,
1997 does not include the effect of approximately 8,713,000 (4,455,000 on an
as-if converted basis) shares of convertible preferred stock outstanding,
approximately 1,020,000 stock options outstanding with a weighted average
exercise price of $0.22 per share, 6,818 common stock warrants outstanding with
a weighted average exercise price per share of $0.22, or approximately 1,303,000
shares of common stock issued and subject to repurchase by the Company at a
weighted average price of $0.14 per share, because their effects are
anti-dilutive.

         In connection with the Board of Directors' revaluation of the Company's
fair value in March 1997, the Company repurchased and retired approximately
446,000 shares of common stock previously held by two of the Company's founders.
Additionally, the Company adjusted the conversion price of its Series A
Preferred Stock to $1.78 per share of common stock; previously the conversion
price was $2.22 per share of common stock. Approximately 494,000 additional
shares of common stock (after giving effect to the 1-for-2.2 reverse stock
split) were in-substance issuable to the holders of Series A Preferred Stock due
to the reduction in the conversion price. The fair value of the assumed
in-substance dividend on reported basic and diluted net loss per share for the
nine-months ended September 30, 1997 was not significant.

                                       6

<PAGE>

         Net loss per share for the three- and nine-months ended September 30,
1998 does not include the effect of approximately 1,886,000 stock options
outstanding with a weighted average exercise price of $3.21 per share, or
approximately 773,000 shares of common stock issued and subject to repurchase by
the Company at a weighted average price of $0.22 per share, because their
effects are anti-dilutive.

         Unaudited pro forma basic and diluted net loss per share is presented
below to reflect per share data assuming the conversion of all outstanding
shares of convertible preferred stock into common stock as if the conversion had
taken place at the beginning of 1997 or at the date of issuance, if later
(shares in thousands):

<TABLE>
<CAPTION>
                                      Three Months Ended                           Nine Months Ended
                                    Sept. 30,       Sept. 30,                   Sept. 30,     Sept. 30,
                                      1998            1997                        1998           1997
                                      -----           -----                       ----           ----
<S>                                 <C>             <C>                         <C>           <C>
Pro forma basic and
     diluted net loss per share       $(0.22)        $(0.22)                      $(0.80)       $(0.70)
                                      ------         ------                       ------        ------
                                      ------         ------                       ------        ------
Shares used in basic and
     diluted per share calculation    12,631          2,579                        7,380         2,362

Conversion of preferred
     stock-weighted average
                  (pro forma)             --          4,455                        3,425         3,960
                                      ------         ------                       ------        ------

Shares used in pro forma
     basic and diluted per
     share calculation                12,631          7,034                       10,805         6,322
                                      ------         ------                       ------        ------
                                      ------         ------                       ------        ------
</TABLE>

NOTE 2.  EQUITY TRANSACTIONS

         In March 1998, the Company issued and sold approximately 1,451,000
shares of Series C Preferred Stock for aggregate net proceeds to the Company of
approximately $3,249,000.

         In June 1998, the Company raised $23.9 million of net proceeds from 
the sale of 3.0 million shares of the Company's common stock pursuant to an 
initial public offering (the "IPO"). All outstanding shares of Series A, B 
and C Preferred Stock were converted into 2.5 million shares, 2.0 million 
shares and 1.8 million shares of common stock, respectively, upon the closing 
of the IPO.

         In July 1998, the Company raised $2.1 million of net proceeds from 
the sales of 250,000 shares of the Company's common stock pursuant to the 
Underwriters' over-allotment option as granted to the Underwriters by the 
Company as described in the Company's Form S-1, dated June 11, 1998.

                                       7

<PAGE>

         In the three- and nine-months ended September 30, 1998, the Company
recorded deferred stock compensation expense of $0 and $1,428,000, respectively,
for the difference at the grant date between the exercise price and the deemed
fair value of the common stock underlying the options granted during those
periods. Amortization of previously-recorded deferred compensation of
approximately $637,000 and $1,020,000 was recognized in the three- and
nine-months ended September 30, 1998, respectively.

NOTE 3.  PURCHASE OF INTANGIBLE ASSET

In September 1998, the Company entered into an agreement with MatchLogic, Inc.,
a subsidiary of Excite, Inc. As part of this agreement, the Company paid
MatchLogic $2 million for the limited, non-exclusive right to use certain of
MatchLogic's proprietary consumer profile databases for certain purposes. This
transaction has been accounted for as a purchase of an intangible asset. The
cost of this intangible asset has been capitalized and included in Other
Assets on the Company's condensed consolidated balance sheet, and will be
amortized over three years.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

         The following information should be read in conjunction with the
condensed consolidated historical financial information and the notes thereto
included in Item 1 of this Quarterly Report on Form 10-Q (the "Form 10-Q" or the
"Report") and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's Registration Statement on Form
S-1 (the "Form S-1") as declared effective by the Securities and Exchange
Commission on June 11, 1998.

         THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE
PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS,
ESTIMATES AND PROJECTIONS ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS,
AND ASSUMPTIONS MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES," VARIATIONS OF SUCH WORDS
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT; THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM WHAT
IS EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS
AND UNCERTAINTIES INCLUDE THOSE SET FORTH HEREIN BELOW UNDER "FACTORS AFFECTING
OPERATING RESULTS AND FINANCIAL CONDITION" AS WELL AS THOSE NOTED IN THE
COMPANY'S FORM S-1, PARTICULARLY UNDER THE SECTION ENTITLED "RISK FACTORS." THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

                                       8

<PAGE>

OVERVIEW

         NetGravity, Inc. is the leading provider of software solutions for
online advertising and direct marketing. To date, the Company has generated
substantially all of its revenues from the license and related upgrade,
consulting and support of its AdServer family of software products. Revenues
from software licenses in any given period are generally attributable to the
sale of the most recent version of the Company's products, and the Company
generally discontinues marketing older versions upon new version introductions.
In September 1998, the Company released version 3.5 of AdServer. This release
was designed to enhance four areas of AdServer: targeting, user interface,
reporting, and scalability.

         In September 1998, the Company also introduced its Global Profile 
Service offering, which provides NetGravity customers with access to advanced 
consumer profile targeting capabilities. The Company's goal is to make its 
Global Profile Service a flexible and open source of anonymous consumer 
profile data. The Company believes that its Global Profile Service will help 
NetGravity customers increase their advertising and direct marketing revenues 
by targeting more effectively than they could using only their own data. The 
Company has entered into agreements with MatchLogic, Inc. ("MatchLogic") a 
subsidiary of Excite, Inc., and Aptex Software Inc., a subsidiary of HNC 
Software, Inc., to provide data for the Company's Global Profile Service. 
MatchLogic has agreed to provide consumer profiles and Aptex has agreed to 
provide behavioral profiles based on consumer transaction history. In 
September, the Company made a one-time payment of $2 million to MatchLogic in 
connection with the Company's data agreement with MatchLogic. The data 
licensed from MatchLogic has been recorded as an Other Asset on the Company's 
balance sheet and is being amortized over its estimated useful life of three 
years. The Company expects to allocate such amortized amounts to cost of 
revenues. To date, the Company has not generated any revenue from its Global 
Profile Service.

         The Company believes that its current AdServer family of software
products and software products in development, together with the related
services, will continue to account for substantially all of its revenues for the
foreseeable future.

RESULTS OF OPERATIONS

         The following table sets forth certain items in the Company's condensed
consolidated statements of operations as a percentage of total revenues for the
periods indicated:


                              NETGRAVITY, INC.
                             % of Revenue Table

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                 SEPTEMBER 30,     SEPTEMBER 30,    SEPTEMBER 30,     SEPTEMBER 30,
                                                      1998            1997              1998               1997
<S>                                              <C>               <C>              <C>               <C>
Revenues:
     Software licenses                               31.3%            47.3%             35.3%             48.9%
     Software upgrades                               22.8%            17.4%             22.0%             16.8%
     Consulting and support                          45.9%            35.3%             42.7%             34.3%
                                                 ----------------------------------------------------------------
          Total revenues                            100.0%           100.0%            100.0%            100.0%

Cost of revenues: (1)
     Cost of software licenses (2)                    0.2%             0.4%              0.6%              0.8%
     Cost of consulting and support (3)              39.5%            41.8%             46.7%             32.9%
                                                 ----------------------------------------------------------------
          Total cost of revenues                     39.7%            42.2%             47.3%             33.7%
                                                 ----------------------------------------------------------------
          Gross profit                               60.3%            57.8%             52.7%             66.3%
                                                 ----------------------------------------------------------------

Operating costs and expenses:
Research and development                             42.4%            38.9%             45.4%             47.5%
Sales and marketing                                  93.5%            89.5%             98.1%             95.9%
General and administrative                           26.0%            17.8%             30.5%             20.1%
                                                 ----------------------------------------------------------------
Total operating costs and expenses                  161.9%           146.2%            174.0%            163.5%
                                                 ----------------------------------------------------------------
Loss from operations                               -101.6%           -88.4%           -121.3%            -97.2%
Other income (expense), net                           9.3%            -1.6%              4.6%             -0.9%
                                                 ----------------------------------------------------------------
Net loss                                            -92.3%           -90.0%           -116.7%            -98.1%
                                                 ----------------------------------------------------------------
                                                 ----------------------------------------------------------------
</TABLE>

-------------
(1)  There are no material costs of revenue associated with software upgrades
(2)  As a percentage of software licenses revenues, cost of software licenses 
     was 0.7%, 0.8%, 1.6% and 1.6% in the three months ended September 30, 
     1998 and 1997 and the nine months ended September 30, 1998 and 1997, 
     respectively.
(3)  As a percentage of consulting and support revenues, cost of consulting 
     and support was 85.8%, 118.6%, 109.4% and 96.0% in the three months 
     ended September 30, 1998 and 1997, and the nine months ended September 
     30, 1998 and 1997, respectively.

                                       9

<PAGE>

REVENUES

         The Company's total revenues increased from $1.7 million for the
quarter ended September 30, 1997 to $3.1 million for the quarter ended September
30, 1998. Total revenues also increased from $4.5 million for the first nine
months of 1997 to $7.4 million for the first nine months of 1998. International
revenues, primarily comprised of export revenues, as a percentage of total
revenues were 5.7% and 37.6% for the quarters ended September 30, 1997 and
September 30, 1998, respectively; and 2.2% and 32.6% for the first nine months
of 1997 and 1998, respectively. Recent growth in international revenues was
attributable to expanded sales and marketing efforts overseas and the opening of
a European regional office in April 1997 and an Asia-Pacific regional office in
April 1998. No customer accounted for more than 10% of total revenues for the
quarters ended September 30, 1997 or 1998 or for the nine months ended September
30, 1997 or 1998.

         SOFTWARE LICENSES. Software licenses revenues increased from $824,000
for the quarter ended September 30, 1997 to $956,000 for the quarter ended
September 30, 1998. Software license revenues increased from $2.2 million for
the first nine months of 1997 to $2.6 million for the first nine months of 1998.
These increases were attributable to an increase in the number of AdServer
licenses sold, due in part to an expansion of the Company's direct sales
organization. Because software upgrades revenues and consulting and support
revenues are, to a large extent, a function of software licenses revenues, the
Company's future operating results will be substantially dependent on growth of
software licenses revenues, and the failure to increase software licenses
revenues would likely have a material adverse effect on the Company's business,
results of operations and financial condition.

         SOFTWARE UPGRADES. Software upgrades revenues increased from $303,000
for the quarter ended September 30, 1997 to $697,000 for the quarter ended
September 30, 1998. Software upgrades revenues increased from $754,000 for the
nine months ended September 30, 1997 to $1,626,000 for the nine months ended
September 30, 1998. The increase in each period was a result of software
upgrades being provided to a larger installed customer base. The number of
NetGravity's customers increased from approximately 160 at September 30, 1997 to
approximately 290 at September 30, 1998.

         CONSULTING AND SUPPORT.  Consulting and support revenues increased from
$614,000 for the quarter ended September 30, 1997 to $1.4 million for the
quarter ended September 30, 1998. Consulting and support revenues increased from
$1.5 million for the nine months ended September 30, 1997 to $3.2 million for
the nine months ended September 30, 1998. The increase in each period was
primarily as a result of the 

                                       10

<PAGE>

increased demand for consulting services, expansion into Europe and Asia, the 
larger installed customer base, and customers electing to renew their support 
program. To date, revenues from the Company's AdCenter service, which are 
included in consulting and support revenues, have not been significant.

COST OF REVENUES

         Gross margins increased from 57.8% for the quarter ended September 
30, 1997 to 60.3% for the quarter ended September 30, 1998 due primarily to a 
reduction in the cost of consulting and support revenues as a percentage of 
such revenues, partially offset by an increase in consulting and support 
revenues as a percentage of total revenues. Gross margins decreased from 
66.3% for the nine months ended September 30, 1997 to 52.7% for the nine 
months ended September 30, 1998 due primarily to increased staffing levels in 
the consulting and support organizations. There are no material costs of 
revenues associated with software upgrades revenues.

         COST OF SOFTWARE LICENSES. Cost of software licenses consists of
royalties paid to third parties for licensed technology. Cost of software
licenses was $7,000 and $7,000 for the quarters ended September 30, 1997 and
1998, respectively, and $35,000 and $42,000 for the nine months ended September
30, 1997 and 1998, respectively. As a percentage of software licenses revenues,
cost of software licenses was 0.8% and 0.7% for the quarters ended September 30,
1997 and 1998, respectively, and 1.6% and 1.6% for the nine months ended
September 30, 1997 and 1998, respectively.

         COST OF CONSULTING AND SUPPORT. Cost of consulting and support consists
primarily of personnel-related costs (including overhead) incurred in providing
consulting, support and training to customers. The cost of consulting and
support increased from $728,000 for the quarter ended September 30, 1997 to $1.2
million for the quarter ended September 30, 1998. The cost of consulting and
support increased from $1.5 million for the nine months ended September 30, 1997
to $3.5 million for the nine months ended September 30, 1998. The increase in
each period was primarily due to an increase in personnel and related overhead,
as the Company increased staff to meet customer demand, and increased outside
services and travel costs associated with the increased volume of service
provided by the consulting and support organizations. The Company expects that
the cost of consulting and support will continue to increase in absolute dollar
amounts in future periods as the Company continues to hire additional
consulting, training and customer support personnel. Cost of consulting and
support decreased as a percentage of consulting and support revenues from 118.6%
for the quarter ended September 30, 1997 to 85.8% for the quarter ended
September 30, 1998 due primarily to increased efficiencies experienced in the
later period as recently hired personnel became more productive. Cost of
consulting and support increased as a percentage of consulting and support
revenues from 96.0% for the nine months ended September 30, 1997 to 109.4% for
the nine months ended September 30, 1998 due primarily to new-hire expenses and
other inefficiencies associated with quickly adding 

                                   11

<PAGE>

and training numerous consulting and support personnel, particularly during 
the first six months of the later period.

Overall gross margins may continue to be impacted by the mix of products and
services sold by the Company, the mix of software licenses revenues, software
upgrades revenues and consulting and support revenues, the mix of international
and domestic revenues, the mix of distribution channels used by the Company, and
the level of royalty payments, amortization charges and other costs related to
the acquisition of technology or other intangible assets. The Company typically
realizes higher gross margins on software upgrades revenues than on software
licenses revenues, substantially higher gross margins on software licenses
revenues than on consulting and support revenues, and higher gross margins on
direct sales than on indirect sales. Shifts in the mix of revenues towards lower
margin revenues or a greater percentage of sales through indirect channels would
adversely impact the Company's overall gross margins and could materially
adversely impact the Company's operating results. There can be no assurance that
such adverse fluctuations in the mix of revenue or costs of revenues will not
occur in the future. In addition, based on expected amortization charges,
royalty payments and other costs, the Company expects that gross margins from
the Company's recently announced Global Profile Service will initially be
negative, and expects such gross margins to continue to be substantially below
the Company's overall gross margins for at least the next several quarters.

RESEARCH AND DEVELOPMENT

         Research and development expenses consist primarily of
personnel-related costs (including overhead), consulting expenses and related
equipment. To date, the Company has not capitalized any such development costs
under Statement of Financial Accounting Standards ("SFAS") No. 86; all research
and development costs have been expensed as incurred. Research and development
expenses increased from $677,000 for the quarter ended September 30, 1997 to
$1.3 million for the quarter ended September 30, 1998. Research and development
expenses increased from $2.1 million for the nine months ended September 30,
1997 to $3.4 million for the nine months ended September 30, 1998. The increase
in absolute dollars in all periods was primarily due to increased personnel
costs and related overhead, and, to a lesser extent, outside consulting
expenses, associated with enhancements of existing products and development of
new products. The Company believes that continued investment in research and
development is critical to attaining its strategic objectives and, as a result,
expects research and development expenses to increase in absolute dollars in
future periods.

SALES AND MARKETING

         Sales and marketing expenses consist primarily of personnel-related
costs (including overhead), travel expenses, advertising expenses, trade show
expenses, seminars and costs of marketing materials. Sales and marketing
expenses increased from 

                                   12

<PAGE>

$1.6 million for the quarter ended September 30, 1997 to $2.9 million for the 
quarter ended September 30, 1998. Sales and marketing expenses increased from 
$4.3 million for the nine months ended September 30, 1997 to $7.3 million for 
the nine months ended September 30, 1998. The increase in absolute dollars in 
each period was due primarily to the increase in compensation paid to sales 
and marketing personnel (including commissions) and related overhead, and 
increased travel costs associated with the Company's direct selling efforts. 
The Company expects sales and marketing expenses to increase in absolute 
dollars in future periods, as the Company hires additional personnel, 
introduces new products and services (such as its Global Profile Service), 
expands into new markets and continues to promote the NetGravity brand.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses consist primarily of
personnel-related costs (including overhead) for the Company's executive,
administrative, finance and human resources personnel, support services and
professional services fees. General and administrative expenses increased from
$310,000 for the quarter ended September 30, 1997 to $794,000 for the quarter
ended September 30, 1998. General and administrative expenses increased from
$904,000 for the nine months ended September 30, 1997 to $2.3 million for the
nine months ended September 30, 1998. The increase in absolute dollars in each
period was primarily a result of increased personnel and related overhead
necessary to support the Company's increased scale of operations. The Company
expects general and administrative expenses to increase in absolute dollars in
future periods as the Company expands its staff, incurs additional costs related
to expansion of its operations, and is subject to the requirements of being a
publicly traded company.

DEFERRED STOCK COMPENSATION EXPENSE

         The Company has recorded deferred stock compensation expense of $0 and
$1,427,000, respectively, for the three-and nine-months ended September 30,
1998. Amortization of previously-recorded deferred compensation of approximately
$460,000 and $1,020,000 was recognized in the three and nine months ended
September 30, 1998, respectively. Amortization of deferred compensation expense
is allocated to costs of consulting and support and to all operating expense
lines identified on the statement of operations over the life of the options,
which is generally four years. As a result, amortization of deferred
compensation expense will adversely impact the company's operating results
through June, 2002.

OTHER INCOME (EXPENSE)

         Net interest expense for the quarter ended September 30, 1997 was
$27,000 compared with net interest income for the quarter ended September 30,
1998 of $283,000. Net interest expense for the nine months ended September 30,
1997 was $41,000 compared with net interest income for the nine months ended
September 30, 1998 of $339,000. These changes were primarily due to the interest
earned on the net proceeds from the Company's initial public offering (IPO)
during the quarter ending June 

                                   13

<PAGE>


30, 1998, and a reduction in interest expense related to the partial 
repayment of the Company's debt after its IPO.

LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 1998, the Company had $20.5 million in cash and 
cash equivalents and $4.4 million in short-term investments. In June 1998, 
the Company sold 3,000,000 shares of its common stock in its IPO, generating 
net proceeds of $23.9 million. In July 1998, the Company sold an additional 
250,000 shares of its common stock and generated an additional $2.1 million 
of net proceeds in connection with the exercise of the over-allotment option 
granted to the underwriters of the Company's IPO.

         During the nine months ended September 30, 1998, the Company used $5.1
million in cash to fund its operating activities, primarily attributable to the
Company's operating loss, offset by certain non-cash charges and the increases
in certain liabilities. Net cash used in investing activities during the nine
months ended September 30, 1998 of $8.2 million was primarily attributable to
purchases of property and equipment, the purchase of short-term investments and
the purchase of the certain rights to data owned by MatchLogic (See Note 3 to
the Condensed Consolidated Financial Statements). Net cash provided by financing
activities during the nine months ended September 30, 1998 of $28.2 million was
primarily attributable to proceeds from the Company's IPO and Series C Preferred
Stock financing, offset by certain debt repayments.

         During August 1998, the Company leased certain corporate office 
space to serve as the Company's corporate headquarters. The related lease 
agreement provides for aggregate lease payments of approximately $7.5 million 
over the seven year term of the lease. In addition, the Company is committed 
to spend approximately $1.5 million on leasehold improvements, equipment and 
furniture to prepare this space, which expenditures would be amortized over 
the term of the lease, or sooner.

         The Company's deferred revenue balance includes deferred software
licenses revenues and revenues attributable to uncompleted consulting
engagements, as well as the unamortized portion of the revenues from software
upgrades and support contracts. The Company records an accounts receivable and
deferred revenue upon shipment and invoicing of a software license to a
customer. The Company's accounts receivable balance is relatively large in
comparison to quarterly and annual revenues because the Company generally
recognizes revenue from the licensing of software later than shipment and
invoicing. Further, the Company's deferred revenue balance or changes therein
may not be indicative of changes in the ordering patterns of customers or the
Company's backlog.

         The Company believes that its current cash balances will be sufficient
to meet its anticipated cash needs for working capital and capital expenditures
for the next 12 months. However, there can be no assurance that additional funds
will not be required either during or after such 12-month period.

                                   14

<PAGE>

FACTORS AFFECTING OPERATING RESULTS AND FINANCIAL CONDITION

         The following is a discussion of certain factors which currently 
impact or may impact NetGravity's business, operating results and/or 
financial condition. Anyone making an investment decision with respect to 
NetGravity's capital stock or other securities is cautioned to carefully 
consider these factors, along with the factors discussed in NetGravity's Form 
S-1 under the section entitled "Risk Factors."

         LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATED CONTINUED 
         LOSSES

         The Company was incorporated in September 1995 and therefore has a 
limited operating history upon which an evaluation of the Company and its 
prospects can be based. The Company's prospects must be considered in light 
of the risks, expenses and difficulties frequently encountered by companies 
in their early stage of development, particularly companies in new and 
rapidly evolving markets, such as the markets for online advertising and 
direct marketing solutions. To address these risks, the Company must, among 
other things, effectively develop new relationships and maintain existing 
relationships with its customers, business and technology partners and other 
third parties, develop and upgrade its technology, improve its technical 
support and service, respond to competitive developments, implement and 
improve operational, financial and managerial information systems and 
attract, retain and motivate qualified personnel. There can be no assurance 
that the Company will succeed in addressing such risks, and the failure to do 
so could have a material adverse effect on the Company's business, results of 
operations or financial condition. Additionally, the limited operating 
history of the Company makes the prediction of future operating results 
difficult or impossible, and there can be no assurance that the Company's 
revenues will increase or even continue at their current level or that the 
Company will achieve or maintain profitability or generate cash from 
operations in future periods. Since inception, the Company has incurred 
significant operating and net losses. The Company's loss from operations was 
$6.9 million in the year ended December 31, 1997 and $9.0 million for the 
nine months ended September 30, 1998. As of September 30, 1998, the Company 
had an accumulated deficit of $20.3 million. The Company anticipates that its 
operating expenses and costs of revenues will increase substantially in the 
foreseeable future as it exploits new market opportunities for its products 
and services, funds research and development and sales and marketing 
operations, develops new distribution channels, improves its operational and 
financial systems and broadens its customer support and professional services 
capabilities. Accordingly, the Company expects to incur additional losses and 
continued negative cash flow from operations for the foreseeable future, and 
such losses will increase the Company's accumulated deficit. Additionally, 
although the Company has experienced revenue growth in recent periods, due to 
the Company's limited operating history, such results are not necessarily 
meaningful and should not be relied upon as an indication of future 
performance.

                                   15

<PAGE>

         POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY; 
         POSSIBLE PRICE EROSION

         As a result of the Company's limited operating history, the Company
does not have relevant historical financial data for a significant number of
periods on which to base planned operating expenses. Accordingly, the Company's
expense levels are based in part on the Company's expectations as to future
revenues. Since the Company's expenses are to a large extent fixed in the short
term, the Company may be unable to, or may elect not to, adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Therefore, any
significant shortfall in revenues in relation to the Company's expectations
would have an immediate material adverse effect on the Company's business,
results of operations and financial condition, and net losses in a given quarter
would be even greater than expected.

         The Company's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond the
Company's control. These factors include: (i) varying demand for the Company's
products, including Adserver, and services, including AdCenter and Global
Profile Services, (ii) the Company's success in addressing new and related
market opportunities, (iii) the introduction of new or enhanced online
advertising or direct marketing solutions by the Company or its competitors,
(iv) changes in the market demand for online advertising and direct marketing
software, (v) market acceptance of new products and services offered by the
Company, (vi) the timing and size of individual license transactions, (vii) the
sales and implementation cycles of the Company's customers, (viii) the addition
or loss of customers, (ix) the mix between software licenses, software upgrades
and consulting and support revenues, (x) the mix between domestic and
international revenues, (xi) the amount of advertising budgets committed to
online advertising and direct marketing activities by the Company's current and
prospective customers, (xii) price changes or changes in pricing models by the
Company or its competitors, (xiii) the mix of distribution channels through
which the Company's products are sold, (xiv) increasing complexity of the
Company's products resulting in higher costs to develop and maintain, which may
not be recouped by increased prices, (xv) the loss of key employees and the time
required to train new hires, particularly sales, consulting and customer support
personnel, (xvi) the ability to penetrate markets outside of North America,
(xvii) the incurrence of costs relating to possible acquisitions of technology
or businesses, (xviii) seasonality related to slower international sales in the
third quarter and a shorter implementation period in the fourth quarter, (xix)
the amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, and (xx) general economic conditions.

         Historically, a significant portion of the Company's revenues for a
given quarter have been recognized in the last month of that quarter, and the
Company expects this trend to continue. In particular, because the Company's
revenue recognition policy requires that for an initial sale, implementation of
AdServer must be substantially completed before recognition of software license
revenue, any delay in the implementation of the Company's products at the end of
a quarter could materially 

                                   16

<PAGE>

adversely affect operating results for that quarter. The Company's revenues 
are also likely to fluctuate due to factors that impact prospective customers 
of the Company's products. Expenditures by these customers tend to vary in 
cycles that reflect overall economic conditions and budgeting and buying 
patterns. The Company's business could be materially adversely affected by a 
decline in the economic prospects of its customers or the economy generally, 
which could alter current or prospective customers' spending priorities or 
budget cycles or extend the Company's sales cycle with respect to certain 
customers. In addition, the Company plans to increase its operating expenses 
and costs of revenues to exploit new market opportunities for its products 
and services, fund greater levels of research and development, increase its 
sales and marketing operations, develop new distribution channels, improve 
its operational and financial systems and broaden its customer support and 
professional services capabilities. To the extent that such expenses precede 
or do not correspond with increased revenues, the Company's business, results 
of operations or financial condition could be materially adversely affected, 
and net losses in a given quarter would be even greater than expected.

         Since the markets for online advertising and direct marketing are in
the early stages of development, there can be no assurance that the Company's
model for pricing of its products and services will remain an acceptable pricing
model. If pricing or gross margins on the Company's products and services
decline because a new pricing model develops or the Company's competitors offer
products and services at lower prices than the Company, the Company's business,
results of operations or financial condition could be materially adversely
effected. The terms of the Company's agreements with its customers typically
contain a perpetual license, a one-year renewable subscription for product
upgrades and a one-year renewable support agreement. If the Company's customers
do not renew their subscription and support agreements, the Company's business,
results of operations and financial condition would be materially adversely
effected.

         Gross margins may be impacted by the mix of products sold by the
Company, the mix of software licenses revenues, software upgrades revenues and
consulting and support revenues, the mix of international and North American
revenues, the mix of distribution channels used by the Company, and the level of
royalty payments, amortization charges and other costs related to the
acquisition of technology or other intangible assets. The Company typically
realizes higher gross margins on software upgrades revenues than on software
licenses revenues, substantially higher gross margins on software licenses
revenues than on consulting and support revenues, and higher gross margins on
direct sales than on indirect sales. Shifts in the mix of revenues towards lower
margin revenues or a greater percentage of sales through indirect channels would
adversely impact the Company's overall gross margin and could materially
adversely impact the Company's operating results. For example, when consulting
and support revenues increased as a percentage of total revenues from 34.3% for
the nine months ended September 30, 1997 to 42.7% for the corresponding period
of 1998, overall gross margins fell from 66.3% to 52.7%, in part due to this
shift in the mix of revenues. The effect of the shift in revenue mix was
amplified by an increase of the cost of consulting and support revenues as a
percentage of such revenues from 96.0% for the nine months 

                                   17

<PAGE>

ended September 30, 1997 to 109.4% for the nine months ended September 30, 
1998, which increased costs were largely attributable to new-hire expenses 
and other inefficiencies associated with quickly adding and training numerous 
new consulting and support personnel during the nine months ended September 
30, 1998. There can be no assurance that such adverse fluctuations in the mix 
of revenue or costs of revenues will not recur in the future.

         Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore it is possible that in some future quarters the Company's results of
operations may fall below the expectations of securities analysts and investors.
In such event, the trading price of the Company's Common Stock will likely be
materially and adversely affected.

         RISKS ASSOCIATED WITH EMERGING MARKETS

         As with other emerging markets, the market for online advertising and
direct marketing solutions is being served by companies which have adopted
differing business models, and there can be no assurance that the Company's
business model will prove competitive. The Company's core business model is to
sell software-based solutions designed to enable customers to directly manage
their online advertising and direct marketing activities and to control and
retain the data gathered from such activities. An alternate business model
employed by certain of the Company's competitors (including DoubleClick) is to
provide outsourced, service-based solutions to customers who choose not to
directly manage their online advertising and direct marketing activities with
software-based solutions. In the outsourced service model, customers are
relieved of certain administrative burdens (and may even choose to outsource
advertisement sales functions), but may not be able to retain the same level of
control over their online systems and the data generated from their online
advertising and direct marketing activities as would be the case with
software-based solutions. Although the Company has recently begun offering
AdCenter, its outsourcing solution for customers who wish to retain advertising
sales functions but who do not wish to retain full control over system
administration and resultant data, revenues from AdCenter to date have not been
significant. If the outsourced service model were to gain popularity to the
detriment of the software-based model, then any failure of the Company to
respond in a timely and efficient manner would have a material adverse effect on
the Company's business, results of operations and financial condition. In
particular, if, in such event, AdCenter was not competitive with other
service-based offerings or was unable to be offered by the Company at required
volumes or on a cost-effective basis, the Company would be required to devote
significant engineering, marketing, sales, consulting and customer support
resources to enhance AdCenter's competitiveness, scalability and
cost-effectiveness. There can be no assurance that such efforts would be
successful.

         The market for online advertising and direct marketing has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market 

                                   18

<PAGE>

entrants. As is typical in the case of a new and rapidly evolving industry, 
demand and market acceptance for recently introduced products and services 
are subject to a high level of uncertainty. Since the Company expects to 
derive substantially all of its revenues in the foreseeable future from sales 
of its online advertising and direct marketing software solutions and related 
services, the Company is highly dependent on the continued use of the 
Internet for information, entertainment and other purposes and, in 
particular, on the increased use of the Internet as an advertising and direct 
marketing medium.

         COMPETITION

         The market for online advertising and direct marketing is relatively
new, highly fragmented, intensely competitive, rapidly evolving and subject to
rapid technological change. The Company expects competition to continue to
increase both from existing competitors and new market entrants. There are no
substantial barriers to entry in these markets, and the Company believes that
its ability to compete is dependent upon many factors within and beyond its
control, including the timing and market acceptance of new solutions and
enhancements to existing solutions developed by the Company and its competitors,
customer service and support, sales and marketing efforts and the ease of use,
performance, features, price and reliability of the Company's solutions.
Historically, participants in the online advertising and direct marketing supply
chain have used internally developed systems to manage their own online
advertising and direct marketing functions. However, the Company believes that
its primary competition will increasingly come from vendors that provide online
advertising and direct marketing software or service solutions. In the online
advertising market, the Company competes directly with DoubleClick, CMG (through
its Engage/Accipiter unit), Excite (through its MatchLogic unit), AdForce, Inc.,
Real Media, Inc. and a variety of other online advertising service providers.
Some of these companies (such as DoubleClick) have adopted a business model
focused on outsourcing of advertising and direct marketing management. Although
the Company has recently begun to offer AdCenter, if the outsourcing model
increases in popularity for the Company's targeted markets and if AdCenter, as
currently offered, does not achieve market acceptance, the Company will be
required to devote additional resources to keep AdCenter competitive. Any
failure by the Company to successfully design, develop and market an advanced
outsourced solution under such circumstances would have a material adverse
effect on the Company's business, results of operations and financial condition.

         In the online direct marketing market, the Company expects to face
indirect competition from the vendors of electronic commerce systems, including
BroadVision, Interworld and Open Market, among others. Additionally, providers
of electronic commerce could build online direct marketing solutions that would
obviate the need for any current or future products of the Company targeted to
the online direct marketing industry. The Company also encounters competition
from Netscape and Microsoft, which build or bundle advertising management
products with their Internet commerce solutions. Both Netscape and Microsoft
have significantly greater resources than the Company, and due to their control
of the browser market, if either of them were to offer online advertising and
direct marketing management solutions with features comparable 

                                   19

<PAGE>

to those offered by the Company, there can be no assurance that the Company 
would be able to compete effectively against any such product offerings. 
Moreover, although the Company does not believe that LinkExchange, Inc. has 
historically been a significant direct competitor of the Company, Microsoft's 
recently announced acquisition of LinkExchange, a privately-held provider of 
online advertising and marketing services, may indicate that Microsoft is 
accelerating and/or intensifying its activities in the online advertising and 
direct marketing market.

         Many of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and thus may be able to respond more
quickly to new or changing opportunities, technologies and customer
requirements. Also, many current and potential competitors have greater name
recognition, more extensive customer bases and larger proprietary consumer
databases that could be leveraged, thereby gaining market share to the Company's
detriment. Such competitors may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies, or offer more attractive
terms to purchasers than the Company. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.

         Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share, any one of which could have a material
adverse effect on the Company's business, results of operations or financial
condition. There can be no assurance that the Company will be able to compete
successfully against existing or potential competitors or that competitive
pressures will not have a material adverse effect on the Company's business,
results of operations or financial condition.

         DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED 
         PERSONNEL; LIMITED PRODUCTIVITY OF NEWLY HIRED PERSONNEL

         The Company is dependent, to a significant extent, upon members of
senior management, product development personnel, the Company's sales and
marketing and customer support staff, and other key employees. Given the
Company's early stage of development, the loss of one or more key employees
could have a material adverse effect on the business, results of operations or
financial condition of the Company. The Company does not have employment
agreements with its executive officers requiring their service for any
particular term and does not carry key person life insurance covering such
persons. In addition, the Company is dependent upon its ability to attract,
hire, train and retain a substantial number of highly skilled technical,
managerial, finance, sales and marketing and support personnel, especially
experienced consulting and customer support personnel. The Company must also
recruit, and plans to recruit, senior executives with industry expertise in
online advertising and direct marketing. Competition for personnel in the
Company's industry is very intense, and the Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel, and there
can be no assurance that the Company will be successful at attracting, hiring,
training or retaining such personnel. The failure of the Company to attract,
hire, train or retain such personnel could have a material adverse effect on the
Company's business, results of operations or financial condition.

                                   20

<PAGE>

         In addition, the Company plans to expand its sales and marketing,
customer support, and professional services organizations both domestically and
internationally. Based on the Company's experience, it takes at least six
months, if not longer, for a salesperson to become fully productive. There can
be no assurance that the Company will be successful in increasing the
productivity of its sales personnel, and the failure to do so could have a
material adverse effect on the Company's business, results of operations or
financial condition. Additionally, as the Company continues to expand
internationally, it will require the services of individuals in the countries in
which it conducts operations. The Company has had limited experience hiring
foreign personnel. There can be no assurance that the Company will be successful
in attracting, hiring, training and retaining such foreign personnel, and the
failure to do so could have a material adverse effect on the Company's business,
results of operations or financial condition.

         RISKS ASSOCIATED WITH PURCHASED INTANGIBLES

         In connection with the Company's agreement with MatchLogic, the 
Company paid $2 million to MatchLogic for certain rights to use certain of 
MatchLogic's proprietary consumer profile databases for limited purposes. 
This transaction was accounted for as a purchase of an intangible asset, 
which is being amortized over its expected useful life of three years. The 
Company may acquire the rights to other intangible assets in the future. The 
value of such intangible assets is often difficult to measure and there can 
be no assurance that the Company will realize benefits from such assets 
commensurate with the amounts paid for such assets. Furthermore, the value of 
such assets may fluctuate significantly based on future events or changed 
circumstances. If the value of such assets or rights is not capitalizable, 
the Company would be required to expense such amount which could have a 
material adverse effect on the Company's business, results or operations or 
financial condition. If the value of any capitalized intangible asset becomes 
impaired in the future, the Company may be required to immediately write-down 
or write-off such asset pursuant to SFAS No. 121. Any significant impairment 
or write-down could have a material adverse effect on the Company's business, 
results of operations or financial condition.

         RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

         A significant component of the Company's strategy is to expand its
international operations and international sales and marketing efforts. Through
its two subsidiaries, NetGravity Europe Limited and NetGravity Asia Pacific
K.K., the Company has recently commenced operations in a number of markets in
Europe and Asia Pacific. International revenues comprised approximately 32.6% of
the Company's total revenues for the nine months ended September 30, 1998 and
are expected to continue to comprise a significant portion of the Company's
total revenues in 1998. Although the Company believes that localized versions of
its products will be extremely important for the Company to achieve any
significant international growth, to date, the Company has not developed
localized versions of its products (which will likely involve a significant
amount of the Company's resources) and has limited experience in marketing,
selling and distributing its products 

                                   21

<PAGE>

and services internationally. Additionally, international markets for online 
advertising and direct marketing are in earlier stages of development than in 
the United States, and there can be no assurance that the market for, and 
use, of online advertising and direct marketing in international markets will 
be significant in the future. Factors that may further account for slower 
growth in the online advertising and direct marketing markets in Europe and 
Asia include: slower growth in the number of individuals using the Internet 
internationally; privacy concerns; a lower rate of advertising spending 
internationally than in the United States; and a greater reluctance 
internationally to use the Internet for advertising and direct marketing. 
Further, any future success of the Company in selling its products and 
services internationally may be conditioned on the Company delivering 
improved versions of its products (including localized versions of its 
products) and having additional international personnel available for service 
and support. Due to all of the foregoing, there can be no assurance that the 
Company will be able to successfully market, sell and deliver its products 
and services in these markets. In addition, there are certain risks and 
challenges inherent in doing business in international markets, such as 
difficulties in collecting accounts receivable and longer collection periods, 
multiple and continual changes in regulatory requirements, conflicting 
regulatory requirements (for example, Germany has imposed laws limiting the 
use of "cookies," and there can be no assurance that other countries will not 
also place limitations on the use of "cookies"), potentially adverse tax 
consequences, export restrictions, export controls relating to encryption 
technology, tariffs and other trade barriers, difficulties in staffing and 
managing foreign operations, political instability, fluctuations in currency 
exchange rates, seasonal reductions in business activity during the summer 
months in Europe and certain other parts of the world, and the impact of 
local economic conditions and practices, any of which could have a material 
adverse effect on the success of the Company's international operations and, 
consequently, on the Company's business, results of operations or financial 
condition.

         The Company currently invoices its European customers in local
currencies and its customers in Asia Pacific in U.S. currency. The Company
expects to eventually invoice all of its international customers in local
currencies. Although the Company pays certain of the expenses of its European
operations in local currencies, the Company has not engaged in foreign currency
hedging activities, and international revenues are currently subject to currency
exchange fluctuation rates. Historically, fluctuations in foreign currency
exchange rates have not had a material effect on the Company's revenues or
expenses. However, to the extent that international revenues increase as a
percentage of total revenues in the future, foreign currency fluctuation
exposure may also increase. Additionally, recent weakness in many of the Asian
economies as well as weakness in the Japanese yen may result in the Company's
products being too expensive for customers in Japan and other countries in Asia
Pacific, resulting in decreased sales and profitability in such countries. There
can be no assurance that one or more of the factors discussed above will not
have a material adverse effect on the Company's future international operations
and, consequently, on the Company's business, results of operations or financial
condition.

                                   22

<PAGE>

         YEAR 2000 COMPLIANCE

         The Company is aware that many currently installed information
technology ("IT") systems, such as computer systems and software products, as
well as non-IT systems that include embedded technology, were not designed to
correctly process dates after December 31, 1999. The Company is currently
assessing the impact of such "Year 2000" issues on its products and its internal
IT and non-IT systems as well as on its customers, suppliers and service
providers. The Company has formed an ad-hoc Year 2000 project team (the "Year
2000 Project Team") to identify and address Year 2000 compliance issues,
including with respect to the Company's significant non-IT systems used in the
Company's buildings, plant, equipment and other infrastructure. The Year 2000
Project Team has completed its assessment of the Company's products, is
continuing its testing and evaluation of the Company's IT systems and has
recently begun the process of inventorying all material Year 2000 issues related
to the Company's non-IT systems. The Company has not identified any significant
unresolved areas of non-compliance with respect to its products or IT systems
and expects that the assessment and plans for remedial action for all of its IT
and non-IT systems will be completed by December 31, 1998.

         The Company has also initiated discussions with its significant
suppliers and service providers regarding their plans to investigate and
remediate their Year 2000 issues. Although the Company anticipates cooperation
in these efforts from most of the Company's significant suppliers and service
providers, the Company is also dependent on certain utility companies,
telecommunication service companies and other service providers that are outside
Company's control. Therefore, it may be difficult for the Company to obtain
assurances of Year 2000 readiness from such third parties. Although the Company
believes that its Year 2000 Project Team will identify all of the Company's
material Year 2000 issues in the course of its assessments, given the
pervasiveness of Year 2000 issues and the complex interrelationships among Year
2000 issues both internal and external to the Company, there can be no assurance
that the Company will be able to identify and accurately evaluate all such
issues.

         In September 1998, the Company released version 3.5 of its AdServer
product which included enhancements designed to correctly accept and process
21st century dates and, as a result, the Company now believes that the current
versions of its AdServer family of software products are Year 2000 compliant.
However, given the complexity of software systems such as AdServer and the need
to interoperate with other systems, there can be no assurance that the Company's
products will not experience Year 2000 problems in the future. Any such Year
2000 issues could result in: a decrease in sales of the Company's products;
deferral of revenue recognition on contracts in which the Company has warranted
(or may in the future warrant) compliance with Year 2000 requirements; an
increase in the allocation of resources to address Year 2000 problems of the
Company's customers without additional revenue commensurate with such dedication
of

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<PAGE>

resources; or an increase in litigation costs relating to losses suffered by 
the Company's customers due to such Year 2000 problems.

         In addition, the Company has determined that certain of its software IT
systems are not currently Year 2000 compliant, and that certain of its hardware
IT systems may not be able to be made Year 2000 compliant. Although the Company
believes that such software will become compliant through updates and upgrades
that would have been purchased in the ordinary course of business for reasons
unrelated to Year 2000 issues and that the cost to replace such hardware, if
necessary, would be less than $60,000, there can be no assurance that the
incremental costs of such software and hardware will not materially exceed these
preliminary estimates, which higher incremental costs could have a material
adverse effect on the Company's business, results of operations or financial
condition.

         As the process of inventorying non-IT systems proceeds and as the other
efforts of the Year 2000 Project Team continue, the Company may identify
situations that present material Year 2000 risks and/or that will require
substantial time and material expense to address. In addition, if the Company's
customers or potential customers are required to expend significant resources to
address their Year 2000 issues (or if they fail to appropriately address such
Year 2000 issues), the Company's business, results of operation and financial
condition could be adversely affected due to resulting changes in purchasing
patterns. For example, such expenditures of funds, or the consequences of the
failure of such third parties to address their Year 2000 issues, may result in
reduced funds available to purchase products and services such as those offered
by the Company. Furthermore, if Year 2000 problems experienced by any of the
Company's significant suppliers or service providers cause or contribute to
delays or interruptions in the delivery of products or services to the Company,
such delays or interruptions could have a material adverse effect on the
Company's business, results of operations and financial condition. Finally,
disruption in the economy generally resulting from Year 2000 issues could also
materially adversely affect the Company. Although the Year 2000 Project Team has
not yet determined the most likely worst-case Year 2000 scenarios or quantified
the likely impact of such scenarios, it is clear that the occurrence of one or
more of the risks described above could have a material adverse effect on the
Company's business, financial condition or results of operations.

         The Company does not separately account for Year 2000 related expenses
but estimates that the expenses it has incurred to date to address Year 2000
issues have not been material and, although it has not completed its full
assessment of its Year 2000 readiness, it does not expect to incur material
expenses in connection with any required future remediation efforts. However,
the Company's Year 2000 compliance efforts related to AdServer consumed
significant software engineering resources that would otherwise have been
devoted to product development efforts. To the extent that significant
additional software engineering resources are required to address other Year
2000 issues that may be discovered, the Company's product development efforts
may be significantly hampered which, in turn, could have a material adverse
effect on the Company's business, financial condition and results of operations.

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<PAGE>

         The Company's Year 2000 Project Team's activities will also include the
development of contingency plans in the event the Company has not completed all
of its remediation programs in a timely manner. In addition, the Year 2000
Project Team will develop contingency plans in the event that any third parties
who provide goods or services essential to the Company's business fail to
appropriately address their Year 2000 issues. The Year 2000 Project Team expects
to conclude the development of these contingency plans by June 30, 1999. Even if
these plans are completed on time and put in place, their can be no assurance
that unresolved or undetected internal and external Year 2000 issues will not
have a material adverse effect on the Company's business, financial condition
and results of operations.

                PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         The Company is not involved in any legal proceedings that are material
to its business or financial condition.


ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS.

         (a)      Not applicable.

         (b)      Not applicable.

         (c)      Not applicable.

         (d)      Pursuant to a Registration Statement on Form S-1 (File No. 
333-51007) filed with the Securities and Exchange Commission (the "SEC") and 
declared effective by the SEC on June 11, 1998, the Company offered an 
aggregate of 3,250,000 shares of its Common Stock for an aggregate offering 
price of $29.3 million and certain selling stockholders offered an aggregate 
of 200,000 shares of the Company's Common Stock for aggregate offering price 
of $1.8 million. The offering pursuant to the Form S-1 commenced on or about 
June 11, 1998, terminated in July 1998 and all offered shares have been sold. 
The managing underwriters of the offering were BancAmerica Robertson 
Stephens, NationsBanc Montgomery Securities and FAC/Equities. Net of 
underwriters' discounts and commissions of 7% of the offering price, the 
Company and the selling stockholders received proceeds of $27.2 million and 
$1.7 million, respectively, from the offering. In addition to underwriters' 
discounts and commissions, the Company reasonably estimates that it incurred 
approximately $1.3 in additional expenses related to the offering, leaving it 
with approximately $25.9 million in net proceeds.

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<PAGE>

         Since June 11, 1998, the Company has used, from the net proceeds of 
the offering, approximately (i) $332,000 to fund certain capital 
expenditures, (ii) $3.6 million to fund operating expenses related to 
entering new markets, increasing research and development spending, expanding 
sales and marketing operations, developing new distribution channels, 
improving its operational and financial systems and broadening its customer 
support capabilities and (iii) $770,000 to repay certain indebtedness. In 
addition, the Company used net proceeds from the offering to make a $2.0 
million payment to MatchLogic pursuant to an agreement between the Company 
and MatchLogic related to the use of certain of MatchLogic's proprietary 
consumer profile databases. The use of proceeds from this offering does not 
represent a material change in the use of proceeds described in the final 
prospectus related to the offering. Pending other uses, the Company has 
invested most of the remaining net proceeds in investment grade, short-term 
interest bearing securities.

         None of such payments constituted direct or indirect payments to
directors, officers, general partners of the issuer or their associates, or to
persons owning ten percent or more of any class of equity securities of the
issuer or to affiliates of the issuer.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES.

         Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.


ITEM 5.  OTHER INFORMATION.

         Effective November 6, 1998, Thomas A. Shields, a Vice President of the
Company and its Chief Technology Officer, resigned from the Company to pursue
other opportunities. Martin G. Lane-Smith, who has served as the Company's Vice
President of Engineering since 1997, has assumed the duties of Mr. Shields.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a) The following exhibits are attached hereto:

10.17     Lease dated August 5, 1998 between the Company and Norfolk Atrium, 
          a California limited partnership, related to the Company's 
          principal executive offices located at 1900 South Norfolk Street, 
          San Mateo, California.

27.1      Financial Data Schedule (Third Quarter 1998).

                                   26

<PAGE>


         (b) No Reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1998.







                           SIGNATURE

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, on November 16, 1998.


                               NETGRAVITY, INC.


                                By: /s/ Stephen E. Recht
                                    -----------------------------------------
                                                 Stephen E. Recht
                                            CHIEF FINANCIAL OFFICER
                                                   AND SECRETARY
                                      (Principal financial and accounting
                                      officer and duly authorized officer)


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