<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 March 31, 1999

                                       OR

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

For the transition period from __________ to __________.

                        Commission file number 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 [ ]

17,779,474 shares of Common Stock, $0.001 par value, were outstanding as of
April 30, 1999.

<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 March 31, 1999
              and December 31, 1998                                          3

         Condensed Consolidated Statements of Operations for the
              three-months ended March 31, 1999 and 1998                     4

         Condensed Consolidated Statements of Cash Flows for the
              three months ended March 31, 1999 and 1998                     5

         Notes to Condensed Consolidated Financial Statements                6


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

Item 3.  Quantitative and Qualitative Disclosure about Market Risk          23


PART II - Other Information


Item 1.  Legal Proceedings                                                  24

Item 2.  Changes in Securities and use of Proceeds                          24

Item 3.  Default upon Senior Securities                                     25

Item 4.  Submission of Matters to a Vote of securities Holders              25

Item 5.  Other Information                                                  25

Item 6.  Exhibits and Reports on Form 8-K                                   25

Signature                                                                   26
</TABLE>


                                      2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      March 31,         December 31,
                                                                        1999               1998
                                                                        ----               ----
<S>                                                              <C>                  <C>
                                     ASSETS
Current assets:
      Cash and cash equivalents                                    $         11,185    $       10,236
      Short-term investments                                       $          7,092            10,563
      Accounts receivable, net                                                6,543             6,311
      Proceeds receivable from secondary offering                            95,813               -
      Prepaid expenses and other current assets                               1,222               778
                                                                 -------------------------------------
      Total current assets                                                  121,855            27,888

Property and equipment, net                                                   4,107             3,473
Other assets                                                                  1,857             2,059
                                                                 -------------------------------------
      Total assets                                                 $        127,819    $       33,420
                                                                 -------------------------------------
                                                                 -------------------------------------

                       LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities:
      Current portion of notes payable                                          485               618
      Accounts payable                                                        1,535               898
      Accrued liabilities                                                     3,391             2,867
      Deferred revenue                                                        6,972             5,800
                                                                 -------------------------------------
        Total current liabilites                                             12,383            10,183

Notes payable, less current portion                                           1,121             1,109

Stockholders  equity:
      Convertible preferred stock                                               -                 -
      Common stock                                                               17                14
      Additional paid-in capital                                            142,942            46,817
      Deferred compensation                                                  (1,898)           (1,706)
      Accumulated deficit                                                   (26,746)          (22,997)
                                                                 -------------------------------------
        Total stockholders' equity                                          114,315            22,128
                                                                 -------------------------------------
        Total liabilities and stockholders' equity                          127,819            33,420
                                                                 -------------------------------------
                                                                 -------------------------------------
</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
                                                               ------------------
                                                                    MARCH 31,
                                                             1999               1998
<S>                                                 <C>                  <C>
Revenues:
      Software licenses                                 $       1,557      $         775
      Software upgrades                                           873      $         402
      Consulting and support                                    1,621                826
      Transactional services                                      521                  -
                                                     ------------------------------------
          Total revenues                                        4,572              2,003

Cost of revenues:
      Cost of software licenses                                     3                 15
      Cost of consulting and support                            1,223              1,158
      Cost of transactional services                              980                  -
                                                     ------------------------------------
          Total cost of revenues                                2,206              1,173
                                                     ------------------------------------
          Gross profit                                          2,366                830
                                                     ------------------------------------
Operating costs and expenses:
Research and development                                        1,962                996
Sales and marketing                                             3,354              1,956
General and administrative                                        989                708
                                                     ------------------------------------
      Total operating costs and expenses                        6,305              3,660
                                                     ------------------------------------
Loss from operations                                           (3,939)            (2,830)
Other income (expense), net                                       190                 30
                                                     ------------------------------------
Net loss                                                $      (3,749)     $      (2,800)
                                                     ------------------------------------
                                                     ------------------------------------
Per share of common stock:
      Basic and diluted net loss                        $       (0.28)     $       (0.93)
                                                     ------------------------------------
Weighted average shares used in per share
      calculation of basic and diluted net loss                13,489              3,025
</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>
                                                                                       Three months ended
                                                                                           March 31,
                                                                                    1999                1998
                                                                                    ----                ----
<S>                                                                           <C>               <C>

Cash Flows from operating activities:
      Net loss                                                                 $     (3,749)     $     (2,800)
      Adjustments to reconcile net loss to net cash used
        in operating activities:
           Depreciation                                                                 385               231
           Amortization of intangibles                                                  167               -
           Amortization of deferred stock compensation                                  295               246
           Amortization of compensation from grant of non-employee stock options        163               -
           Changes in operating assets and liabilities
              Accounts receivable, net                                                 (232)           (1,073)
              Prepaid expenses and other assets                                        (444)              (64)
              Accounts payable                                                          637               (16)
              Accrued liabilities                                                       524               268
              Deferred revenue                                                        1,172             1,107
                                                                              --------------------------------
                       Net cash used in operating activities                         (1,082)           (2,101)
                                                                              --------------------------------
                                                                              --------------------------------
Cash flows from investing activities:
      Capital expenditures                                                           (1,019)             (358)
      Proceeds from maturities of short-term investments, net                         3,471                 -
      Other assets                                                                       35                 -
                                                                              --------------------------------
                       Net provided by (used in) in investing activities              2,487              (358)
                                                                              --------------------------------
                                                                              --------------------------------
Cash flows from financing activities:
      Repayment of notes payable                                                       (121)             (122)
      Proceeds from issuance of preferred stock, net                                      -             3,249
      Proceeds from issuance of common stock, net                                       673                14
      Issuance cost related to secondary offering                                    (1,008)                -
      Repurchases of common stock                                                         -                (1)
                                                                              --------------------------------
                       Net cash provided by (used in) financing activities            (456)             3,140
                                                                              --------------------------------
                                                                              --------------------------------

Net increase in cash and cash equivalents                                               949               681
Cash and cash equivalents at beginning of period                                     10,236             5,637
                                                                              --------------------------------
Cash and cash equivalents at end of period                                           11,185             6,318
                                                                              --------------------------------
                                                                              --------------------------------
Supplemental disclosure of cash flow information:
      Cash paid for interest                                                             37                41
                                                                              --------------------------------
                                                                              --------------------------------

Non-cash financing activities:
      Deferred compensation cost on employee stock option grants                        650               390
                                                                              --------------------------------
                                                                              --------------------------------
      Proceeds receivable from secondary offering                                    95,813                 -
                                                                              --------------------------------
                                                                              --------------------------------

</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 annual 
report on Form 10-K and other documents filed with the Securities and 
Exchange Commission.

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.

Diluted Net loss per share for the three months ended March 31, 1998 does not 
include the effect of approximately 12,601,000 (6,220,000 on an as-if 
converted basis) shares of convertible preferred stock outstanding, 1,304,029 
stock options with a weighted average exercise price of $0.27 per share, 
27,650 common stock warrants with a weighted average exercise price of $0.22 
per share, and 1,017,229 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.

Net loss per share for the three months ended March 31, 1999 does not include 
the effect of approximately 2,261,926 stock options outstanding with a 
weighted average exercise price of $8.58 per share, and approximately 348,302 
shares of common stock issued and subject to repurchase by the Company at a 
weighted average price of $0.24 per share, because their effects are 
anti-dilutive.

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.

                                      6
<PAGE>

In June 1998, the Company raised $23.9 million of net proceeds from the sale 
of 3 million shares of the Company's common stock in its IPO. All 
outstanding shares of Series A, B and C Preferred Stock were converted into 
2.5 million shares, 1.9 million shares and 1.8 million shares of common 
stock, respectively, upon the closing of the IPO.

In July 1998, the Company raised an additional $2.1 million of net proceeds 
from the sale of an additional 250,000 shares of the Company's common stock 
upon the exercise of the underwriters' over-allotment option granted in 
connection with the IPO.

Pursuant to an underwriting agreement dated March 29, 1999, in April 1999 
the Company completed a secondary public offering of 4,692,000 shares of its 
common stock (which includes shares issued upon exercise of the underwriters' 
612,000 share over-allotment option) for net proceeds of approximately $138.6 
million, after deducting underwriting discounts, commissions and estimated 
offering expenses payable by the Company. In March, 1999 the Company sold 
3,218,440 shares for net proceeds of approximately $94.8 million, and 
certain NetGravity stockholders sold 861,560 shares for net proceeds of 
approximately $25.6 million. In addition, the underwriters exercised the 
612,000 shares from the over-allotment for net proceeds to the Company of 
approximately $18.2 million.

In the three months ended March 31, 1998, the Company recorded deferred stock 
compensation expense of $390,000 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. In the three months ended March 31, 
1999 the Company recorded deferred stock compensation expense of $650,000 
related to the grant of a stock option to an outside consultant. Amortization 
of deferred compensation of approximately $246,000 and $458,000 was 
recognized in the three months ended March 31, 1998 and 1999, respectively.

NOTE 3. SEGMENT INFORMATION

The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT 
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes 
standards for the reporting by public business enterprises of information 
about operating segments, products and services, geographic areas, and major 
customers. The method for determining what information to report is based on 
the way that management organizes the operating segments within the Company 
for making operating decisions and assessing financial performance.

The Company's Chief Executive Officer ("CEO") is considered to be the "chief 
operating decision maker" within the meaning of SFAS No. 131. The CEO reviews 
financial information presented on a consolidated basis accompanied by 
disaggregated information about revenues by geographic region for purposes of 
making operating decisions and assessing financial performance. The 
consolidated financial information reviewed by the CEO is identical to the 
information presented in the accompanying consolidated 


                                      7
<PAGE>

statement of operations. Therefore, the Company has determined that it 
operates in a single operating segment: interactive marketing software and 
services.

Revenue and asset information regarding operations in the different 
geographic regions is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                 North America        Europe         Asia    Consolidated
                                                 -------------        ------         ----    ------------
<S>                                              <C>                  <C>           <C>      <C>
Revenues:
 Three months ended March 31, 1998                   1,415               250          338       2,003
 Three months ended March 31, 1999                   2,964             1,019          589       4,572
Identifiable Assets:
 March 31, 1998                                     10,753             1,079         --        11,832
 March 31, 1999                                    124,103             2,351        1,365     127,819
</TABLE>

No single customer accounted for greater than 10% of revenues in any period 
reported.

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 and related financial information contained in 
NetGravity's Form 10-K for the fiscal year ended December 31, 1998 (the "1998 
Form 10-K"). In this Report, "NetGravity," the "Company," "we," "us" and 
"our" refer to NetGravity, Inc. and its wholly-owned subsidiaries, NetGravity 
Europe Limited, NetGravity Asia Pacific K.K. and NetGravity (Hong Kong) 
Limited.

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 OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" AS WELL AS 
THOSE NOTED IN THE COMPANY'S 1998 10-K, PARTICULARLY IN ITEM 1 OF PART I 
THEREOF UNDER THE SECTION ENTITLED " FACTORS AFFECTING OUR BUSINESS, 
OPERATING RESULTS AND FINANCIAL CONDITION ." 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 a leading provider of online interactive marketing 
solutions. The Company develops, markets and supports a broad range of 
high-end, mission-critical software and transaction-based services designed 
for e-commerce merchants (vendors of products and services), advertising 
agencies and content publishers.

To date, the Company has generated its revenues primarily from the license 
and related upgrade of, consulting for and support of its AdServer family of 
software products. The Company believes that its current AdServer family of 
software products and software products in development, together with the 
related consulting and support services, will continue to account for a 
substantial majority of its revenues for the foreseeable future.

In August 1998, the Company formally launched its transactional services 
business with the introduction of AdCenter for Publishers ("AdCenter"), an 
outsourced version of AdServer. In October 1998, the Company announced the 
Global Profile Service ("GPS"), which is a database of anonymous consumer 
profiles that the Company makes available to its customers for use in 
enhanced targeting. To date revenues from GPS have not been material. 
Revenues from AdCenter and GPS are included within the line-item 
"transactional services."

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
                                                                      MARCH 31,        MARCH 31,
                                                                        1999             1998
<S>                                                             <C>                    <C>
Revenues:
      Software licenses                                                34.1%             38.7%
      Software upgrades                                                19.0%             20.1%
      Consulting and support                                           35.5%             41.2%
      Transactional services                                           11.4%              0.0%
                                                                  ----------------------------
           Total revenues                                             100.0%            100.0%

Cost of revenues: (1)
      Cost of software licenses (2)                                     0.1%              0.7%
      Cost of consulting and support (3)                               26.8%             57.8%
      Cost of transactional services (4)                               21.4%              0.0%
                                                                  ----------------------------
           Total cost of revenues                                      48.3%             58.5%
                                                                  ----------------------------
           Gross profit                                                51.7%             41.5%
                                                                  ----------------------------
Operating costs and expenses:
Research and development                                               42.9%             49.7%
Sales and marketing                                                    73.4%             97.7%
General and administrative                                             21.6%             35.3%
                                                                  ----------------------------
Total operating costs and expenses                                    137.9%            182.7%
                                                                  ----------------------------
Loss from operations                                                  (86.2%)          (141.2%)
Other income (expense), net                                            4.20%              1.5%
                                                                  ----------------------------
Net loss                                                              (82.0%)          (139.7%)
                                                                  ----------------------------
                                                                  ----------------------------
</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 1.9% and 0.2% in the three months ended March 31, 1998
     and 1999, respectively.
(3)  As a percentage of consulting and support revenues, cost of
     consulting and support was 140.2% and 75.4% in the three months ended
     March 31, 1998 and 1999, respectively.
(4)  As a percentage of transactional services revenues, cost of
     transactional services was 0.0% and 188.1% in the three months ended
     March 31, 1998 and 1999, respectively.

REVENUES

The Company's total revenues increased from $2.0 million for the quarter 
ended March 31, 1998 to $4.6 million for the quarter ended March 31, 1999. 
International revenues, primarily comprised of export revenues, as a 
percentage of total revenues were 29.4% and 35.2% for the quarters ended 
March 31, 1998 and March 31, 1999, respectively. Recent growth in 
international revenues was attributable to expanded consulting and support 
and sales and marketing efforts overseas and the opening of an Asia-Pacific 


                                      9
<PAGE>

regional office in April 1998. No customer accounted for more than 10% of 
total revenues for the quarter ended March 31, 1998 or the quarter ended 
March 31, 1999.

SOFTWARE LICENSES. Software licenses revenues increased from $775,000 for the 
quarter ended March 31, 1998 to $1.6 million for the quarter ended March 31, 
1999. 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 $402,000 for the 
quarter ended March 31, 1998 to $873,000 for the quarter ended March 31, 
1999. The increase was a result of software upgrades being provided to a 
larger installed customer base. The number of NetGravity's customers 
increased from approximately 230 at March 31, 1998 to approximately 360 at 
March 31, 1999.

CONSULTING AND SUPPORT.  Consulting and support revenues increased from 
$826,000 for the quarter ended March 31, 1998 to $1.6 million for the quarter 
ended March 31, 1999. The increase was primarily as a result of the increased 
demand for consulting services, expansion into Europe and Asia, the larger 
installed customer base, and customers electing to renew their support 
programs.

TRANSACTIONAL SERVICES. The Company's transactional services were introduced 
in 1998 with the formal release of AdCenter for Publishers during the third 
quarter of 1998 and Global Profile Services in the fourth quarter of 1998. 
Transactional services revenues were $521,000 for the quarter ended March 31, 
1999, or 11.4% of total revenues.

COST OF REVENUES

Gross margins increased from 41.4% for the quarter ended March 31, 1998 to 
51.7% for the quarter ended March 31, 1999. This increase was primarily 
attributable to higher consulting and support revenues and margins in the 
three months ended March 31, 1999 due to increased economies of scale in the 
consulting and support organizations during that period. The increase in 
consulting and support revenues and margins was partially offset by negative 
transactional services margins.

COST OF SOFTWARE LICENSES. Cost of software licenses consists of royalties 
paid to third parties for licensed technology. Cost of software licenses was 
$15,000 and $3,000 for the quarters ended March 31, 1998 and 1999, 
respectively. As a percentage of software licenses revenues, cost of software 
licenses was 1.9% and 0.2% for the quarters ended March 31, 1998 and 1999, 
respectively.


                                      10
<PAGE>

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 was $1.2 million for each of the quarters ended March 
31, 1998 and 1999. While absolute dollars spent on consulting and support 
were constant between the two quarters, cost decreased as a percentage of 
consulting and support revenues from 140.2% for the quarter ended March 31, 
1998 to 75.4% for the quarter ended March 31, 1999. This decrease was 
attributable to increased revenues and improved economies of scale associated 
with a larger customer base.

COST OF TRANSACTIONAL SERVICES. The cost of transactional services consists 
primarily of personnel and related expenses, hosting and bandwidth costs and 
the amortization of intangibles associated with the AdCenter and Global 
Profile Services offerings. The cost of transactional services for the three 
months ended March 31, 1999 was $980,000, or 188.1% of transactional services 
revenue for this period. There were no costs of transactional services during 
the quarter ended March 31, 1998. The Company expects the cost of 
transactional services to continue to increase in absolute dollars in future 
periods as the Company continues to hire additional personnel to increase the 
transactional capacity of its service bureau.

Overall gross margins may be impacted by the mix of products sold by the 
Company, the mix of software licenses revenues, software upgrades revenues, 
consulting and support revenues and transactional services 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. There can be no assurance that such adverse 
fluctuations in the mix of revenue or costs of revenues will not recur in the 
future. Moreover, the Company expects that increases in costs of 
transactional services will materially and adversely impact overall gross 
margins for the foreseeable future.

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 No. 86; all research and 
development costs have been expensed as incurred. Research and development 
expenses increased from $996,000 for the quarter ended March 31, 1998 to $2.0 
million for the quarter ended March 31, 1999. The increase in absolute 
dollars was primarily due to increased personnel costs and related overhead, 
and a large increase in outside consulting expenses associated with 
enhancements of existing products and development of new products. The 
Company has recorded deferred stock compensation expense of $650,000 for a 
stock option issued to a consultant. Amortization of deferred stock 
compensation associated with this stock option totalled approximately 
$163,000 under Statement of Financial Accounting Standards No. 123 in the 
quarter ended March 31, 1999, which amount was included in research and 
development expense for this period.

                                      11
<PAGE>

The Company believes that continued investment in research and development is 
critical to attaining its strategic objectives and, as a result, expects that 
research and development expenses may increase in absolute dollars in future 
periods.

SELLING AND MARKETING

Selling and marketing expenses consist primarily of personnel-related costs 
(including overhead), travel expenses, advertising expenses, trade show 
expenses, seminars and costs of marketing materials. Selling and marketing 
expenses increased from $2.0 million for the quarter ended March 31, 1998 to 
$3.4 million for the quarter ended March 31, 1999. The increase in absolute 
dollars 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 selling and marketing expenses to increase significantly 
in absolute dollars in future periods, as the Company hires additional 
personnel, introduces new products and services, 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 $708,000 
for the quarter ended March 31, 1998 to $989,000 for the quarter ended March 
31, 1999. The increase in absolute dollars was primarily a result of 
increased personnel and related overhead necessary to support the Company's 
increased scale of operations, including the additional costs associated with 
being a publicly traded company. 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

Amortization of deferred compensation associated with employee stock option 
grants totaling approximately $295,000 was recognized in the three months 
ended March 31, 1999. Including the $163,000 of amortized deferred 
compensation associates with the stock options issued to a consultant, the 
total amortization of deferred compensation expenses in the quarter ended 
March 31, 1999 was $458,000. Amortization of deferred stock compensation 
expense is allocated to costs of consulting and support, cost of 
transactional services 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 (EXPENSES)

                                      12
<PAGE>

Net interest income for the quarter ended March 31, 1998 was $30,000 compared 
with net interest income for the quarter ended March 31, 1999 of $190,000. 
The increase in net interest income was primarily due to the interest earned 
on the net proceeds from the Company's initial public offering (IPO).

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1999, the Company had $11.2 million in cash and cash 
equivalents and $7.1 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. In March of 1999 the 
Company sold in a secondary public offering 3,218,440 shares for net proceeds 
of approximately $94.8 million. The cash proceeds had not been received by 
the Company as of March 31, 1999 and as such are classified on the Company's 
March 31, 1999 balance sheet as proceeds receivable. In addition, in April of 
1999, the underwriters of the Company's secondary public offering purchased 
an additional 612,000 shares of the Company's common stock upon the exercise 
of their over-allotment option, generating additional net proceeds of 
approximately $18.2 million.

During the three months ended March 31, 1999, the Company used $1.1 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 provided by investing activities 
during the three months ended March 31, 1999 of $2.5 million was primarily 
attributable the net proceeds from maturities of short-term investments of 
$3.5 million, offset by the purchase of property and equipment of $1.0 
million. Net cash used in financing activities during the three months ended 
March 31, 1999 of $456,000 was primarily attributable to issuance costs 
related to the Company's secondary offering, the repayment of certain debts, 
offset by the proceeds from the issuance of common stock related to options 
exercised. 

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 


                                      13
<PAGE>

therein may not be indicative of changes in the ordering patterns of 
customers or the Company's backlog.

The Company believes that it has sufficient resources 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.

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. NetGravity is currently 
assessing the impact this issue, commonly referred to as the "Year 2000" 
issue, may have on its business and operations. The Company has formed an 
ad-hoc Year 2000 project team to identify and address Year 2000 issues, 
including potential issues with the significant non-IT systems in its 
buildings, plant, equipment and other infrastructure. The Year 2000 project 
team has reviewed the Company's products, is continuing to review the 
Company's IT systems and has recently begun reviewing the Company's non-IT 
systems. NetGravity has not identified any significant non-compliance issues 
with its products that have not already been corrected. The Company expects 
that its review of its IT and non-IT systems will be completed by June 30, 
1999. In addition to its internal reviews, the Company is discussing with its 
significant suppliers and service providers their plans to investigate and 
address their Year 2000 issues. The Company cannot assure you that it will be 
able to identify and accurately evaluate all Year 2000 issues that it faces.

In September 1998, NetGravity 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 for them to interoperate with other systems, the Company cannot assure 
you that its products will not experience Year 2000 problems in the future. 
Any such Year 2000 issues could result in:

         - a decrease in sales of the 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 dedicated resources; or

                                      14
<PAGE>

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

In addition, NetGravity has determined that certain of its software IT 
systems are not currently Year 2000 compliant. The Company believes that its 
software IT systems will become compliant through updates and upgrades 
purchased in the ordinary course of business for reasons unrelated to Year 
2000. However, the Company cannot assure you that the incremental costs of 
such IT software will not materially exceed its preliminary estimates. Higher 
incremental costs of upgrading or replacing its IT software could have a 
material and adverse effect on the Company's business, results of operations 
and financial condition.

As the Company reviews its non-IT systems, it may identify situations that 
present material Year 2000 risks or that will require substantial time and 
material expense to address. In addition, if its customers or its 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. 
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, such delays or 
interruptions could have a material and adverse effect on the Company's 
business, results of operations and financial condition. 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 and 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 and 
adverse effect on the Company's business, financial condition and results of 
operations.

The Company's Year 2000 project team's activities will also include the 
development of contingency plans in the event that 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 that 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 


                                      15
<PAGE>

plans by June 30, 1999. Even if these plans are completed on time and put in 
place, it is possible that unresolved or undetected internal and external 
Year 2000 issues will have a material and adverse effect on the Company's 
business, financial condition and results of operations.

The information set forth above and elsewhere in this Report relating to Year 
2000 issues constitute "Year 2000 Readiness Disclosures," as such term is 
defined by the Year 2000 Information and Readiness Disclosure Act of 1998, 
enacted October 19, 1998 (Public Law 105-271, 112 State. 2386).

FACTORS AFFECTING OUR 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 the Company's 1998 10-K, 
particularly in Item 1 of Part I thereof under the section entitled "Factors 
Affecting our Business, Operating Results and Financial Condition."

         WE HAVE A LIMITED OPERATING HISTORY.

We were founded in September 1995 and commercially released version 1.0 of 
AdServer in May 1996. Accordingly, we have a limited operating history, and 
we face all of the risks and uncertainties encountered by early-stage 
companies. The new and evolving nature of the online interactive marketing 
solutions markets increases these risks and uncertainties. Also, because we 
have a limited operating history, our past results may not be meaningful and 
you should not rely on them as indicators of our future performance.

         WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES.

Since our inception in September 1995, we have incurred substantial losses. 
Our losses were $6.9 million for the year ended December 31, 1997,$11.3 
million for the year ended December 31, 1998 and $3.7 for the quarter ended 
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $26.7 
million.

We anticipate that our expenses relating to developing, marketing and 
supporting our current and future products and services will increase 
substantially in the future. In particular, we expect to spend significantly 
on the following activities:

         - developing new market opportunities for our current and future
           products and services;

                                      16
<PAGE>

         - funding more research and development to improve our current
           solutions and to create new solutions, including the recently
           announced AdServer 4.0;

         - expanding and improving our sales and marketing operations;

         - expanding and enhancing our outsourced interactive marketing solution
           (AdCenter), our enhanced targeting service (Global Profile Service)
           and possible future products and services designed for e-commerce
           merchants and advertising agencies (including our recently announced
           AdCenter for Agencies offering);

         - developing new channels for distributing our products and providing
           our services;

         - expanding and improving our financial and operational infrastructure;
           and

         - broadening our customer support capabilities.

Accordingly, for the foreseeable future, we expect to experience additional 
losses as our expenses for developing, marketing and supporting our current 
solutions and developing new solutions exceed our total revenues. These 
additional losses will increase our accumulated deficit.

         OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND ARE LIKELY TO 
FLUCTUATE SIGNIFICANTLY.

Our revenues, gross margins and other operating results may vary 
significantly from quarter to quarter. The fluctuations may be due to a 
number of factors, many of which are beyond our control. These factors 
include:

         - our or our competitors' introduction of new or enhanced online
           interactive marketing solutions;

         - market acceptance of existing or planned products and services,
           including future versions of AdServer (such as the recently announced
           version 4.0) and AdCenter, our enhanced targeting services (Global
           Profile Service) and possible future products and services designed
           for e-commerce merchants and advertising agencies (including AdCenter
           for Agencies);

         - the time it takes us to sell our services and license and implement
           our products and the size of each transaction;

         - the mix of software licenses, software upgrades, consulting and
           support and transactional services revenues;

                                      17
<PAGE>

         - the amount of advertising spending budgeted by advertisers and direct
           marketers for online interactive marketing;

         - our or our competitors' price changes or changes in pricing models;

         - our customers' failure to renew their AdServer upgrade and support
           contracts;

         - the shift from higher gross margins from software license and upgrade
           revenues to lower gross margins from consulting and support and
           transactional services revenues;

         - the mix of distribution channels through which we sell our products
           and services;

         - our sales and licensing activities in international markets;

         - costs relating to possible acquisitions of technology or businesses;
           and

         - the amounts of royalty payments, amortization charges and other costs
           related to the licensing or acquisition of technology or other
           intangible assets.

Due to all of the foregoing factors, we do not believe that period-to-period 
comparisons of our historical results of operations are good predictors of 
future performance. Furthermore, it is possible that in some future quarters 
our results of operations may fall below the expectations of securities 
analysts and investors. In such event, the trading price of our stock will 
likely be materially and adversely affected.

         WE RELY HEAVILY ON SALES OF ONE PRODUCT FAMILY.

To date, we have generated nearly all of our revenues from the license and 
related upgrades, consulting and support of our AdServer family of software 
products. We expect that our current AdServer family of software products and 
software products in development, together with the related consulting and 
support services, will continue to account for a substantial majority of our 
revenues for the foreseeable future. Therefore, our future financial 
performance is dependent, in significant part, upon the successful 
development, introduction and customer acceptance of new and enhanced 
versions of AdServer and of related new products and services that we may 
develop. We cannot assure you that we will be successful in upgrading 
AdServer or that we will successfully develop new products and services or 
that any new product or service will achieve market acceptance. Consequently, 
factors affecting the pricing of and demand for AdServer, such as 
competition, technological changes, failure of the market for online 
interactive marketing solutions to develop as we expect or lack of customer 
acceptance of AdServer could have a material and adverse effect on our 
business, results of operations or financial condition.

                                      18
<PAGE>

         OUR FUTURE SUCCESS DEPENDS ON THE TIMELY COMPLETION OF NEW SOLUTIONS 
UNDER DEVELOPMENT.

We must successfully complete the development of AdServer 4.0, AdCenter for 
Agencies and the next version of Global Profile Service (which is being 
designed to provide much more detailed consumer profiles than the current 
version). Our future revenues will likely fall below our expectations (and 
the expectations of investors in our common stock) if we do not successfully 
develop, market and support these services. Any actual or expected revenue 
shortfall would likely reduce the trading price of our common stock.

         WE HAVE AN UNPROVEN AND CHANGING BUSINESS MODEL.

Our core business model has been to license software designed to enable our 
customers to directly manage their online interactive marketing activities. 
We believe that it is too early to determine whether this business model will 
be successful in the future. An alternate business model employed by some of 
our competitors (including DoubleClick) is to provide outsourced, 
service-based solutions to customers who choose not to directly manage their 
online interactive marketing activities.

In 1998 we broadened our business by releasing AdCenter for Publishers, a 
service-based service that transfers to us the responsibility for managing 
our customers' online systems and the data generated from their online 
interactive marketing activities, but preserves customers' control over their 
advertising sales functions. We also recently introduced our Global Profile 
Service which allows our customers to more narrowly target consumers through 
the use of anonymous consumer profiles from our centralized database. 
Although revenues from AdCenter and the Global Profile Service to date have 
not been significant, we intend to place more emphasis on developing these 
services in the future. Our increased emphasis on AdCenter and the Global 
Profile Service may not be successful. In particular, AdCenter may not 
compete effectively with current or future outsourced service providers based 
on price, performance or other features. Similarly, our Global Profile 
Service may not be competitive with current or future providers of consumer 
profile data or related targeting services. In addition, we expect to devote 
significant engineering, marketing, sales, consulting and customer support 
resources to enhance AdCenter's and the Global Profile Service's 
competitiveness, scalability and cost-effectiveness. These actions may divert 
resources from our other products and services and may thus harm our core 
AdServer business.

         OUR MARKETS ARE HIGHLY COMPETITIVE.

The market for online interactive marketing solutions is new, intensely 
competitive and rapidly evolving. We expect competition to continue to 
increase both from existing competitors and new market entrants. We believe 
that our ability to compete depends on many factors both within and beyond 
our control, including:

         - the ease of use, performance, features, price and reliability of our
           solutions as compared to those of our competitors;

                                      19
<PAGE>

         - the timing and market acceptance of new solutions and enhancements to
           existing solutions developed by us and our competitors;

         - the quality of our customer service and support; and

         - the effectiveness of our sales and marketing efforts.

In the online advertising market, we compete directly with DoubleClick Inc., 
CMGI, Inc. (through its Engage/Accipiter unit), Excite, Inc. (through its 
MatchLogic unit), AdForce, Inc., Real Media, Inc. and a variety of other 
online advertising service providers. To date, we have focused primarily on 
developing software-based solutions, which we license to our customers, 
although we have recently begun offering an outsourced solution (AdCenter). 
Some of our competitors (including DoubleClick) have adopted a business model 
focused on outsourcing of interactive marketing solutions. These competitors 
have much more experience offering these outsourced solutions and may have 
lower cost structures due, in part, to efficiencies created from the larger 
scale of their operations. If the outsourced model gains popularity over the 
software model in our target market, we cannot assure you that we will be 
able to compete effectively with our current products and services.

In the online direct marketing market, we expect to face indirect competition 
from the vendors of electronic commerce systems, including BroadVision, Inc., 
InterWorld Corporation and Open Market, Inc. among others. In addition, if 
providers of electronic commerce systems begin including advanced online 
direct marketing functionality in their products, this could reduce or 
eliminate the need for separate direct marketing management solutions, 
including our current and future products targeted at the direct marketing 
market. We also encounter 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 we do, 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 to those offered by us, there can be no 
assurance that we would be able to compete effectively.

Many of our current and potential competitors have longer operating histories 
and significantly greater financial, technical, marketing and other resources 
than we do and thus may be able to respond more quickly to new or changing 
opportunities, technologies and customer requirements. Also, many of our 
current and potential competitors have greater name recognition, more 
extensive customer bases and larger proprietary consumer databases. These 
competitors may be able to undertake more extensive promotional activities, 
adopt more aggressive pricing policies, or offer more attractive terms to 
purchasers than we can. 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.

                                      20
<PAGE>

In addition to these current and potential commercial competitors, we also 
face competition from the internal capabilities of some potential customers. 
Some of the largest and most popular online content publishers use internally 
developed interactive marketing solutions rather than the commercial 
solutions offered by NetGravity and our competition. We cannot assure you 
that we will be able to compete successfully with these internally-developed 
solutions.

Increased competition is likely to result in price reductions, reduced gross 
margins and loss of market share, any one of which could impair our finances 
and business prospects. We cannot assure you that we will be able to compete 
successfully against existing or potential competitors or that competitive 
pressures will not materially impair our finances or business prospects.

         WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND PLANS 
FOR EXPANSION.

         WE HAVE A LIMITED OPERATING HISTORY IN OUR INTERNATIONAL MARKETS. We 
have only limited experience in marketing, selling and distributing our 
products and services internationally. Through our three subsidiaries, 
NetGravity Europe Limited, NetGravity Asia Pacific K.K. and NetGravity (Hong 
Kong) Limited, we recently began operations in a number of markets in Europe 
and Asia Pacific. International revenues comprised approximately 28% of our 
total revenues in 1998, 35% of our total revenues in the three months ended 
March 31, 1999 and are expected to comprise a significant portion of our 
total revenues in 1999.

         THERE ARE CERTAIN RISKS AND CHALLENGES INHERENT IN DOING BUSINESS IN 
INTERNATIONAL MARKETS. Such risks include:

         - difficulties in collecting accounts receivable and longer collection
           periods;

         - changing and conflicting regulatory requirements;

         - potentially adverse tax consequences;

         - tariffs and general export restrictions, including export controls
           relating to encryption technology;

         - difficulties in staffing and managing foreign operations;

         - political instability;

         - fluctuations in currency exchange rates as evidenced by the ongoing
           Asia Pacific financial crisis;

         - the uncertain impact of the introduction of the Euro;

                                      21
<PAGE>

         - 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.

         INTERNATIONAL MARKETS FOR ONLINE INTERACTIVE MARKETING ARE IN THEIR 
VERY EARLY STAGES OF DEVELOPMENT. International markets for online 
advertising and direct marketing are in earlier stages of development than in 
the United States, and we cannot assure you 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.

         WE NEED TO DEVELOP LOCALIZED VERSIONS OF OUR PRODUCTS AND TO EXPAND 
OUR INTERNATIONAL PRESENCE. We believe that having localized versions of our 
products may become an important competitive factor for international sales 
in the future. We also believe that our international sales may be limited in 
the future if we do not increase our physical presence abroad, including 
hiring additional personnel for local service and support. In addition, 
before we can efficiently deliver transactional services to international 
customers, we must establish local hosting centers from which to deliver 
these services. The development of localized versions of our products and the 
expansion of our international presence will likely require significant 
resources.

Any of the above factors could have a material and adverse affect on our 
international sales and operations, which, in turn, could adversely affect 
our overall business, operating results and financial condition.

         OUR SUCCESS DEPENDS ON CERTAIN KEY EMPLOYEES.

Our future performance will depend largely on the efforts and abilities of 
our key technical, customer support, sales and managerial personnel and on 
our ability to retain them. We have in the past experienced difficulty in 
hiring qualified technical, customer support, sales and managerial personnel. 
Our success will depend on our ability to attract and retain such personnel 
in the future. In addition, the loss of any of our current 


                                      22
<PAGE>

executive officers could materially and adversely affect our business, 
financial condition and operating results.

         WE MAY ACQUIRE OTHER COMPANIES' PRODUCT LINES, TECHNOLOGIES OR 
BUSINESSES.

As part of our growth strategy, we may in the future attempt to purchase 
other companies' product lines, technologies or businesses. In connection 
with any such acquisitions, we may pay cash, issue stock, incur debt or be 
required to amortize expenses related to goodwill and other intangible 
assets. For example, in September 1998 we paid $2 million to MatchLogic for 
rights to use certain of MatchLogic's proprietary consumer profile databases 
for limited purposes. We accounted for this transaction as a purchase of an 
intangible asset, which is being amortized over its expected useful life of 
three years. In addition to these issues, acquisitions of companies and 
businesses involve numerous risks, including difficulties in the assimilation 
of the operations, technologies, products and personnel of the acquired 
company, the diversion of management's attention from other business 
concerns, risks of entering markets in which we have no or limited direct 
prior experience and the potential loss of key employees of the acquired 
company. From time to time, we have engaged in discussions with third parties 
concerning potential acquisitions of product lines, technologies and 
businesses. In the event that such an acquisition were to occur, our 
business, results of operations, financial condition and the trading price of 
our common stock may be materially and adversely affected due to the factors 
described above.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
DERIVATIVES AND FINANCIAL INSTRUMENTS

         FOREIGN CURRENCY HEDGING INSTRUMENTS

The Company transacts business in various foreign currencies. Accordingly, 
the Company is subject to exposure from adverse movements in foreign currency 
exchange rates. This exposure is primarily related to revenues and operating 
expenses in the U.K. and Japan denominated in the respective local currency. 
However, as of March 31, 1999, the Company had no hedging contracts 
outstanding.

The Company currently does not use financial instruments to hedge operating 
expenses in the U.K. or Japan denominated in the respective local currency. 
Instead, the Company believes that a natural partial hedge exists, because 
local currency revenues will substantially offset the operating expenses 
denominated in the respective local currency. The Company assesses the need 
to utilize financial instruments to hedge currency exposures on an ongoing 
basis.

The Company does not use derivative financial instruments for speculative 
trading purposes, nor does the Company hedge its foreign currency exposure in 
a manner that entirely offsets the effects of changes in foreign exchange 
rates. The Company regularly 


                                      23
<PAGE>

reviews its hedging program and may as part of this review determine at any 
time to change its hedging program.

         FIXED INCOME INVESTMENTS

The Company's exposure to market risks for changes in interest rates relates 
primarily to investments in debt securities issued by U.S. government 
agencies and corporate debt securities. The Company places its investments 
with high credit quality issuers and, by policy, limits the amount of the 
credit exposure to any one issuer.

The Company's general policy is to limit the risk of principal loss and 
ensure the safety of invested funds by limiting market and credit risk. All 
highly liquid investments with a maturity of three months or less at the date 
of purchase are considered to be cash equivalents; investments with 
maturities between three and twelve months are considered to be short-term 
investments; investments with maturities in excess of twelve months are 
considered to be long-term investments. The weighted average pre-tax interest 
rate on the investment portfolio as of March 31, 1999 is approximately 5.08%.

                          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 and declared effective by the Commission 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 an
aggregate offering price of $1.8 million (such offering, the "IPO"). 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 IPO. In addition to underwriters' discounts and
commissions, the Company reasonably estimates that it incurred approximately
$1.3 million in additional expenses related to the IPO, leaving it with
approximately $25.9 million in net proceeds. 

From June 11, 1998 through March 31, 1999, the Company has used, from the net 
proceeds of the IPO, approximately (i) $3.3 million to fund certain capital 
expenditures, 

                                      24
<PAGE>

(ii) $13.8 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) $1.1 million to repay certain indebtedness. In 
addition, the Company used net proceeds from the IPO 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 IPO does not represent a material 
change in the use of proceeds described in the final prospectus related to 
the IPO. Pending other uses, the Company has invested most of the remaining 
net proceeds in investment grade, short-term interest bearing securities.

None of the payments described in this Item 2(d) 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.

         (a) APPOINTMENT OF NEW CHIEF EXECUTIVE OFFICER. Effective as of 
April 20, 1999, the Company's Board of Directors appointed Eric W. Spivey as 
the Company's Chief Executive Officer and President. John W. Danner, a 
co-founder of the Company and its former Chief Executive Officer, continues 
to serve as the Company's Chairman of the Board.

         (b) RESIGNATION OF VICE PRESIDENT OF NORTH AMERICAN SALES. Effective 
April 23, 1999, John K. Donnelly resigned his position as the Company's Vice 
President of North American Sales to pursue other opportunities. Susan 
Atherton, the Company's Vice President of Worldwide Sales, has assumed the 
duties of Mr. Donnelly.

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

         (a) The following exhibit is attached hereto.


         27.1 Financial Data Schedule (First Quarter 1999).

                                      25
<PAGE>

         (b)  Not Applicable.





                                    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 May 17, 1999.

NETGRAVITY, INC.



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


                                      26