<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

(Mark One)

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

     For the quarterly period ended September 30, 2000

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

     For the transition period from ___________to ______________

                        Commission file number: 000-31109

                                   ----------

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


              Delaware                                      94-3297861
    (State or other jurisdiction                         (I.R.S. Employer
   of incorporation or organization)                  Identification Number)

           339 North Bernardo Avenue, Mountain View, California 94043
               (Address of Principal Executive Offices) (Zip Code)

                                 (650) 567-5400
              (Registrant's telephone number, including area code)

                                   ----------

     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 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 [ ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                                                       Outstanding at
                Class                                 October 31, 2000
                -----                                 ----------------
     Common Stock, $0.001 par value                   22,768,083 shares

================================================================================

<PAGE>

                                 VALICERT, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                          Page
                          PART I. FINANCIAL INFORMATION                                                   ----
<S>       <C>                                                                                             <C>
Item 1.   Financial Statements.

          Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999.........      3

          Condensed Consolidated Statements of Operations for the quarters and nine months ended
          September  30, 2000 and 1999.................................................................      4

          Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000
          and 1999.....................................................................................      5

          Notes to Condensed Consolidated Financial Statements.........................................      6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations........      9

Item 3.   Quantitative and Qualitative Disclosures About Market Risk...................................     21


                                        PART II. OTHER INFORMATION

Item 1.   Legal Proceedings............................................................................     22

Item 2.   Changes in Securities and Use of Proceeds....................................................     22

Item 3.   Defaults upon Senior Securities..............................................................     22

Item 4.   Submission of Matters to Vote of Security Holders............................................     22

Item 5.   Other Information............................................................................     23

Item 6.   Exhibits and Reports on Form 8-K.............................................................     23

SIGNATURES.............................................................................................     24
</TABLE>

  VALICERT(R) and the ValiCert logo are registered trademarks of ValiCert, Inc.

                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                 VALICERT, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                               September 30,  December 31,
                                                                                   2000         1999
                                                                               ------------   -----------
<S>                                                                              <C>          <C>
                                          ASSETS
Current assets:
     Cash and cash equivalents ...............................................   $  43,211    $  14,023
     Short-term investments ..................................................          62        3,404
     Accounts receivable, net ................................................       3,051        1,079
     Prepaid expenses and other current assets ...............................       1,562          227
                                                                                 ---------    ---------
          Total current assets ...............................................      47,886       18,733


     Property and equipment, net .............................................       5,108        3,848
     Goodwill and other intangible assets, net ...............................      12,087       14,757
     Other assets ............................................................         534          354
                                                                                 ---------    ---------
               Total assets ..................................................   $  65,615    $  37,692
                                                                                 =========    =========


                        LIABILITIES, REDEEMABLE PREFERRED STOCK AND
                             STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
     Accounts payable ........................................................   $     800    $   1,762
     Accrued liabilities .....................................................       4,807        1,385
     Deferred revenue ........................................................       2,350          814
     Short-term notes and current portion of long-term obligations ...........       1,039        1,447
                                                                                 ---------    ---------
          Total current liabilities ..........................................       8,996        5,408
          Long term and other liabilities .....................................      2,563        2,314
                                                                                 ---------    ---------
               Total liabilities .............................................      11,559        7,722
                                                                                 ---------    ---------
Redeemable convertible preferred stock .......................................        --         34,256

Stockholders' equity (deficiency)
     Common stock and additional paid-in capital .............................     102,573       20,002
     Deferred stock compensation .............................................      (8,344)      (5,843)
     Notes receivable from stockholders ......................................      (2,084)        (611)
     Accumulated other comprehensive loss ....................................        (311)        --
     Accumulated deficit .....................................................     (37,778)     (17,834)
                                                                                 ---------    ---------
          Total stockholders' equity (deficiency) ............................      54,056       (4,286)
                                                                                 ---------    ---------
               Total liabilities, redeemable preferred stock and stockholders'
                  equity (deficiency) ........................................   $  65,615    $  37,692
                                                                                 =========    =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                                 VALICERT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                        Three Months          Nine Months Ended
                                                                     Ended September 30,        September 30,
                                                                     --------------------    --------------------
                                                                       2000        1999        2000        1999
                                                                     --------    --------    --------    --------
<S>                                                                  <C>         <C>         <C>         <C>
Revenues:
     Software licenses ...........................................   $  2,296    $    130    $  5,390    $    248
     Subscription fees and other services ........................        991         145       2,291         446
                                                                     --------    --------    --------    --------
          Total revenues .........................................      3,287         275       7,681         694

Cost of revenues:
     Software licenses ...........................................        348          23         743          41
     Subscription fees and other services ........................      1,642          30       4,005         102
                                                                     --------    --------    --------    --------
          Total cost of revenues .................................      1,990          53       4,748         143
                                                                     --------    --------    --------    --------
Gross profit .....................................................      1,297         222       2,933         551
                                                                     --------    --------    --------    --------

Operating expenses:
     Research and development ....................................      2,837       1,245       7,249       2,980
     Sales and marketing .........................................      3,680       1,176       9,279       2,791
     General and administrative ..................................      1,082         313       2,706         874
     Amortization of intangibles .................................        811        --         2,431        --
     Amortized stock compensation ................................        634          73       1,669          73
                                                                     --------    --------    --------    --------
          Total operating expenses ...............................      9,044       2,807      23,334       6,718
                                                                     --------    --------    --------    --------
Operating loss ...................................................     (7,747)     (2,585)    (20,401)     (6,167)
Interest and other income, net ...................................        341         148         457         141
                                                                     --------    --------    --------    --------
Net loss .........................................................   $ (7,406)   $ (2,437)   $(19,944)   $ (6,026)
                                                                     ========    ========    ========    ========
       Basic and diluted loss per share ..........................   $  (0.49)   $  (8.14)   $  (3.01)   $ (35.84)
                                                                     ========    ========    ========    ========
       Shares used in computation of basic and diluted
          net loss per share......................................     15,189         299       6,628         168
                                                                     ========    ========    ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>

                                 VALICERT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                       September 30,
                                                                                    --------------------
                                                                                      2000       1999
                                                                                    --------    --------
<S>                                                                                 <C>         <C>
Cash flow from operating activities:
   Net loss .....................................................................   $(19,944)   $ (6,026)
   Adjustments to reconcile net loss used in operating activities:
     Depreciation................................................................      1,107         258
     Amortization of deferred stock compensation ................................      2,431
     Amortization of goodwill and intangibles ...................................      1,669          73
     Changes in assets and liabilities:
        Accounts receivable .....................................................     (1,672)       (685)
        Prepaid expenses and other current assets ...............................     (1,335)        (32)
        Other assets ............................................................       (180)         12
        Accounts payable and accrued liabilities ................................      2,460         997
        Deferred revenue ........................................................      1,536         447
        Other liabilities .......................................................        --           41
                                                                                    --------    --------
          Net cash used in operating activities .................................    (13,928)     (4,915)
                                                                                    --------    --------
Cash flows from investing activities:
   Property and equipment additions .............................................     (2,367)     (1,144)
   Sale (purchase) of short-term investments ....................................      3,116     (15,000)
                                                                                    --------    --------
          Net cash provided by (used in) investing activities ...................        749     (16,144)
                                                                                    --------    --------

Cash flows from financing activities:
   Proceeds from initial public offering, net....................................     41,128         --
   Exercise of common stock options..............................................      1,387          16
   Exercise of preferred stock options and warrants..............................         96         249
   Proceeds from issuance of preferred stock, net ...............................        --       22,934
   Repurchase of preferred and common stock......................................        (85)          2
   Proceeds from (repayment of) borrowings, net..................................       (159)      1,016
                                                                                    --------    --------
          Net cash provided by financing activities .............................     42,367      24,217
                                                                                    --------    --------
Net increase (decrease) in cash and equivalents .................................     29,188       3,158
Cash and equivalents--beginning of period .......................................     14,023       1,163
                                                                                    --------    --------
Cash and equivalents--end of period .............................................   $ 43,211    $  4,321
                                                                                    ========    ========
Noncash investing and financing activities:
   Common stock issued in exchange for stockholder notes ........................   $    300    $    540
                                                                                    ========    ========
Supplemental disclosure of cash flow information
   Cash paid during the period for interest......................................   $    255    $     52
                                                                                    ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>

                                 VALICERT, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   Basis of Presentation

     The accompanying unaudited interim condensed consolidated financial
statements of ValiCert, Inc. and its subsidiaries ("the Company") reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented in conformity with
generally accepted accounting principles for the interim financial information.
Such adjustments are of a normal recurring nature. Intercompany balances and
transactions have been eliminated in consolidation.

     The statements have been prepared in accordance with the regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles.
The result of operations for the three and nine-month periods ended September
30, 2000 are not necessarily indicative of the operating results to be expected
for the full fiscal year or future operating periods. The information included
in this report should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Registration
Statement on Form S-1, as amended, declared effective by the Securities and
Exchange Commission on July 27, 2000.


2.   Initial Public Offering

     In July 2000, the Company completed an initial public offering in which it
sold 4,000,000 shares of common stock at $10 per share and, subsequently, an
additional 600,000 shares of common stock were sold at $10 per share in
connection with the exercise of the underwriters' over allotment option. The
total proceeds from this transaction were approximately $41.0 million, net of
underwriters' discounts and other related costs of $5.0 million. Upon the
completion of the offering, all shares of preferred stock were automatically
converted to common stock on a one-for-three basis.


3.   Segment Information, Operations By Geographic Area And Significant
     Customers

     The Company operates primarily in one industry segment: the development and
marketing of Internet cryptographic software products. Geographic revenue
information is based on the ship-to location of the customer. Geographic
long-lived asset information is based on the physical location of the assets at
each period end. No single country outside of the United States accounted for
10% or more of long-lived assets.

                                       6
<PAGE>

                                 VALICERT, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                                       Three Months          Nine Months
                                    Ended September 30,   Ended September 30,
                                    -------------------   -------------------
                                     2000       1999       2000       1999
                                    ------     ------     ------     ------
                                                    (in thousands)
     Revenues:
     North America ............     $1,221     $  229     $4,138     $  542
     Japan ....................        921       --        1,164          3
     United Kingdom ...........        469       --          558       --
     Rest of the world ........        676         46      1,821        149
                                    ------     ------     ------     ------
                                    $3,287     $  275     $7,681     $  694
                                    ======     ======     ======     ======

4.   Common Stock and Net Loss Per Share

     The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share:

<TABLE>
<CAPTION>
                                                            Three Months         Nine Months Ended
                                                         Ended September 30,       September 30,
                                                        --------------------    --------------------
                                                          2000        1999        2000        1999
                                                        --------    --------    --------    --------
                                                          (in thousands, except per share amounts)
<S>                                                     <C>         <C>         <C>         <C>
Net loss ............................................   ($ 7,406)   ($ 2,437)   ($19,944)   ($ 6,026)
                                                        ========    ========    ========    ========
Weighted average common shares outstanding ..........     17,075       1,185       8,527         478
Weighted average common shares outstanding subject to
   repurchase and held in escrow ....................     (1,886)       (886)     (1,899)       (310)
                                                        --------    --------    --------    --------
Shares used in computation, basic and diluted .......     15,189         299       6,628         168
                                                        ========    ========    ========    ========
Loss per share, basic and diluted ...................   ($  0.49)   ($  8.14)   ($  3.01)   ($ 35.84)
                                                        ========    ========    ========    ========
</TABLE>


     At September 30, 2000 and 1999, options to purchase 3,497,161 and 1,921,074
shares of common stock, and warrants to purchase shares of common stock, were
excluded from the calculation of net loss per share, as their inclusion would be
antidilutive.


5.   Comprehensive Loss

     The Company reports comprehensive income (loss) in accordance with SFAS No.
130, Reporting Comprehensive Income, which established standards for reporting
and developing comprehensive income. Comprehensive loss consists of the
Company's reported net loss and the unrealized holding losses on investments and
are as follows:

<TABLE>
<CAPTION>
                                          Three Months          Nine Months Ended
                                       Ended September 30,         September 30,
                                       --------------------    --------------------
                                         2000        1999        2000        1999
                                       --------    --------    --------    --------
                                                      (in thousands)
<S>                                    <C>         <C>         <C>          <C>
Net loss ...........................   ($ 7,406)   ($ 2,437)   ($19,944)   ($ 6,026)
Net unrealized loss on
  investments.......................        (23)       --          (311)       --
                                       --------    --------    --------    --------
Total comprehensive loss ...........   ($ 7,429)   ($ 2,437)   ($20,255)   ($ 6,026)
                                       ========    ========    ========    ========
</TABLE>

                                       7
<PAGE>

                                 VALICERT, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.   Recent Accounting Pronouncements

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The Company must adopt the guidance in SAB 101 during the
fourth quarter of 2000, and the effects, if any, are required to be recorded
through a retroactive, cumulative-effect adjustment as of the beginning of the
year, with a restatement of all prior interim quarters in the year. Management
believes that this pronouncement will not have a significant impact on the
Company's financial position, results of operations or cash flows.

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The
Company is required to adopt SFAS No. 133 effective January 1, 2001. Although
management has not fully assessed the implications of SFAS No. 133, management
believes that this statement will not have a significant impact on the Company's
financial position, results of operations or cash flows.

                                       8
<PAGE>

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

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements, which
reflect our current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in the "Factors That May Affect Results
of Operations" and elsewhere in this report, that could cause actual results to
differ materially from historical results or those anticipated. In this report,
the words "anticipates," "believes," "expects," "future," "intends," and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report.

     The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with management's
discussion and analysis of financial condition and results of operations set
forth in the final prospectus in our registration statement on Form S-1 (No.
333-37020) on file with the SEC.


Overview

Business

     We develop and market software products and services that organizations use
to conduct valid, secure and provable transactions over the Internet. From 1996
through 1998, we primarily focused our activities on:

     .    conducting research and development,

     .    raising capital,

     .    recruiting personnel and

     .    establishing distribution channels for our software products.

     We started commercial shipments of our validation authority software
products during the first quarter of 1999, and substantially all of our revenues
have come from the licensing of our validation authority products. We also offer
secure data transfer products and digital receipt products and services, which
we obtained from our acquisition of Receipt.com in December 1999. During the
quarter ended September 30, we introduced our Document Authority and Transaction
Authority products. As of September 30, 2000, we had over 100 customers,
including Hanwha Corporation, PricewaterhouseCoopers, Society for Worldwide
Interbank Financial Telecommunication, or S.W.I.F.T., Unisys and Visa.

The general terms of our contracts

     We sell our products and services to enterprise end users who use them to
conduct business within their organization and with their trading partners. Our
contracts with enterprise end users for our validation authority document
authority, transaction authority and digital receipt products include a
renewable subscription fee that entitles them to utilize a stated number of
transactions during a specified period and receive maintenance and support
services. These customers are required to renew their subscription to continue
using our products and services after expiration of the initial period.
Enterprise end users who purchase our secure data transfer products enter into
perpetual license arrangements for an up front fee and contract for annual
maintenance and support.

     We also sell our products and services to service provider customers who
use them to implement their branded validation and digital receipt products and
services. Our contracts with these customers specify a combination of an initial
software license fee, a renewable subscription fee providing rights similar to
those received by corporate end users, and optional maintenance and support
fees.


Revenue recognition policy

     During the second quarter of 2000, we introduced new contract arrangements
with our enterprise end-user and service provider customers related to
subscription fees, which require us to provide additional services during the
subscription period.

                                       9
<PAGE>

These fees will be recognized ratably over the subscription period, typically
one year. By contrast, our previous contract arrangements, which did not require
ongoing service obligations, typically resulted in recognition of license
revenues upon product shipment. Under these new arrangements the customer is
entitled to receive services and use the license over the license term or the
utilization of a stated number of transactions, if earlier. The fee for the
arrangement will be recognized ratably over the license term and accelerated if
the customer utilizes the stated maximum number of transactions before the
expiration of the term. Upon the earlier of the expiration of the license term
or utilization of the specified transactions, the customer will be required to
pay an additional fee if the customer desires to continue to use the software.
We do not intend to grant any concessions for underutilized transactions.

     Our revenues come from software license fees, subscription fees, consulting
services, and maintenance and support. Software license revenues are comprised
of upfront fees for the use of our software products. We recognize revenue from
license fees when:

     .    an agreement has been signed,

     .    the product has been delivered,

     .    vendor-specific objective evidence exists to allocate a portion of the
          total fee to any undelivered elements of the arrangement,

     .    the fee is fixed or determinable, and

     .    collectibility is probable.

     When we deliver our software products electronically, we consider the sale
complete when we provide the customer with the access codes for immediate
possession of the software. When contracts contain multiple product and service
elements, we account for the revenue related to these elements using the
residual method as current accounting standards require. We recognize revenues
when the fees are fixed and determinable. For those arrangements that include
fees that may not be fixed or determinable at the time of shipment, we recognize
revenue when these fees are due and payable. If we do not consider
collectibility probable, we recognize the revenue when the fee is collected. Any
arrangements that include extended payment terms, cancellation privileges, trial
periods or rights to return or exchange software products will result in the fee
not being fixed and determinable.

     If maintenance and support or consulting services are included in a license
agreement, amounts related to these services are allocated based on vendor-
specific objective evidence. We recognize future subscription fees ratably over
the related service period. Customer contracts that require delivery of
unspecified additional software products in the future are accounted for as
subscriptions, and we recognize this revenue ratably over the term of the
arrangement beginning with the delivery of the first product. We recognize
consulting revenue as these services are provided to the customer. We recognize
revenue from maintenance and support arrangements on a straight-line basis over
the life of the agreement, which is typically one year.


Acquisition of Receipt.com

     In executing our product development plans, we consider both internal
research and development and the acquisition or licensing of emerging
technologies from third parties. We believe that time-to-market is critical to
success in the rapidly evolving Internet security infrastructure market, where
we must compete with well-established companies and where our products must
integrate with the predominant operating systems and network protocols within
the enterprise computing environment. We must continually evaluate whether it is
more efficient and effective to develop a given solution internally, or to
license or acquire a technology. We acquired Receipt.com in December 1999 for
approximately $21.2 million in common and preferred stock and the assumption of
liabilities. We accounted for the acquisition using the purchase method of
accounting. Receipt.com is a provider of secure data transfer software and, at
the date of acquisition, was in the process of developing its digital receipt
software product.

                                       10
<PAGE>

     We have incurred substantial costs to develop our technologies and software
products, to recruit and train personnel for our engineering, sales and
marketing and technical support organizations, and to establish an
administrative department. We have incurred net losses in each year of operation
and had an accumulated deficit of $37.8 million as of September 30, 2000. We
expect that our operating expenses will increase substantially in future periods
as we continue to grow our domestic and international sales and marketing
organizations, increase research and development, broaden technical support
services and expand our data center operations. We also expect to incur non-cash
expenses relating to amortization of deferred stock compensation, goodwill and
other intangible assets. We have incurred losses and expect to continue to incur
losses.


Results of Operations

Three months ended September 30, 2000 and 1999

Revenues
--------

     Revenues increased to $3.3 million for the three months ended September 30,
2000 from $275,000 for the three months ended September 30, 1999 due to
increased sales of software licenses of $2.2 million and increased subscription
fees and other services of $846,000. Revenues for the three months ended
September 30, 2000 included $2.3 million for software license revenues and
$991,000 for subscription fees and other services revenues.


Cost of revenues
----------------

     Cost of software license revenues.  Cost of software license revenues
consists of royalty costs related to technology licensed from third parties.
These costs increased to $348,000 for the three months ended September 30, 2000
from $23,000 for the three months ended September 30, 1999 due to increased
software license revenues. Cost of software license revenues as a percentage of
software license revenues decreased to 15.2% for the three months ended
September 30, 2000 from 17.7% for the three months ended September 30, 1999 as a
result of the software license revenues increasing at a more rapid rate than the
associated costs.

     Cost of subscription fees and other services revenues.  Cost of
subscription fees and other services relate to operating our secure data center
and providing consulting and support services. The cost of subscription fees and
other services revenues increased to $1.6 million for the three months ended
September 30, 2000 from $30,000 for the three months ended September 30, 1999.
During the three months ended September 30, 2000, these costs included
compensation and other personnel-related expenses of $891,000 and depreciation
of $348,000. In addition, $937,000 of this increase was due to the inclusion of
expenses related to the operation of our secure data center that were included
in cost of revenues for the first time during the quarter ended March 31, 2000,
as the data center became operational at the end of December 1999. An additional
$507,000 of the increase related to salaries and other personnel-related costs
for consulting and support services. As a result of these expenses, the cost of
subscription fees and other service revenues increased to 165.7% of subscription
fees and other services revenue for the three months ended September 30, 2000
from 20.7% for the three months ended September 30, 1999.


Operating expenses
------------------

     Research and development.  Research and development expenses consist of
salaries and other personnel-related costs, third-party consulting services, and
the costs of facilities and computer equipment which did not meet our
capitalization threshold. Research and development expenses increased to $2.8
million during the three months ended September 30, 2000 from $1.2 million
during the three months ended September 30, 1999, an increase of 127.9%, as we
continued to invest in the design, testing and deployment of our products and
services. Of this increase, $1.2 million related to increases in salaries and
other personnel-related costs. Research and development expenses as a percentage
of revenues decreased to 86.3% for the three months ended September 30, 2000
from 452.7% for the three months ended September 30, 1999 as a result of the
increase in our revenues.

                                       11
<PAGE>

     Sales and marketing.  Sales and marketing expenses consist of costs related
to salaries and other personnel-related costs, sales commissions, tradeshows,
marketing programs, travel, facilities and computer equipment. Sales and
marketing expenses increased to $3.7 million during the three months ended
September 30, 2000 from $1.2 million during the three months ended September 30,
1999, an increase of 212.9%, as we continued to expand our domestic and
international direct sales organization and increased our marketing efforts. Of
this increase, $1.6 million related to salaries, commissions and other
personnel-related costs. Sales and marketing expenses as a percentage of
revenues decreased to 112.0% for the three months ended September 30, 2000 from
427.6% for the three months ended September 30, 1999 as a result of the increase
in our revenues.

     General and administrative.  General and administrative expenses consist of
salaries and other personnel-related costs for our administrative, finance and
human resources employees; legal and accounting services; and facilities costs.
General and administrative expenses increased to $1.1 million during the three
months ended September 30, 2000 from $313,000 during the three months ended
September 30, 1999, an increase of 245.7%. Of this increase, $387,000 related to
salaries and other personnel-related costs and $186,000 related to legal,
accounting and other consulting services. General and administrative expenses as
a percentage of revenues decreased to 32.9% for the three months ended September
30, 2000 from 113.8% for the three months ended September 30, 1999, primarily as
a result of the increase in our revenues.

     Amortization of intangibles.  On December 30,1999, we acquired Receipt.com
in a transaction which was recorded using the purchase method of accounting.
With this purchase, we recorded goodwill of $12.5 million and other intangibles
of $2.3 million. An expense of $811,000 was recorded in the quarter ended
September 30, 2000 for the amortization of goodwill over a five year period and
other intangibles over three years.

     Amortization of stock compensation.  Deferred stock compensation represents
the difference between the exercise price of stock options granted and the
estimated fair market value of the underlying common stock on the date of the
grant. As of December 31, 1999, we had recorded deferred stock compensation
costs of $3.7 million for stock options we assumed as part of our acquisition of
Receipt.com and an additional $2.3 million related to the grant of other
employee stock options. Deferred stock compensation costs are being amortized
over approximately four years, which resulted in an expense of $634,000 during
the three months ended September 30, 2000. We incurred additional deferred stock
compensation of $600,000 related to stock options granted during the three
months ended September 30, 2000.

     Interest and other income, net.  Interest and other income, net, consists
of interest earned on cash, cash equivalents, short-term investments offset by
interest expense, primarily incurred on equipment lease obligations, and foreign
currency translation adjustments. Net interest income was $341,000 during the
three months ended September 30, 2000 and $148,000 during the three months ended
September 30, 1999.

     Income taxes.  We have incurred net losses for federal and state tax
purposes and have not recognized any material tax provision or benefit. As of
December 31, 1999, we had net operating loss carryforwards of $17.8 million for
federal income tax purposes and $11.4 million for state income tax purposes.
These net operating loss carryforwards expire at various times through 2004 if
they are not used.

     We have placed a valuation allowance against our net deferred tax assets to
reduce them to amounts that we believe are more likely than not to be realized.
The allowance totaled $8.0 million at December 31, 1999, resulting in no net
deferred asset. We evaluate on a quarterly basis the recoverability of net
deferred tax assets and the level of the valuation allowance. When we have
determined that it is more likely than not that the net deferred tax assets are
realizable, we will reduce the valuation allowance.


Nine months ended September 30, 2000 and 1999

Revenues
--------

     Revenues increased to $7.7 million for the nine months ended September 30,
2000 from $694,000 for the nine months ended September 30, 1999 due to increased
sales of software licenses in the amount of $5.1 million related to licenses of
our products and increased subscription fees and other services in the amount of
$1.8 million related to increased consulting and support services. Revenues for
the nine months ended September 30, 2000 included $5.4 million for software
license revenues and $2.3 million for subscription fees and other services
revenues.

                                       12
<PAGE>

Cost of revenues
----------------

     Cost of software license revenues.  Cost of software license revenue
increased to $743,000 for the nine months ended September 30, 2000 from $41,000
for the nine months ended September 30, 1999 due to increased software license
revenues. Cost of software license revenues as a percentage of software license
revenues decreased to 13.8% for the nine months ended September 30, 2000 from
16.5% for the nine months ended September 30, 1999 as a result of greater
software license revenues increasing at a more rapid rate than the associated
costs.


     Cost of subscription fees and other services revenues.  Cost of
subscription fees and other services increased to $4.0 million for the nine
months ended September 30, 2000 from $102,000 for the nine months ended
September 30, 1999. This increase was due to the inclusion of expenses related
to the operation of our secure data center, which were included in cost of
revenues for the first time during the quarter ended March 31, 2000, as the data
center became operational at the end of December 1999. The increase also
included $875,000 related to compensation and other personnel-related expenses
and $620,000 related to depreciation. Cost of subscription fees and other
service revenues was 174.8% of subscription fees and other services revenue for
the nine months ended September 30, 2000 and 22.9% for the nine months ended
September 30, 1999.


Operating expenses
------------------

     Research and development.  Research and development expenses increased to
$7.2 million for the nine months ended September 30, 2000 from $3.0 million for
the nine months ended September 30,1999, an increase of 143.3%, as we continued
to invest in the design, testing and deployment of our products and services. Of
the increase, $3.2 million related to increases in salaries and other
personnel-related costs. Research and development expenses as a percentage of
revenues decreased to 94.4% for the nine months ended September 30, 2000 from
429.4% for the nine months ended September 30,1999 as a result of the increase
in our revenues.

     Sales and marketing.  Sales and marketing expenses increased to $9.3
million for the nine months ended September 30, 2000 from $2.8 million for the
nine months ended September 30,1999, an increase of 232.5%, as we continued to
expand our domestic and international direct sales organization and increased
our marketing efforts. Of this increase, $4.2 million related to salaries,
commissions and other personnel-related costs; $902,000 related to tradeshows
and marketing programs; and $689,000 related to increased travel costs. Sales
and marketing expenses as a percentage of revenues decreased to 120.8% of
revenues for the nine months ended September 30, 2000 from 402.2% of revenues
for the nine months ended September 30,1999 as a result of the increase in our
revenues.

     General and administrative.  General and administrative expenses increased
to $2.7 million for the nine months ended September 30, 2000 from $874,000 for
the nine months ended September 30,1999, an increase of 209.6%. Of this
increase, $965,000 related to salaries and other personnel-related costs and
$531,000 related to increased legal, accounting and other consulting services.
General and administrative expenses as a percentage of revenues decreased to
35.2% of revenues for the nine months ended September 30, 2000 from 125.9% for
the nine months ended September 30,1999 as a result of the increase in our
revenues.

     Amortization of intangibles.  On December 30,1999, we acquired Receipt.com
in a transaction which was recorded using the purchase method of accounting.
With this purchase, we recorded goodwill of $12.5 million and other intangibles
of $2.3 million. An expense of $2.4 million was recorded during the nine months
ended September 30, 2000 for the amortization of goodwill over a five year
period and other intangibles over three years.

     Amortization of stock compensation.  As of December 31, 1999, we had
recorded deferred stock compensation costs of $3.7 million for stock options we
assumed as part of our acquisition of Receipt.com and an additional $2.3 million
related to the grant of other employee stock options. Deferred stock
compensation costs are being amortized over approximately four years on the
single option method, which resulted in an expense of $1.7 million during the
nine months ended September 30, 2000.

     Interest and other income, net.  Net interest income increased to $457,000
for the nine months ended September 30, 2000 from a net income of $141,000 for
the nine months ended September 30,1999 due to an increased level of cash
available for investment, primarily from the proceeds from our initial public
offering in July 2000.

     You should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance due to our limited operating
history, the early stage of our markets and factors discussed in Factors That
May Affect Future Results of Operations below and in our registration statement
on Form S-1 declared effective by the SEC on July 27, 2000 (SEC file number

                                       13
<PAGE>

333-37020). In particular, because our base of customers and the number of
additional customer licenses we enter into each quarter are still relatively
small, the loss or deferral of a small number of anticipated large customer
orders in any quarter could result in a significant variability in revenues for
that quarter. We acquired Receipt.com in December 1999 and our results of
operations for periods after that acquisition are not and will not be comparable
to our results of operations for prior periods. If in some future periods our
operating results are below the expectations of public market analysts or
investors, the price of our common stock may fall.


Liquidity and Capital Resources

Funding to date
---------------

     In July 2000, we completed an initial public offering of our common stock
that resulted in raising additional equity, net of offering costs, of
approximately $41.0 million. Previous to the public offering, we funded our
operations through the private sale of our equity securities with aggregate net
proceeds of approximately $30.0 million. At September 30, 2000, we had cash and
cash equivalents and short-term investments of $43.2 million. We also have a
bank credit line in the amount of $2.5 million under which we have pledged
substantially all of our assets, including patents and other intellectual
property, to secure borrowings under this facility. There were no borrowings
outstanding under this line as of September 30, 2000. The bank credit line
requires us to maintain a defined quick ratio of 2.5 and a tangible net worth of
$5.0 million. At September 30, 2000, we were in compliance with these financial
covenants.


Uses of cash
------------

     Net cash used in operating activities of $383,000 in 1997, $3.8 million in
1998, $6.6 million in 1999 and $13.9 million in the nine months ended September
30, 2000, was primarily used to fund our operating losses. Net cash used for
operating activities in the nine months ended September 30, 2000 related
primarily to a net operating loss of $19.9 million partially offset by non-cash
depreciation and amortization expenses of $5.2 million. Net cash used for
operating activities in 1999 related primarily to an operating loss of $12.8
million partially offset by non-cash depreciation and amortization expenses of
$3.7 million, an increase in accounts payable of $2.5 million and other changes
in working capital. Net cash used for operating activities in 1997 and 1998
related primarily to funding our operating losses.

     Net cash used in investing activities was $855,000 in 1998 and $4.4 million
in 1999, and primarily related to capital equipment expenditures and net short-
term investments. Net cash from investing activities of $749,000 million for the
nine months ended September 30, 2000 was provided by the sale of short-term
investments offset in part by capital equipment expenditures. Capital equipment
expenditures primarily related to the purchase of computer hardware and
software, office furniture and equipment, and leasehold improvements. We expect
continued increases in capital expenditures and lease commitments due to growth
in operations, infrastructure and personnel.


Sources of cash
---------------

     Net cash provided by financing activities was $830,000 in 1997, $5.3
million in 1998, $23.9 million in 1999 and $42.4 million for the nine months
ended September 30, 2000. Net cash was provided primarily from the sales of
capital stock and, to a more limited extent, borrowings and the exercise of
warrants and stock options.


Future funding requirements
---------------------------

     We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, and our
capital expenditures to execute our business strategy. We anticipate that these
operating expenses and planned capital expenditures will constitute a material
use of our cash resources. We may utilize cash resources to fund acquisitions
of, or investments in, complementary businesses, technologies or product lines.

     We believe that the current cash balances and borrowing available under our
credit facilities will be sufficient to meet our working capital needs for at
least the next 12 months.

                                       14
<PAGE>

After that, we may require additional funds. We may not be able to obtain
adequate or favorable financing at that time. Any additional financing may
dilute your ownership interest in ValiCert. New equity securities could have
rights senior to those of our common stockholders.


Factors That May Affect Future Results of Operations

     In addition to the other information in this report, the following factors
should be considered carefully in evaluating our business before purchasing
shares of our stock.


                          Risks Related to Our Business

Because we have only recently introduced our products and services, it is
difficult for us to evaluate our prospects.

     We introduced our first commercial product in the first quarter of 1999 and
have generated only limited revenues. Because we have a limited operating
history with our products and services, and because our sources of potential
revenue may continue to shift as our business develops, our future operating
results and our future stock prices are difficult to predict. Our success also
depends in part on the rate and timing of the growth and use of public key
infrastructure and electronic payments and other Internet security technologies,
over which we have no control.


Our sales cycle causes unpredictable variations in our operating results, which
could cause our stock price to decline.

     The length of our sales cycle is uncertain, which makes it difficult to
accurately forecast the quarter in which our sales will occur. This may cause
our revenues and operating results to vary from quarter to quarter. We spend
considerable time and expense providing information to prospective customers
about the use and benefits of our products and services without generating
corresponding revenue. Our expense levels are relatively fixed and we do not
know when particular sales efforts will begin to generate revenues.

     Prospective customers of our products and services often require long
testing and approval processes before making a purchase decision. The process of
entering into a licensing arrangement with a potential customer may involve
lengthy negotiations. In the past, our sales cycle has ranged from one to nine
or more months. Our sales cycle is also subject to delays because we have little
or no control over customer-specific factors, including customers' budgetary
constraints and internal acceptance procedures. Because our technology must
often be integrated with the products and services of other vendors, there may
be a significant delay between the use of our software and services in a pilot
system and its commercial deployment by our customers.

     Because the length of our sales cycle is uncertain, we believe that period-
to-period comparisons of our results of operations are not meaningful and should
not be relied upon as indicators of future performance. Our failure to meet
these expectations would likely cause the market price of our common stock to
decline.


We have not been profitable, and if we do not achieve profitability, our
business may fail.

     We have incurred significant net losses. We incurred net losses of $530,000
in 1997, $4.0 million in 1998, $12.8 million in 1999 and $19.9 million in the
nine months ended September 30, 2000. As of September 30, 2000, we had incurred
cumulative losses of $37.8 million. You should not consider recent quarterly
revenue growth as indicative of our future performance. We may not sustain
similar levels of growth in future periods and our revenues could decline. We
expect to continue to increase our sales and marketing, research and development
and general and administrative expenses.

     We will need to generate significantly higher revenues to achieve
profitability. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
If our revenues grow more slowly or decline, if our gross margins do not
improve, or if our operating expenses exceed our expectations, our operating
results will suffer and our stock price may fall.

                                       15
<PAGE>

We rely on, and expect to continue to rely on, a limited number of customers for
a significant percentage of our revenues, and if any of these or other
significant customers stops licensing our software products and services, our
revenues could decline.

     A limited number of customers has accounted for a significant portion of
our revenues. In 1999, Visa accounted for 21.4% of our revenues and
PricewaterhouseCoopers accounted for 13.9% of our revenues. We anticipate that
our operating results in any given period will continue to depend to a
significant extent upon revenues from a small number of customers. We do not
have long-term contracts with our customers that obligate them to license our
software products or use our services. We cannot be certain that we will retain
our customers or that we will be able to obtain new customers. If we were to
lose one or more customers, our revenues could decline.


We do not have an adequate history with the recent change in our licensing
arrangements to predict our revenue or operating results, which may prevent
investors from assessing our prospects.

     We recently introduced a new licensing arrangement that includes a
subscription fee during the license period. This new arrangement will result in
our recognizing subscription fees ratably over the related service period.
Previously, our licensing arrangements resulted in our recognizing the majority
of license revenues upon shipment of software to our customers. We do not have
an adequate history with this new licensing arrangement to be able to predict
customers' acceptance of this arrangement or to forecast our revenue or
operating results accurately.

Because our customers may not renew their annual subscriptions, our revenues may
not increase as anticipated.

     We have only recently made our software products and services commercially
available and we do not have a history of customers renewing their annual
subscriptions with us. If a significant portion of our customers do not renew
their annual subscriptions for our software products and services, our revenues
could decline and our business could be harmed. Our service provider customers
are implementing new business models, which, if not successful, could result in
our service provider customers not renewing their annual subscriptions with us.


Failure to maintain and enter into new strategic alliances could inhibit the
adoption of our products and services.

     One of our significant business strategies has been to enter into strategic
or other similar collaborative alliances to increase the adoption of our
products and services. If we are unable to maintain our strategic alliances or
enter into additional strategic alliances, the adoption of our products and
services would be impeded.

     Our strategic alliances do not, and any future strategic alliances may not,
grant us exclusive marketing or distribution rights. The other parties may not
view their alliances with us as significant for their own businesses. They could
reduce their commitment to us at any time in the future. These parties could
also pursue alternative technologies or develop alternative products and
services, either on their own or in collaboration with others, including our
competitors.


If we fail to manage our potential growth, we may be unable to effectively run
our operations, including the sales, marketing and support of our products.

     Our growth has placed, and any further growth is likely to continue to
place, a significant strain on our resources. If we fail to manage our growth
effectively, we may be unable to provide adequate service to our customers and
our operations may be disrupted. We have grown from 31 employees at December 31,
1998 to 194 employees at September 30, 2000. We have also opened additional
sales offices and have significantly expanded our operations, both in the United
States and abroad, during this time period. To be successful, we will need to
implement additional management information systems, develop our operating,
administrative, financial and accounting systems and controls, and maintain
close coordination among our executive, engineering, accounting, finance,
marketing, sales and operations organizations.

                                       16
<PAGE>

If our data center proves to be unreliable or is subject to failures, our
reputation could be damaged and our business could be harmed.

     An increasing number of our customers require us to provide computer and
communications hardware, software and Internet networking systems to them as an
outsourced data center service. All data centers, whether hosted by us, our
customers, or by an independent third party to which we outsource this function,
are vulnerable to damage or interruption from natural disasters, power loss,
telecommunications failure or other similar events. Our principal executive
offices and data center are located near San Francisco, California in an area
that has been subject to severe earthquakes. We do not have earthquake insurance
on our data center or an operational disaster recovery facility. If an
earthquake or other disaster causes an operations failure, our operations will
be interrupted, our expenses may increase and our revenues may decline.

Our revenue would likely decline if we do not grow and develop our direct sales
and indirect distribution channels.

     Our failure to grow and develop our direct sales channel and increase the
number of our indirect distribution channels could significantly harm our
ability to sell our products and services. We must increase the number of
strategic and other third-party relationships with vendors of Internet-related
systems and application software, resellers and systems integrators. Our channel
partners may choose to devote greater resources to marketing and supporting the
products of other companies.

We depend upon certificate status data made available by third parties; if our
access to that data is limited or denied, our revenues could decline.

     Our business depends upon our continuing access to data for the issuance
and revocation of digital certificates by certificate authorities and other
third parties, including businesses and governmental entities. We depend upon
our ability to negotiate arrangements with these certificate authorities, some
of which are our competitors, and other third parties to make this data
available to us. If our access to this data is limited or denied by one or more
certificate authorities or other third parties, our ability to verify and
validate digital certificates would be impaired, perhaps severely, which could
cause a decline in our revenues and in the value of your investment.


We are dependent on technologies provided by third parties, and any termination
of our right to use these technologies could increase our costs, delay product
development and harm our reputation.

     We have developed our products and services partially based on technology
we license on a non-exclusive basis from third parties. We expect that, in the
future, we will continue to have to license technologies from third parties. Our
inability to continue to licenses on commercially reasonable terms, one or more
of the technologies, on favorable terms, if at all, that we use or our failure
to obtain the right to use future technologies could increase our costs and
delay or possibly prevent product development. Our licensing agreements may be
terminated by the other parties to these contracts, or may not be renewed on
favorable terms or at all.


If we lose the services of our senior management or key personnel, our ability
to develop our business and secure customer relationships will suffer.

     We are substantially dependent on the continued services and performance of
our senior management and other key personnel. We do not maintain key person
insurance on any of our executive officers. The loss of the services of any of
our executive officers or other key employees, particularly Joseph Amram, our
president and chief executive officer, and Srinivasan Krishnan, our chairman and
chief technology officer, could significantly delay or prevent the achievement
of our development and strategic objectives.


If we are unable to recruit or retain qualified personnel, we will be unable to
manage our business and develop new products.

     We must continue to identify, recruit, hire, train, retain and motivate
highly skilled technical, managerial, sales and marketing and professional
services personnel, particularly software engineers. The failure to recruit and
retain necessary technical, managerial, sales, marketing and professional
services personnel could harm our ability to obtain new customers and develop
new products. Competition for these personnel is intense, and we may not be able
to successfully recruit, assimilate or retain the kind and number of qualified
personnel we need.

                                       17
<PAGE>

Our failure to protect our intellectual property could reduce our revenue or
cause us to undertake costly litigation.

     Attempts by others to utilize our intellectual property rights could
undermine our ability to retain or secure customers. The laws of some foreign
countries do not protect intellectual property rights to the same extent as do
the laws of the United States. Enforcing our intellectual property rights could
be time consuming and costly. We also rely on outside licensors for patent and
software license rights in encryption technology that is necessary for the
operation of our products and services. Any inability to continue to obtain or
use this technology could increase our expenses and delay our product
development efforts.


Any claim of infringement by third parties could be costly to defend, and if we
are found to be infringing upon the intellectual property rights of third
parties, we may be required to pay substantial licensing fees.

     We may increasingly become subject to claims of intellectual property
infringement by third parties as the number of our competitors grows and the
functionality of their products and services increasingly overlaps with ours.
Any litigation could result in substantial costs and diversion of management's
attention and resources. We recently were informed that a United States patent,
number 6097811, has been issued to its inventor. Based on our review of the
patent, we do not believe that it will have a material adverse effect on our
business.

     We are aware of pending and issued United States and foreign patent rights
owned by third parties that relate to cryptography technology. Third parties may
assert that we infringe their intellectual property rights based upon issued
patents, trade secrets or know-how that they believe cover our technology.
Parties making these claims may be able to obtain injunctive or other equitable
relief that could block our ability to further develop or commercialize some or
all of our products in the United States and abroad. If a party asserts a claim
of infringement against us, we may be required to obtain one or more licenses
from or pay royalties to third parties. We cannot assure you that we will be
able to obtain these licenses at a reasonable cost, if at all. Defense of any
lawsuit or failure to obtain the license could hurt our business.


Because our products and services are complex and may contain errors or defects
that are not found until after they are used by our customers, any undiscovered
errors or defects could seriously harm our reputation and our ability to
generate sales to new or existing customers.

     Our software products and services are complex and are generally used in
systems with other vendors' products. They can be adequately tested only when
they are successfully integrated with these systems. Errors may be found in new
products or releases after shipment and our products and services may not
operate as expected. Errors or defects in our products and services could result
in:

     .    loss of revenues and increased service and warranty costs,

     .    delay in market acceptance and sales and

     .    injury to our reputation.


If we are unable to raise additional capital when needed, we may be unable to
develop or enhance our products and services.

     We may need to seek additional funding in the future. If we cannot raise
funds on acceptable terms, we may not be able to develop or enhance our products
and services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. We may also be required to reduce
operating costs through lay-offs or reduce our sales and marketing or research
and development efforts. If we issue equity securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of our common stock.


We rely on public key cryptography and other security techniques that could be
breached, resulting in reduced demand for our products and services.

     A requirement for the continued growth of electronic commerce is the secure
transmission of confidential information over public networks. We rely on public
key cryptography, an encryption method that utilizes two keys, a public and
private key, for encoding and decoding data, and on digital certificate
technology, to provide the security and authentication necessary for secure

                                       18
<PAGE>

transmission of confidential information. Regulatory and export restrictions may
prohibit us from using the strongest and most secure cryptographic protection
available, and may expose us or our customers to a risk of data interception. A
party who is able to circumvent our security measures could misappropriate
proprietary information or interrupt our or our customers' operations. Any
compromise or elimination of our security could result in risk of loss or
litigation and possible liability and reduce demand for our products and
services.


If we are not able to continue to include our public root keys within software
applications, our customers may not use our services.

     If we are not able to continue to include our public root keys within
software applications, including Microsoft Windows 2000, the Microsoft Internet
Explorer browser and the Netscape browser, customers might perceive our
outsourced services as too cumbersome to use. These applications use our public
root keys to insure that digitally signed objects which are generated by our
validation authority and digital receipt services are trustworthy and have not
been tampered with or corrupted. The initial term of our root key arrangement
with Netscape ends in December 2000 and we cannot assure you that this
arrangement will be continued. Our root key arrangement with Microsoft may not
be extended to cover subsequent releases of Microsoft Windows 2000 or the
Microsoft Internet Explorer browser.


We could incur substantial costs resulting from product liability claims
relating to our customers' use of our products and services.

     Any disruption to a customer's website or application caused by our
products or services could result in a claim for substantial damages against us.
Our insurance coverage may not continue to be available on reasonable terms or
in amounts sufficient to cover one or more large claims. Our insurer may also
disclaim coverage on any claims we make, which could result in substantial costs
to us.


                          Risks Related to Our Industry

If the market for our secure online transaction products and services fails to
develop and grow, we may be unable to increase our revenue and achieve
profitability.

     If the market for our products and services fails to develop and grow, or
if our products and services do not gain broad market acceptance, we may not be
able to increase our revenue, achieve profitability and continue operations. Our
success will depend upon the adoption and use by current and potential customers
and their end-users of secure online transaction products and services. Our
success will also depend upon acceptance of our technology as the standard for
providing these products and services. Our ability to achieve our goals also
depends upon rapid market acceptance of future enhancements of our products. Any
enhancement that is not favorably received by customers and end-users may not be
profitable and could damage our reputation or brand name.


The intense competition in our industry could reduce our market share or
eliminate the demand for our software products and services, which could harm
our business.

     Competition in the security infrastructure market is intense. If we are
unable to compete effectively, our ability to increase our market share and
revenues will be harmed. We compete with companies that provide individual
products and services that are similar to our software products and services.
Certificate authority software vendors and vendors of other security products
and services could enter the market and provide end-to-end solutions which might
be more comprehensive than our solutions. They may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their products. We expect
that competition will increase which could result in pricing pressures, reduced
margins or the failure of our Internet-based security products and services to
achieve or maintain market acceptance.

                                       19
<PAGE>

Our ability to increase revenue depends on the wide adoption of the Internet for
conducting electronic commerce.

     If the Internet is not widely adopted as a medium for conducting electronic
commerce, we may be unable to increase our revenue and achieve profitability.
Because electronic commerce over the Internet is new and evolving, it is
difficult to predict the size of this market and its sustainable growth rate.
Many businesses and consumers have been deterred from utilizing the Internet for
a number of reasons, including:

     .    potentially inadequate development of network infrastructure;

     .    security concerns including the potential for merchant or user
          impersonation and fraud or theft of stored data and information
          communicated over the Internet;

     .    inconsistent quality of service; and

     .    inability to integrate business applications on the Internet.

     The adoption of the Internet will require a broad acceptance of new methods
of conducting business and exchanging information. Companies, government
agencies and individuals may be reluctant to adopt these new methods.

     The use of the Internet may not increase or may increase more slowly than
we expect because of delays in development or adoption of new standards and
protocols to handle expected increased levels of activity or by increased
governmental regulation. Changes in, or insufficient availability of,
communications services to support the Internet could result in poor performance
and adversely affect its usage.


Public key cryptography security, on which our products and services are based,
may become obsolete, which would harm our business.

     The technology used to keep private keys confidential depends in part on
the application of mathematical principles and relies on the difficulty of
factoring large numbers into their prime number components. Should a simpler
factoring method be developed, then the security of encryption products
utilizing public key cryptography technology could be reduced or eliminated.
Even if no breakthroughs in factoring or other methods of attacking
cryptographic systems are made, factoring problems can theoretically be solved
by computer systems significantly faster and more powerful than those presently
available.


Our products are subject to export controls. If we are unable to obtain
necessary approvals, our ability to make international sales could be limited.

     Exports of software products utilizing encryption technology are generally
restricted by the United States and various foreign governments. Cryptographic
products typically require export licenses from United States government
agencies. Our inability to obtain required approvals under these regulations
could limit our ability to make international sales.  The list of products and
countries for which export approval is required, and the related regulatory
policies, could be expanded and we may not be able to obtain necessary approval
for the export of our products. Our competitors may also seek to obtain
approvals to export products that could increase the amount of competition we
face.


                                   Other Risks

Our executive officers, directors and major stockholders own a substantial
amount of our stock, and their interests may conflict with yours.

     Our executive officers, directors and major stockholders beneficially owned
approximately 41.1% of our outstanding common stock, based on shares outstanding
as of April 30, 2000 and including the shares we issued in our initial public
offering in July 2000. These stockholders will be able to exercise control over
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions, which could have the effect
of delaying or preventing a third party from acquiring control over or merging
with us.

                                       20
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Provisions in our charter documents and Delaware law could prevent or delay a
change in control, which could reduce the market price of our common stock.

     Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change of control or changes in our
management. Provisions of Delaware law may discourage, delay or prevent someone
from acquiring or merging with us. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.

     The future trading price of our common stock could be subject to wide
fluctuations in response to a variety of factors. The price of our common stock
has been, and is likely to be, volatile. Factors including future announcements
concerning us or our competitors, quarterly variations in operating results,
announcements of technological innovations, the introduction of new products or
changes in our product pricing policies or those of our competitors, proprietary
rights or other litigation, changes in earnings estimates by analysts and other
factors could cause the market price of our common stock to fluctuate
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons, which may be unrelated to operating results. These
fluctuations, as well as general economic, market and political conditions, may
harm the market price of our common stock.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.

     Most of our debt obligations have been at fixed interest rates, and
therefore the fair value of these obligations is affected by changes in market
interest rates. Our cash equivalents and short-term investments are primarily
comprised of high-grade commercial paper and highly liquid deposits with
financial institutions. Therefore, the fair value of the underlying securities
are not materially effected by a change in market interest rates. A hypothetical
increase or decrease in market interest rate by 100 basis points would not have
a material effect on our financial position.

                                       21
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                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     (a) Recent Sales of Unregistered Securities.

     During the three months ended September 30, 2000, ValiCert, Inc. issued and
sold the following unregistered securities:

     Options to purchase 697,583 shares of our common stock on various dates to
directors, employees and consultants under our 1998 Stock Plan. These options
were issued in connection with employment or other service relationships, and no
consideration was paid by the recipients for the options. The exercise price of
the options is the fair market value determined on the date of exercise, and the
options are generally on the standard terms for options issued under the 1998
Stock Plan. In addition, 129,986 shares of our common stock were exercised on
various dates pursuant to employee options.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.


ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     None.

                                      22
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ITEM 5. OTHER INFORMATION

     None.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits.
         --------

     The following exhibits are attached hereto and filed herewith:

          27.1 Financial Data Schedule.

     (b) Reports on Form 8-K.
         -------------------
     None.

                                       23
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                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                       VALICERT, INC.


     Dated: November 14, 2000          By: /s/ TIMOTHY CONLEY
                                           -------------------------
                                               Timothy Conley
                                            Chief Financial Officer

                                       24
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                                 EXHIBIT INDEX

Exhibit No.      Description
-----------      -----------
   27.1          Financial Data Schedule