<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 March 31, 2001

[ ]  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 [ ]  No [X]

     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                             April 30, 2001
                   -----                             --------------
        Common Stock, $0.001 par value             22,806,225 shares

================================================================================
<PAGE>

                                 VALICERT, INC.

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                                    Page
                                                                                                                   ------
                                                   PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements.

<S>       <C>                                                                                                     <C>
          Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000..................          3

          Condensed Consolidated Statements of Operations for the three months ended
          March 31, 2001 and 2000...........................................................................          4

          Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001
          and 2000..........................................................................................          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 Risks.......................................         26

                                                    PART II. OTHER INFORMATION

Item 1.   Legal Proceedings.................................................................................         27

Item 2.   Changes in Securities and Use of Proceeds.........................................................         27

Item 3.   Defaults upon Senior Securities...................................................................         27

Item 4.   Submission of Matters to Vote of Security Holders.................................................         27

Item 5.   Other Information.................................................................................         27

Item 6.   Exhibits and Reports on Form 8-K..................................................................         27

SIGNATURES..................................................................................................         28
</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>
                                                                                              March 31,          December 31,
                                                                                             -----------        --------------
                                                                                                2001                2000
                                                                                             -----------        --------------
<S>                                                                                         <C>                  <C>
                                    ASSETS

Current assets:
  Cash and cash equivalents.............................................................     $ 28,905            $ 37,523
  Accounts receivable, net..............................................................        4,914               3,771
  Prepaid expenses and other current assets.............................................        1,376               1,333
                                                                                             --------            --------
     Total current assets...............................................................       35,195              42,627

Property and equipment, net.............................................................        5,766               5,417
Goodwill and intangible assets, net.....................................................       10,511              11,297
Other assets............................................................................          529                 465
                                                                                             --------            --------
        Total assets....................................................................     $ 52,001            $ 59,806
                                                                                             ========            ========


                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable......................................................................     $  1,307            $  1,140
  Accrued liabilities...................................................................        5,688               5,818
  Deferred revenue......................................................................        3,801               3,113
  Current portion of long-term obligations..............................................        1,133               1,122
                                                                                             --------            --------
     Total current liabilities..........................................................       11,929              11,193
Long-term obligations...................................................................        1,708               2,056
                                                                                             --------            --------
        Total liabilities...............................................................       13,637              13,249
                                                                                             --------            --------

Stockholders' equity:
  Common stock and additional paid-in capital...........................................      101,941             102,014
  Deferred stock compensation...........................................................       (6,178)             (7,263)
  Notes receivable from common stockholders.............................................       (2,043)             (2,033)
  Accumulated deficit...................................................................      (55,356)            (46,161)
                                                                                             --------            --------
     Total stockholders' equity.........................................................       38,364              46,557
                                                                                             --------            --------
        Total liabilities and stockholders' equity......................................     $ 52,001            $ 59,806
                                                                                             ========            ========
</TABLE>

                                       3
<PAGE>

                                 VALICERT, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                                    Three Months
                                                                                                   Ended March 31,
                                                                                            ----------------------------

                                                                                              2001                 2000
                                                                                            -------              -------
<S>                                                                                         <C>                  <C>
Revenues:
  Software license..............................................................            $ 3,375              $ 1,396
  Subscription fees and other services..........................................              1,694                  480
                                                                                            -------              -------
     Total revenues.............................................................              5,069                1,876

Cost of revenues:
  Software license..............................................................                265                  153
  Subscription fees and other services..........................................              2,288                1,041
                                                                                            -------              -------
     Total cost of revenues.....................................................              2,553                1,194
                                                                                            -------              -------
Gross profit....................................................................              2,516                  682
                                                                                            -------              -------

Operating expenses:
  Research and development......................................................              3,563                1,911
  Sales and marketing...........................................................              5,637                2,404
  General and administrative....................................................              1,296                  686
  Amortization of goodwill and intangible assets................................                786                  810
  Amortization of stock compensation*...........................................                571                  457
                                                                                            -------              -------
     Total operating expenses...................................................             11,853                6,268
                                                                                            -------              -------
Operating loss..................................................................             (9,337)              (5,586)
Interest and other income (expense), net........................................                142                  128
                                                                                            -------              -------
Net loss........................................................................            $(9,195)             $(5,458)
                                                                                            =======              =======

Basic and diluted loss per share................................................             $(0.42)              $(2.31)
                                                                                            =======              =======

Shares used in computation of basic and diluted net loss per share..............             21,770                2,364
                                                                                            =======              =======


 *  Amortization of stock compensation
     Cost of revenues:
     Subscription fees and other services.......................................            $    59              $     5
     Research and development...................................................                141                  146
     Sales and marketing........................................................                160                  120
     General and administrative.................................................                211                  186
                                                                                            -------              -------

     Total......................................................................            $   571              $   457
                                                                                            =======              =======
</TABLE>

                                       4
<PAGE>

                                 VALICERT, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        Three Months Ended
                                                                                                             March 31,
                                                                                                     -------------------------

                                                                                                       2001              2000
                                                                                                     -------           -------
<S>                                                                                          <C>               <C>
Cash flow from operating activities:
 Net loss..................................................................................          $(9,195)          $(5,458)
 Adjustments to reconcile to net cash used in operating activities:
  Depreciation and amortization............................................................              621               422
  Amortization of stock compensation.......................................................              571               457
  Amortization of goodwill and intangible assets...........................................              786               749
  Issuance of stock options for services...................................................               14                --
  Interest on stockholder notes............................................................              (27)               --
  Changes in assets and liabilities
    Accounts receivable....................................................................           (1,143)           (1,393)
    Prepaid expenses and other current assets..............................................              (43)             (508)
    Other assets...........................................................................              (64)             (306)
    Accounts payable and accrued liabilities...............................................               37              (402)
    Deferred revenue.......................................................................              688               319
    Other liabilities......................................................................               --               (14)
                                                                                                     -------           -------
     Net cash used in operating activities.................................................           (7,755)           (6,134)
                                                                                                     -------           -------

Cash flows from investing activities:
 Property and equipment additions..........................................................             (970)             (441)
 Sale of short-term investments............................................................               --             3,031
 Repayment of notes receivable from stockholders...........................................               16                50
                                                                                                     -------           -------
     Net cash provided by (used in) investing activities...................................             (954)            2,640
                                                                                                     -------           -------

Cash flows from financing activities:
 Issuance of common stock, net.............................................................              427               491
 Issuance of preferred stock, net..........................................................               --                59
 Repayment of borrowings...................................................................             (336)             (584)
 Proceeds from borrowings..................................................................               --               488
                                                                                                     -------           -------
     Net cash provided by financing activities.............................................               91               454
                                                                                                     -------           -------

Net increase (decrease) in cash and equivalents............................................           (8,618)           (3,040)
Cash and equivalents--beginning of period..................................................           37,523            14,023
                                                                                                     -------           -------
Cash and equivalents--end of period........................................................          $28,905           $10,983
                                                                                                     =======           =======

Supplemental disclosure of cash flow information--cash paid during the period for
                                                                                                     $   125           $    37
 interest..................................................................................          =======           =======

</TABLE>

                                       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 ("ValiCert" or "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 accounting principles generally accepted in the United States of America
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 ("the SEC"). Accordingly, they do not include
all information and footnotes required by accounting principles generally
accepted in the United States of America. The result of operations for the three
month periods ended March 31, 2001 and 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
for the year ended December 31, 2000 included in the Company's Annual Report on
Form 10-K.

2.   Accounting Change

     Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended.  The statement requires that all derivatives,
whether designated in hedging relationships or not, are required to be recorded
on the balance sheet at fair value.  If the derivative is designed as a fair
value hedge, the changes in the fair value of the derivative and of the hedged
items attributable to the hedged risk are recognized in earnings.  If the
derivative is designated as a cash flow hedge, the effective portions of the
changes in the fair value of the derivative are recorded in other comprehensive
loss income ("OCI") and are recognized in the income statement when the hedged
item affects earnings. Ineffective portions of changes in fair value of cash
flows are recognized in earnings.  The adoption of SFAS No. 133 did not impact
the Company's consolidated financial position, results of operations or cash
flows.

3.   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 $41.1 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 three for one basis.

4.   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 at March 31, 2001 or 2000.  Geographic revenue
information is as follows:

<TABLE>
<CAPTION>
                                                                                               Three Months
                                                                                              Ended March 31,
                                                                                       ---------------------------
                                                                                         2001                 2000
                                                                                       ------               ------
                                                                                              (in thousands)
<S>                                                                                   <C>                   <C>
Revenues:
  Japan................................................................                $1,599               $   --
  North America........................................................                 1,294                1,253
  United Kingdom.......................................................                   646                   --
  Rest of the world....................................................                 1,530                  623
                                                                                       ------               ------
                                                                                       $5,069               $1,876
                                                                                       ======               ======
</TABLE>

                                       6
<PAGE>

     During the three months ended March 31, 2001 one customer accounted for
19.7% of total revenues. During the three months ended March 1, 2000 three
customers accounted for 13.2%, 12.5% and 10.1% of total revenues.

                                       7
<PAGE>

                                 VALICERT, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.   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 from continuing operations (in
thousands):

<TABLE>
<CAPTION>
                                                                                                Three Months
                                                                                               Ended March  31,
                                                                                       ------------------------------
                                                                                         2001                  2000
                                                                                       --------               -------
                                                                                   (in thousands, except per share data)
    <S>                                                                               <C>                      <C>
     Net loss, basic and diluted.......................................                ($ 9,195)              ($5,458)
                                                                                       ========               =======
     Weighted average common shares outstanding........................                  22,790                 3,919
     Weighted average common shares outstanding subject to
       repurchase and held in escrow...................................                  (1,020)               (1,555)
                                                                                       --------               -------
     Shares used in computation, basic and diluted.....................                  21,770                 2,364
                                                                                       ========               =======
     Loss per share, basic and diluted.................................                 ($ 0.42)              ($ 2.31)
                                                                                       ========               =======
</TABLE>

     At March 31, 2001 and 2000, options to purchase 4,278,127 and 2,212,668
shares of common stock, respectively, and warrants to purchase 653,387 and
548,333 shares of common stock, respectively, were excluded from the calculation
of net loss per share, as their inclusion would be antidilutive.

6.   Comprehensive Loss

     The Company reports comprehensive 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
                                                                                            Ended March 31, 2001,
                                                                                       -------------------------------
                                                                                         2001                  2000
                                                                                       --------               -------
    <S>                                                                               <C>                     <C>
     Net loss...........................................................               ($ 9,195)              ($5,458)
     Net unrealized loss on investments.................................                     --                   (65)
                                                                                       --------               -------
     Total comprehensive loss...........................................                ($9,195)              ($5,523)
                                                                                       ========               =======
</TABLE>

                                       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. Readers are referred to the
"Sales and Marketing," "Customer Service, Training and Support," "Research and
Development," "Competition," "Intellectual Property," "Management's Discussion
and Analysis of Financial Condition and Results of Operation" and "Factors That
May Impact Future Results" sections contained in this Quarterly Report on Form
10-Q, which identify some of the important factors or events that could cause
actual results or performances to differ materially from those contained in the
forward-looking statements.

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.  You should not place undue reliance on
these forward-looking statements.

     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 Annual Report on Form 10-K (No. 000-31109) 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. As of March
31, 2001, we had over 150 customers, including Aetna, Barclays, Federal Reserve
Bank, Hanwha Corporation, PricewaterhouseCoopers, Society for Worldwide
Interbank Financial Telecommunication, or S.W.I.F.T., Unisys, Visa and Wells
Fargo.

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 and digital
receipt products consist of a renewable subscription fee that entitles them to
validate or notarize 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.

                                       9
<PAGE>

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. 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.

     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.

Results of Operations

Three months ended March 31, 2001 and 2000

Revenues

     Revenues increased to $5.1 million for the three months ended March 31,
2001 from $1.9 million for the three months ended March 31, 2000 due to
increased sales of software licenses of $2.0 million and increased subscription
fees and other services of $1.2 million. Revenues for the three months ended
March 31, 2001 included $3.4 million for software license revenues and $1.7
million 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 $265,000 for the three months ended March 31, 2001 from
$153,000 for the three

                                       10
<PAGE>

months ended March 31, 2000 due to increased software license revenues. Cost of
software license revenues as a percentage of software license revenues decreased
to 7.9% for the three months ended March 31, 2001 from 11.0% for the three
months ended March 31, 2000 as a result of greater software license revenues
over which to amortize certain fixed annual fees.

     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 $2.3 million for the three months ended
March 31, 2001 from $1.0 million for the three months ended March 31, 2000.
During the three months ended March 31, 2001, these costs included compensation
and other personnel-related expenses of $1,163,000 and depreciation of $406,000.
During the three months ended March 31, 2000, compensation and other personnel-
related costs were $356,000 and depreciation was $305,000. The cost of
subscription fees and other services decreased to 135.1% of subscription fees
and other services revenue for the three months ended March 31, 2001 from 216.9%
for the three months ended March 31, 2000 primarily due to increased revenues.

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. Research and development
expenses increased to $3.6 million during the three months ended March 31, 2001
from $1.9 million during the three months ended March 31, 2000, an increase of
86.4%, due to our continued investment in the design, testing and deployment of
our products and services. Of this increase, $821,000 related to salaries and
other personnel-related costs, $416,000 related to facility costs, and $246,000
related to consulting expenses.  Research and development expenses as a
percentage of revenues decreased to 70.3% for the three months ended March 31,
2001 from 101.9% for the three months ended March 31, 2000, primarily due to
increased revenues.

     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 $5.6 million during the three months ended March
31, 2001 from $2.4 million during the three months ended March 31, 2000, an
increase of 134.5%, as we continued to expand our domestic and international
direct sales organization and to increase our marketing efforts. Of this
increase, $1.6 million related to salaries, commissions and other personnel-
related costs and $390,000 related to third-party commissions. Sales and
marketing expenses as a percentage of revenues decreased to 111.2% for the three
months ended March 31, 2001 from 128.1% for the three months ended March 31,
2000 due to increased revenues.

     General and administrative.  General and administrative expenses consist of
salaries and other personnel-related costs for our administrative, finance and
human resources employees, our legal and accounting services and our facilities
costs. General and administrative expenses increased to $1.3 million during the
three months ended March 31, 2001 from $686,000 during the three months ended
March 31, 2000, an increase of 88.9%. Of this increase, $357,000 related to
salaries and other personnel-related costs and $311,000 related to legal,
accounting and other consulting services. General and administrative expenses as
a percentage of revenues decreased to 25.6% for the three months ended March 31,
2001 from 36.6% for the three months ended March 31, 2000, primarily due to
increased revenues.

     Amortization of intangibles.  Amortization of intangibles relates to the
amortization of goodwill and other  intangibles assets arising from our December
1999 acquisition of Receipt.com.  An expense of  $786,000 was recorded in the
quarter ended March 31, 2001 and $810,000 in the quarter ended March 31, 2000
for the amortization of goodwill and other intangible assets.

     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 March 31, 2001, 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 $5.4 million related to the grant of other
employee stock options (net of $990,000 stock options canceled for terminated
employees).  Deferred stock compensation costs are being amortized over
approximately four years, which resulted in an expense of $571,000 during the
three months ended March 31, 2001 and $457,000 during the three months ended
March 31, 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 expense and other income was
$142,000 during the three months ended March 31, 2001 and $128,000 during the
three months ended March 31, 2000. Net interest expense during the three months
ended March 31, 2001 included an expense of $204,000 related to a foreign
currency adjustment.

                                       11
<PAGE>

     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 Annual Report on Form
10K filed with the SEC on April 2, 2001 (SEC file number 000-31109). In
particular, because our base of customers and the number of additional customer
licenses that 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.  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 March 31, 2001, we had cash and cash
equivalents of $28.9 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 March
31, 2001. 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 March 31, 2001, we were in
compliance with these financial covenants. We anticipate using available cash to
provide working capital and otherwise fund our operations and to purchase
capital equipment and make leasehold improvements.

Uses of cash

     Net cash used in operating activities of  $7.8 million in the three months
ended March 31, 2001 was primarily used to fund primarily to fund a net loss of
$9.2 million partially offset by non-cash depreciation and amortization expenses
of $2.0 million.  Net cash used in operating activities of  $6.1 million in the
three months ended March 31, 2000 was primarily used to fund our net loss of
$5.5 million partially offset by non-cash depreciation and amortization expenses
of $1.6 million.

     Net cash used in investing activities was $954,000 for the three months
ended March 31, 2001 primarily related to capital equipment expenditures to
purchase computer hardware and software, office furniture and equipment and
leasehold improvements. Net cash provided by investing activities was $2.6
million for the three months ended March 31, 2000, primarily due to the sale of
short-term investments partially offset by capital equipment expenditures. 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 $91,000 for the three months
ended March 31, 2001.  Net cash provided by financing activities was provided
primarily from the issuance of common stock under the employee stock purchase
plan partially offset by the to repayment borrowings.    Net cash provided by
financing activities was $454,000 for the three months ended March 31, 2000.
Net cash was provided primarily from the exercise of warrants and stock options
and to a more limited extent, borrowings partially offset by the repayment of
borrowings.

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 our current cash balances and borrowings available under
our credit facilities will be sufficient to meet our working capital needs for
at least the next twelve months. 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

                                       12
<PAGE>

     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 the Internet for electronic
        commerce and communications;

     .  the acceptance of existing security measures as adequate for electronic
        commerce and communications over the Internet;

     .  the rate and timing of the growth and use of specific technologies such
        as PKI and electronic payments and other Internet security technologies;

     .  our ability to maintain our current, and enter into additional,
        strategic relationships; and

     .  our ability to effectively manage our growth and to attract and retain
        skilled professionals.

     As a result of these risks, our business could be seriously harmed.

  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.

     Our quarterly results depend on a number of factors, many of which are
beyond our control.  Our quarterly results may fluctuate in the future as a
result of many factors, including the following:

     .  the size, timing, cancellation or delay of customer orders;

     .  the timing of releases of our new software products;

     .  the number of transactions conducted using our products and services;

     .  the long sales cycles for, and complexity of, our software products and
        services;

                                       13
<PAGE>

     .  the timing and execution of large individual contracts;

     .  the impact of changes in the pricing models for our software products
        and services or our competitors' products and services; and

     .  the continued development of our direct and indirect distribution
        channels.

     Due to these and other factors, our operating results in some future
quarter or quarters may fall below the expectations of securities analysts who
might follow our stock.

  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 $9.2
million in the three months ended March 31, 2001 and $5.5 million in the three
months ended March 31, 2000.  As of March 31, 2000, we had incurred cumulative
losses of  $55.4 million.  As of December 31, 2000, we had incurred cumulative
losses of $46.2 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, and we may
not become profitable or significantly increase our revenues.  We will continue
to increase our sales and marketing, research and development and general and
administrative expenses.

     We will need to generate significantly higher revenues in order 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.

  If we do not successfully develop new products and services to respond to
rapid market changes due to changing technology and evolving industry standards,
our business will be harmed.

     Our success will depend to a substantial degree on our ability to offer
products and services that incorporate leading technology and to respond to
technological advances. If we fail to offer products and services that
incorporate leading technology and respond to technological advances and
emerging standards, we may not generate sufficient revenues to offset our
development costs and other expenses, which will hurt our business. The
development of new or enhanced products and services is a complex and uncertain
process that requires the accurate anticipation of technological and market
trends. We may experience development, marketing and other technological
difficulties that may delay or limit our ability to respond to technological
changes, evolving industry standards, competitive developments or customer
requirements. You should also be aware that:

     .  our technology or systems may become obsolete upon the introduction of
        alternative technologies;

     .  we may incur substantial costs if we need to modify our products and
        services to respond to these alternative technologies;

     .  we may not have sufficient resources to develop or acquire new
        technologies or to introduce new products or services capable of
        competing with future technologies;

     .  we may be unable to acquire the rights to use the intellectual property
        necessary to implement new technology; and

     .  when introducing new or enhanced products or services, we may be unable
        to manage effectively the transition from older products and services.

   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 have accounted for a significant portion of
our revenues. In the three months ended March 31, 2001 one customer accounted
for 19.7% of total revenues. During the three months ended March 1, 2000 three
customers accounted for 13.2%, 12.5% and 10.1% of total 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.

                                       14
<PAGE>

  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 introduced a new licensing arrangement in the second quarter of 2000
that includes a subscription fee during the license period. This new arrangement
resulted 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.

  The length of our sales cycle is uncertain, which may cause our revenues and
operating results to vary significantly from quarter to quarter.

     Any failure of our sales efforts to generate revenues at the times and in
the amounts we anticipate could cause significant variations in our operating
results. During our sales cycle, 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 in the short term and there is substantial
uncertainty as to when particular sales efforts will begin to generate revenues.

     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. Prospective customers of our products and services often
require long testing and approval processes before making a purchase decision.
In general, the process of entering into a licensing arrangement with a
potential customer may involve lengthy negotiations. As a result, our sales
cycle has been and may continue to be unpredictable. In the past, our sales
cycle has ranged from one to nine or more months. Our sales cycle is also
subject to delays as a result of customer-specific factors over which we have
little or no control, including budgetary constraints and internal acceptance
procedures. In addition, 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. The length of the sales cycle makes it
difficult to accurately forecast the timing and amount of our sales. Thus, this
may cause our revenues and operating results to vary significantly from quarter
to quarter and could harm our business.

  Our international business exposes us to additional risks.

     Products and services provided to our international customers accounted for
74.5% of our revenues in the three months ended March 31, 2001 and  33.2% of our
revenues in the three months ended March 31, 2000. Conducting business outside
of the United States subjects us to additional risks, including:

     .  changes in regulatory requirements;

     .  reduced protection of intellectual property rights;

     .  evolving privacy laws;

     .  tariffs and other trade barriers;

     .  difficulties in staffing and managing foreign operations;

     .  problems in collecting accounts receivables; and

     .  difficulties in authenticating customer information.

                                       15
<PAGE>

  We must maintain and enter into new strategic alliances, and any failure to do
so could harm our business.

     One of our significant business strategies has been to enter into strategic
or other similar collaborative alliances in order to reach a larger customer
base than we could reach through our direct sales and marketing efforts. We will
need to maintain or enter into additional strategic alliances to execute our
business plan. However, if we are unable to maintain our strategic alliances or
enter into additional strategic alliances, our business could be materially
harmed. We may not be able to enter into additional strategic alliances or
maintain our existing strategic alliances. If we do not, we would have to devote
substantially more resources to the distribution, sales and marketing of our
security products and services than we would otherwise.

     We have entered into technology, marketing and distribution agreements with
several companies. However, we may be unable to leverage the brand and
distribution power of these strategic alliances to increase the adoption rate of
our technology. We have been establishing strategic alliances to ensure that
third-party solutions are interoperable with our software products and services.
To the extent that our products are not interoperable or our strategic allies
choose not to integrate our technology into their offerings, this failure would
inhibit the adoption of our software products and outsourced services.
Furthermore, as a result of our emphasis on these strategic alliances, our
success will depend in part on the ultimate success of other parties to these
alliances. Failure of one or more of our strategic alliances to achieve any of
these objectives could materially harm our business.

     Our existing strategic alliances do not, and any future strategic alliances
may not, grant us exclusive marketing or distribution rights. In addition, the
other parties may not view their alliances with us as significant for their own
businesses. Therefore, 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. Should any of these developments occur, our
business will be harmed.

  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. Any failure to manage growth
effectively could materially harm our business. We have grown from 31 employees
at December 31, 1998 to 231 employees at March 31, 2001. 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.

  Any future acquisitions of companies or technologies may not be successful and
as a result, could harm our business.

     We may acquire businesses, technologies, product lines or service offerings
which may need to be integrated with our business in the future. Acquisitions
involve a number of risks including, among others:

     .  the difficulty of assimilating the operations and personnel of the
        acquired businesses;

     .  to the extent the acquisitions are financed with our common stock,
        dilution to our existing stockholders;

     .  our inability to integrate, train, retain and motivate key personnel of
        the acquired business;

     .  the diversion of our management from our day-to-day operations;

     .  our inability to incorporate acquired technologies successfully into our
        software products and services;

     .  the additional expense associated with completing an acquisition and
        amortizing any acquired intangible assets;

     .  the potential impairment of relationships with our employees, customers
        and strategic third-parties; and

     .  the inability to maintain uniform standards, controls, procedures and
        policies.

     If we are unable to successfully address any of these risks, our business
could be materially harmed.

                                       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. In particular, our principal
executive offices and data center are located near San Francisco, California in
an area that has been subject to severe earthquakes. At present, we do not have
earthquake insurance on our data center or an operational disaster recovery
facility.

  In the event of an earthquake or other disaster that results in an operations
failure, our operations will be interrupted and our business will be harmed.

     Our principal executive offices and operating facilities are located near
San Francisco, California. This area has been subject to severe earthquakes. In
the event of an earthquake, we may temporarily unable to continue operations at
our facilities and we may suffer significant property damage. Any such
interruption in our ability to continue operations at our facilities could delay
the development of our products and our manufacturing facilities.

  We rely on a continuous power supply to conduct our operations, and
California's current energy crisis could disrupt our operations and increase our
operating costs.

     Our principal operating facilities are located in California. We rely on a
continuous power supply to conduct our operations, and California currently is
experiencing an energy crisis that could disrupt our operations and increase our
expenses. When power reserves for the State of California have fallen below
1.5%, California has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout the State. If such blackouts
interrupt our power supply, we may be temporarily unable to continue operations
at our facilities. Any such interruption in our ability to continue operations
at our facilities could delay the development of our products and our
manufacturing processes. Continuing power interruption could delay production to
the extent it could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and could result in lost revenue, any of
which could substantially harm our business and results of operations. To date,
the Company has not experienced any significant or repeated power disruptions
that have had a material impact on its business operations. However, in addition
to possible power disruptions, the energy crisis also may cause natural gas and
electricity prices to rise significantly over the next several months, relative
to the rest of the United States, and our operating expenses will likely
increase.

  Our success depends on our ability to 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 have a material adverse
effect on our business, operating results and financial condition. 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 existing or future 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.

     Since we sell through multiple channels and distribution networks, we may
have to resolve potential conflicts between these channels. For example, these
conflicts may result from the different discount levels offered by multiple
channel partners to their customers or, potentially, from our direct sales force
targeting the same accounts as our indirect channel partners. Such conflicts may
harm our business or reputation.

                                       17
<PAGE>

  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. Our inability to
continue to license these third-party technologies on commercially reasonable
terms will harm our business. We expect that, in the future, we will continue to
have to license technologies from third parties. Our inability to continue to
license on commercially reasonable terms, one or more of the technologies that
we currently use or our failure to obtain the right to use future technologies
could increase our costs and delay or possibly prevent product development. Our
existing licensing agreements may be terminated by the other parties to these
contracts, or may not be renewed on favorable terms or at all. In addition, we
may not be able to license new technologies on favorable terms, if 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 (Yosi) Amram,
our president and chief executive officer, and Srinivasan (Chini) Krishnan, our
chairman and chief technology officer, could significantly delay or prevent the
achievement of our development and strategic objectives.

  Our management team must work together effectively in order to expand our
business, increase our revenues and improve our operating results.

     Several members of our existing senior management personnel joined us
recently, including Timothy Conley, our vice president, finance, and chief
financial officer, who joined us in January 2000 and David Jevans, our vice
president, corporate development, who joined us in December 1999. In addition,
our new employees include a number of key managerial, technical and operations
personnel who have been with us for a limited period of time. We expect to add
additional key personnel in the near future who will also need to be integrated
into our management team. Because these members of our management team are new,
there is an increased risk that management will not be able to work together
effectively as a team, especially in the short-term, to address the challenges
to our business. The inability of our business team to work together effectively
could harm our business.

  We may be unable to recruit or retain qualified personnel, which could harm
our business and product development.

     We also must continue to identify, recruit, hire, train, retain and
motivate highly skilled technical, managerial, sales and marketing and
professional services personnel. Competition for these personnel is intense, and
we may not be able to successfully recruit, assimilate or retain sufficiently
qualified personnel. In particular, in the San Francisco Bay Area, competition
is especially intense for software engineering personnel. We may encounter
difficulties in recruiting a sufficient number of qualified software engineers
and we may not be able to retain these software engineering personnel, which
could harm our relationships with existing and future customers at a critical
stage of development. The failure to recruit and retain necessary technical,
managerial, sales, marketing and professional services personnel could harm our
business and our ability to obtain new customers and develop new products. If
our stock price decreases substantially, it may be difficult to hire and retain
employees who consider stock options and important part of their compensation.

  Our business will suffer if we are unable to protect our intellectual
property.

     We rely upon copyrights, trade secrets, know-how, patents, continuing
technological innovations and licensing opportunities to maintain and further
develop our market position. We rely on outside licensors for patent and
software license rights in encryption technology that is incorporated into and
is necessary for the operation of our products and services. Our success will
depend in part on our continued ability to have access to technologies that are
or may become important to the functionality of our products and services. Any
inability to continue to procure or use this technology could be materially
adverse to our operations.

     Our success will also depend in part on our ability to protect our
intellectual property rights from infringement, misappropriation, duplication
and discovery by third parties. We cannot assure you that others will not
independently develop substantially equivalent proprietary technology or gain
access to our trade secrets or disclose our technology or that we can
meaningfully protect our trade secrets. Attempts by others to utilize our
intellectual property rights could undermine our ability

                                       18
<PAGE>

to retain or secure customers. In addition, the laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the
United States. Our attempts to enforce our intellectual property rights could be
time consuming and costly.

     We cannot assure you that our pending or future patent applications will be
granted or that any patents that are issued will be enforceable or valid.
Additionally, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. We cannot be certain that we were the first
inventor of inventions covered by our issued patent or pending patent
applications or that we are the first to file patent applications for such
inventions. Moreover, we may have to participate in interference proceedings
before the United States Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to us. An adverse outcome
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from or to third parties or require us to cease using the
technology in dispute.

  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.
Because we are in a new and evolving field, customers may demand features which
will subject us to a greater likelihood of claims of infringement.

     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. In
addition, future patents may issue to third parties which we may infringe. It
may be time consuming and costly to defend ourself against any of these claims
and we cannot assure you that we would prevail.

     Furthermore, parties making such 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. In
the event of a claim of infringement, 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 any such licenses at a reasonable cost, if at all.
Defense of any lawsuit or failure to obtain such license could hurt our
business.

  Defects in our software products and services could diminish demand for our
products and services, which may harm 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.

  Failure to increase our brand awareness could limit our ability to compete
effectively.

                                       19
<PAGE>

     If the marketplace does not associate ValiCert with high-quality, end-to-
end secure infrastructure software products and services, it may be difficult
for us to keep our existing customers, attract new customers or successfully
introduce new products and services. Competitive and other pressures may require
us to increase our expenses to promote our brand name, and the benefits
associated with brand creation may not outweigh the risks and costs associated
with establishing our brand name. Our failure to develop a strong brand name or
the incurrence of excessive costs associated with establishing our brand name
may harm our business.

  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
transmission of confidential information. Regulatory and export restrictions may
prohibit us from using the strongest and most secure cryptographic protection
available, and thereby 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 and our business may be harmed. Our
public root keys are used by applications 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 term
of our root key agreement with Netscape ends in November 2001 and we cannot
assure you that this agreement will be renewed. In addition, our root key
agreement with Microsoft may not be extended to cover subsequent releases of
Microsoft Windows 2000 or the Microsoft Internet Explorer browser.

  The covenants and restrictions in our existing and future debt instruments
could have a negative effect on our business.

     The covenants and restrictions in our existing and future debt instruments
could have a negative effect on our business, including impairing our ability to
obtain additional financing and reducing our operational flexibility and ability
to respond to changing business and economic conditions. The terms of our $2.5
million secured line of credit agreement require that we comply with a number of
financial and other restrictive covenants. For example, it prohibits us from:

     .  incurring any indebtedness other than equipment leasing obligations;

     .  pledging any of our assets, subject to exceptions; and

     .  making investments in the securities of any other person.

  The agreement also contains financial covenants, including requirements that
we maintain a minimum level of cash and available borrowing capacity and a
minimum level of tangible net worth.

     The covenants and restrictions in our existing and future debt instruments
could have a negative effect on our business, including impairing our ability to
obtain additional financing and reducing our operational flexibility and ability
to respond to changing business and economic conditions. In addition, any
failure to comply with the restrictions and covenants in our $2.5 million line
of credit agreement or any other credit facility would generally result in a
default under the facility, permitting the lenders to declare all debt
outstanding under that facility to be immediately due and payable. Further, a
default under any debt facility could, under cross-default provisions, result in
defaults under other debt instruments, entitling other lenders to declare all
debt outstanding under those other facilities to be immediately due and payable.
If any declaration of acceleration were to occur, we might be unable to make
those required payments or to raise sufficient funds from other sources to make
those payments. In addition, we have pledged substantially all of our assets to
secure our credit facilities. If a default occurs with respect to secured
indebtedness, the holders of that indebtedness would be entitled to foreclose on
their collateral, which would harm our business.

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<PAGE>

  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,
regardless of our responsibility for the failure. Our existing 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 as to any claims, which could result in substantial costs to us.

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<PAGE>

  Additional government regulation relating to the Internet may increase our
costs of doing business.

     We are subject to regulations applicable to businesses generally and laws
or regulations directly applicable to companies utilizing the Internet. Although
there are currently few laws and regulations directly applicable to the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws could cover issues like user privacy,
pricing, content, intellectual property, distribution, antitrust, legal
liability and characteristics and quality of products and services. The adoption
of any additional laws or regulations could decrease the demand for our products
and services and increase our cost of doing business, or otherwise could harm
our business or prospects.

     Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues like property ownership, sales and other taxes,
libel and personal privacy is uncertain. For example, tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in online commerce. New state tax regulations may subject us
to additional state sales and income taxes. Any new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and commercial online services could harm our
ability to conduct business and our operating results.


                         Risks Related to Our Industry

  The markets for secure online transaction products and services generally, and
our products and services specifically, are new and may not develop, which would
harm our business.

     The market for our products and services is new and evolving rapidly. 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, our business and
prospects will be harmed. In particular, 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. The adoption and use of our products and services will involve
changes in the manner in which businesses have traditionally completed
transactions. We cannot predict whether our products and services will achieve
any market acceptance. 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,
furthermore, 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
revenue will be harmed. We compete with companies that provide individual
products and services that are similar to certain aspects of 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. Many of our
competitors have longer operating histories, greater name recognition, larger
installed customer bases and significantly greater financial, technical and
marketing resources. As a result, 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 anticipate
that the market for security products and services that enable valid, secure and
provable electronic commerce and communications over the Internet will remain
intensely competitive. We expect that competition will increase in the near term
and increased competition could result in pricing pressures, reduced margins or
the failure of our Internet-based security products and services to achieve or
maintain market acceptance, any of which could materially harm our business.

     In addition, current and potential competitors have established or may in
the future establish collaborative relationships among themselves or with third
parties, including third parties with whom we have strategic alliances, to
increase the ability of their products to address the security needs of our
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, our business could be materially affected.

  Our business depends on the wide adoption of the Internet for conducting
electronic commerce.

     In order for us to be successful, the Internet must be widely adopted as a
medium for conducting electronic commerce. Because electronic commerce over the
Internet is new and evolving, it is difficult to predict the size of this market
and its

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<PAGE>

sustainable growth rate. To date, many businesses and consumers have
been deterred from utilizing the Internet for a number of reasons, including but
not limited to:

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<PAGE>

     .  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;

     .  lack of availability of cost-effective, high-speed service;

     .  limited numbers of local access points for corporate users;

     .  inability to integrate business applications on the Internet;

     .  the need to operate with multiple and frequently incompatible products;
        and

     .  a lack of tools to simplify access to and use of the Internet.

     The adoption of the Internet will require a broad acceptance of new methods
of conducting business and exchanging information. Companies and government
agencies that already have invested substantial resources in other methods of
conducting business may be reluctant to adopt new methods. Also, individuals
with established patterns of purchasing goods and services and effecting
payments may be reluctant to change.

     The use of the Internet may not increase or may increase more slowly than
we expect because the infrastructure required to support widespread use may not
develop. The Internet may continue to experience significant growth both in the
number of users and the level of use. However, the Internet infrastructure may
not be able to continue to support the demands placed on it by continued growth.
Continued growth may also affect the Internet's performance and reliability. In
addition, the growth and reliability of the Internet could be harmed by delays
in development or adoption of new standards and protocols to handle 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. Any of these
factors could materially harm our business.

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. Any significant advance in techniques for attacking cryptographic
systems could render some or all of our existing products and services obsolete
or unmarketable.

     Security systems based on public key cryptography assign users a public key
and a private key, each of which is required to encrypt and decrypt data. The
security afforded by this technology depends on the user's key remaining
confidential. It is therefore critical that the private key be kept secure.

  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. We are currently exporting software products and services with
requisite export approval under United States law. However, the list of products
and countries for which export approval is required, and the related regulatory
policies, could be revised beyond their current scope, and we may not be able to
obtain necessary approval for the export of our products. Our inability to
obtain required approvals under these regulations could limit our ability to
make international sales. Furthermore, our competitors may also seek to obtain
approvals to export products that could increase the amount of competition we
face.

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<PAGE>

                  Risks Related to the Stock Market in General

  Our stock price may decline due to market and economic factors.

     In recent years the stock market in general, and the market for shares of
small capitalization and technology stocks in particular, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. There can be no assurance that the market
price of our common stock will not experience significant fluctuations in the
future, including fluctuations unrelated to our performance. Such fluctuations
could materially adversely affect the market price of our common stock.

     In addition, in the past, securities class action litigation has often been
brought against a company following periods of volatility in the market price of
its securities. This risk is especially acute for us because the extreme
volatility of market prices of technology companies has resulted in a larger
number of securities class action claims against them. Due to the potential
volatility of our stock price, we may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and divert
management's attention and resources.

We are controlled by our executive officers, directors and major stockholders,
whose interests may conflict with yours.

  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.

     We are controlled by our executive officers, directors and major
stockholders, whose interests may conflict with yours. Provisions in our
certificate of incorporation and bylaws may have the effect of delaying or
preventing a change of control or changes in management.

     In addition, 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.

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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.

     We develop products in the United States and market our products in North
America, Europe and Asia/Pacific regions. As a result, our financial results
could be affected by changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Because substantially all of our revenues are
currently denominated in U.S. dollars, a strengthening of the dollar could make
our products less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are in short-term instruments, including
money market funds and commercial paper, and long-term investments mature
between one and two years. Our interest expense is also sensitive to changes in
the general level of U.S. interest rates because the interest rate charged
varies with the prime rate. Due to the nature of our investments, we believe
that there is not a material risk exposure. A hypothetical change in interest
rates of 100 basis points would have an immaterial effect on our operating
results and cash flows.

Issues Related to the European Monetary Conversion

     On January 1, 1999, member states of the European Economic Community ("the
EEC") fixed their currencies to the euro, a new legal currency within these
countries. During the three years beginning on January 1, 1999, business in the
EEC member states will be conducted in both the existing national currency and
the euro. Companies operating in or conducting business in EEC member states
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the existing currencies and he
euro. We are still assessing the impact that the euro may have on our internal
systems and products. While we believe our enterprise-wide information systems
will be euro-compliant, we have not tested these systems. We have not determined
the costs related to any euro-related problems that may arise in the future.
These problems may materially adversely affect our business, operating results
and financial condition.

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                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

  None.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

  (c) Recent Sales of Unregistered Securities.

  None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

  None.


ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

  None.

ITEM 5.  OTHER INFORMATION

  None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a) Exhibits.

  None.

  (b) Reports on Form 8-K.

  None.

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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:  May 15, 2001                              By: /s/ Timothy Conley
                                              -----------------------------
                                                      Timothy Conley
                                                 Chief Financial Officer

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