<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002.

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934, FOR THE TRANSITION PERIOD FROM_______ TO_______


                         COMMISSION FILE NUMBER 1-10139


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



                DELAWARE                                04-2911320
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)



                       52 SECOND AVENUE WALTHAM, MA 02451
               (Address of principal executive offices) (Zip Code)


                                 (781) 890-1700
                         (Registrant's Telephone Number)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days   Yes [X]  No [ ]

    As of April 30, 2002 there were 34,002,368 shares of Common Stock
outstanding, exclusive of Treasury stock.

<PAGE>


                          QUARTERLY REPORT ON FORM 10-Q
                          QUARTER ENDED MARCH 31, 2002

                                TABLE OF CONTENTS
<Table>
<Caption>
                                                                                  PAGE
                                                                                  ----
PART I.   FINANCIAL INFORMATION
<S>       <C>                                                                     <C>
Item 1.   Consolidated Condensed Financial Statements

          Consolidated Condensed Balance Sheets as of December 31, 2001 and
          March 31, 2002                                                             3

          Consolidated Condensed Statements of Operations for the three months
          ended March 31, 2001 and 2002                                              4

          Consolidated Condensed Statements of Cash Flows for the three months
          ended March 31, 2001 and 2002                                              5

          Notes to Consolidated Condensed Financial Statements                       6

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                     10

Item 3.   Quantitative and Qualitative Disclosures About Market Risk                20

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings                                                         21

Item 2.   Changes in Securities                                                     21

Item 3.   Defaults upon Senior Securities                                           21

Item 4.   Submission of Matters to a Vote of Security Holders                       21

Item 5.   Other Information                                                         21

Item 6.   Exhibits                                                                  21

SIGNATURES                                                                          22
</Table>
                                       2

<PAGE>


                         PART I. - FINANCIAL INFORMATION

                                 NETEGRITY, INC.

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,        MARCH 31,
                                                                                        2001               2002
                                                                                                        (UNAUDITED)
                                                                                     ------------       -----------
<S>                                                                                   <C>                <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ........................................................  $  26,332          $  13,657
  Short-term marketable securities .................................................     76,651             81,051
  Accounts receivable-- trade, net of allowances of $1,579 at
   December 31, 2001; $1,370 at March 31, 2002 .....................................     16,122             13,206
  Prepaid expenses and other current assets ........................................      3,418              3,319
                                                                                      ---------          ---------
     Total Current Assets ..........................................................    122,523            111,233
Long-term marketable securities ....................................................      6,083              9,795
Property and equipment, net ........................................................      8,494              8,244
Restricted cash ....................................................................        631                635
Intangible assets, net .............................................................     68,108             67,206
Other assets .......................................................................        340                344
                                                                                      ---------          ---------
     Total Assets ..................................................................  $ 206,179          $ 197,457
                                                                                      =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable-- trade .........................................................  $   1,707          $   1,348
  Accrued compensation and benefits ................................................      5,152              3,145
  Other accrued expenses ...........................................................      9,956              6,729
  Deferred revenue .................................................................     13,223             12,583
                                                                                      ---------          ---------
     Total Current Liabilities .....................................................     30,038             23,805
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, voting, $.01 par value; 55,000 shares authorized; 33,866 shares
   issued and 33,828 shares outstanding at December 31, 2001; 34,032 issued
   and 33,994 outstanding at March 31, 2002 ........................................        339                340
Additional paid-in capital .........................................................    196,492            196,838
Accumulated other comprehensive loss ...............................................        (44)              (127)
Accumulated deficit ................................................................    (20,432)           (23,185)
Loan to officer ....................................................................       (130)              (130)
                                                                                      ---------          ---------
                                                                                        176,225            173,736
Less-- Treasury Stock, at cost: 38 shares ..........................................        (84)               (84)
                                                                                      ---------          ---------
Total Stockholders' Equity .........................................................    176,141            173,652
                                                                                      ---------          ---------
Total Liabilities and Stockholders' Equity .........................................  $ 206,179          $ 197,457
                                                                                      =========          =========
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                       3

<PAGE>


                                 NETEGRITY, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                           FOR THE THREE MONTHS
                                                                              ENDED MARCH 31,
                                                                           --------------------
                                                                           2001            2002
                                                                           ----            ----
<S>                                                                      <C>             <C>
Revenues:
  Software licenses ...................................................  $18,772         $ 13,617
  Services ............................................................    6,442            7,578
  Other ...............................................................    1,071              775
                                                                         -------         --------
     Total revenues ...................................................   26,285           21,970
Cost of Revenues:
  Cost of software licenses ...........................................      886            1,472
  Cost of services ....................................................    4,130            3,866
  Cost of other .......................................................      701              453
                                                                         -------         --------
     Total cost of revenues ...........................................    5,717            5,791
                                                                         -------         --------
Gross profit ..........................................................   20,568           16,179
Selling, general and administrative expenses ..........................   14,448           13,490
Research and development costs ........................................    3,956            6,058
                                                                         -------         --------
Income (loss) from operations .........................................    2,164           (3,369)
Other income, net .....................................................    1,500              656
                                                                         -------         --------
Income (loss) before provision for income taxes .......................    3,664           (2,713)
Provision for income taxes ............................................      315               40
                                                                         -------         --------
Net income (loss) .....................................................  $ 3,349         $ (2,753)
                                                                         =======         ========

Net income (loss) per share attributable to common stockholders:
     Basic ............................................................  $  0.11         $  (0.08)
     Diluted ..........................................................  $  0.10         $  (0.08)
Weighted average shares outstanding:
     Basic ............................................................   30,424           33,875
     Diluted ..........................................................   33,274           33,875
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                       4


<PAGE>


                                 NETEGRITY, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                         FOR THE THREE MONTHS
                                                                                             ENDED MARCH 31,
                                                                                      ---------------------------
                                                                                         2001              2002
                                                                                      ---------          --------
<S>                                                                                   <C>                <C>
OPERATING ACTIVITIES:
Net income (loss) ................................................................... $   3,349          $ (2,753)
Adjustments to reconcile net income (loss) to net cash (used for) provided by
operating activities:
  Depreciation and amortization .....................................................       514             2,056
  Non-cash interest income ..........................................................        --               (65)
  Gain on sale of marketable securities .............................................        --                (3)
Changes in operating assets and liabilities:
  Accounts receivable - trade .......................................................    (3,160)            2,916
  Prepaid expenses and other current assets .........................................       (30)               99
  Other assets ......................................................................       (38)              (19)
  Accounts payable-trade ............................................................      (420)             (358)
  Accrued compensation and benefits .................................................    (2,762)           (2,007)
  Other accrued expenses ............................................................     2,264            (1,385)
  Deferred revenue ..................................................................     1,252              (640)
                                                                                      ---------          --------
Net cash (used for) provided by operating activities ................................       969            (2,159)

INVESTING ACTIVITIES:
Proceeds from sales and maturities of marketable securities .........................        --            38,019
Purchases of marketable securities ..................................................        --           (46,183)
Purchases of property and equipment .................................................    (1,653)             (869)
Payment of DataChannel acquisition costs ............................................        --            (1,843)
Restricted cash .....................................................................        --                (4)
                                                                                      ---------          --------
Net cash (used for) investing activities ............................................    (1,653)          (10,880)
                                                                                      ---------          --------

FINANCING ACTIVITIES:
Issuance of common stock under stock plans ..........................................     2,996               348
                                                                                      ---------          --------
Net cash provided by financing activities ...........................................     2,996               348
                                                                                      ---------          --------

Effect of exchange rate changes on cash and cash equivalents ........................        --                16
Net change in cash and cash equivalents .............................................     2,312           (12,675)
Cash and cash equivalents at beginning of period ....................................   115,747            26,332
                                                                                      ---------          --------
Cash and cash equivalents at end of period .......................................... $ 118,059          $ 13,657
                                                                                      =========          ========
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                       5

<PAGE>


                                 NETEGRITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The unaudited financial information furnished herein reflects all adjustments
(which are of a normal recurring nature), which in the opinion of management are
necessary to fairly state the Company's financial position, cash flows and
results of operations for the periods presented. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The consolidated financial statements of the Company also include the
accounts and operations of its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the remainder of the
year ending December 31, 2002. This information should be read in conjunction
with the Company's audited financial statements for the fiscal year ended
December 31, 2001, included in Form 10-K filed on March 22, 2002.

(b) REVENUE RECOGNITION

The Company's revenues are primarily generated from the sale of perpetual
licenses to Netegrity's(R) proprietary SiteMinder(R), Delegated Management
Services(TM) and Netegrity Interaction Server(TM) products and services and from
licensing the rights to use software products developed by Checkpoint Software
Technologies, Ltd. to end users and resellers. (Such Checkpoint revenue is
included in "other" revenue in the accompanying statement of operations.) The
Company generates its services revenue from consulting and training services
performed for customers and from maintenance and support. Revenues from software
license agreements are recognized when persuasive evidence of an arrangement
exists, the product has been delivered, fees are fixed or determinable and
collection of the resulting receivable is reasonably assured. The Company does
not offer a right of return on its products. Revenues may include multiple
software products, maintenance and other services sold together; these are
allocated to each element based on the residual method in accordance with
Statement of Position No. 98-9, "Software Revenue Recognition, with Respect to
Certain Transactions". Under the residual method, the fair value of the
undelivered elements is deferred and subsequently recognized when earned. The
Company has established sufficient vendor specific objective evidence for
professional services, training and maintenance services based on the price when
these elements are sold separately. Accordingly, software license revenue is
recognized under the residual method upon delivery in arrangements in which
software is licensed with professional services, training and maintenance
services. Revenues for maintenance and support are recognized ratably over the
term of the support period. Revenues from consulting and training services are
recognized as the services are performed. Maintenance, training and consulting
services that have been billed but not recognized are included in deferred
revenue.

(c) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash, money market investments and other
highly liquid investments with original maturities of three months or less at
the date of purchase.

(d) MARKETABLE SECURITIES

Investments with a maturity greater than three months, which primarily consist
of debt securities, are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" issued by the Financial Accounting Standards Board (FASB). Pursuant
to the provisions of SFAS No. 115, the Company has classified its investment
portfolio as "trading", "available-for-sale" or "held to maturity". "Trading"
securities are bought and held principally for the purpose of selling them in
the near term and are recorded at fair value. Fair value is based upon quoted
market prices. Unrealized gains and losses on trading securities are included in
the determination of net earnings. "Available-for-sale" securities include debt
securities that are being held for an unspecified period of time and may be used
for liquidity or other corporate purposes and are recorded at fair value.
Unrealized gains and losses on available-for-sale securities are reported as a
separate component of comprehensive income in stockholders' equity. "Held to
maturity" securities are debt securities that the Company intends to hold to
maturity and are recorded at amortized cost.

As of March 31, 2002, based on management's intentions, all marketable
securities have been classified as "available for sale". The change in the net
unrealized (loss) included in comprehensive income in stockholders' equity was
approximately $(113,000) at March 31, 2002. Net realized gains amounting to
approximately $3,000 are included in other income, net in the


                                       6


<PAGE>


consolidated condensed statement of operations for the three months ended
March 31, 2002.

(e) COMPREHENSIVE INCOME (LOSS)

Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources, including foreign currency translation adjustments and
unrealized gains and losses on marketable securities held as "available for
sale". For the three months ended March 31, 2001, there was no difference
between comprehensive income (loss) and net income (loss). For the three months
ended March 31, 2002, the difference of approximately ($83,000) between the
comprehensive (loss) of approximately ($2.84 million) and net loss of
approximately ($2.75 million) is due to unrealized (losses) on marketable
securities of approximately ($113,000) offset by a favorable cumulative
translation adjustment of approximately $30,000.

(f) NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share (EPS) is calculated by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted EPS is calculated by dividing net income by the
weighted average number of shares outstanding plus the dilutive effect, if any,
of the outstanding stock options and warrants using the "treasury stock" method.
During periods of net loss, diluted net loss per share does not differ from
basic net loss per share since potential common shares from stock options and
warrants are anti-dilutive and therefore are excluded from the calculation.

The following table sets forth basic and diluted net income (loss) per share
computational data for the periods presented (in thousands, except per share
data):

                                                        FOR THE THREE MONTHS
                                                           ENDED MARCH 31,
                                                      ------------------------
                                                        2001            2002
                                                      -------         --------
Net income (loss) ..................................  $ 3,349         $ (2,753)
                                                      -------         --------
Basic weighted average shares outstanding ..........   30,424           33,875
Dilutive effect of stock options and warrants ......    2,850               --
                                                      -------         --------
Diluted shares outstanding .........................   33,274           33,875
                                                      -------         --------
Basic net income (loss) per share ..................  $  0.11         $  (0.08)
                                                      =======         ========
Diluted net income (loss) per share ................  $  0.10         $  (0.08)
                                                      =======         ========

Options to purchase a total of 1.4 million and 3.5 million weighted shares
outstanding for the three months ended March 31, 2001 and 2002, respectively,
were outstanding but were excluded in the computation of diluted EPS because the
options are anti-dilutive.

(g) RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, FASB issued SFAS Nos. 141, "Business Combinations", and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations initiated after June 30, 2001, be accounted for using the
purchase method of accounting. SFAS No. 142 discusses how intangible assets that
are acquired should be accounted for in financial statements upon their
acquisition. In addition, under SFAS No. 142, goodwill and other indefinite
lived intangible assets are no longer amortized but are reviewed at least
annually for impairment (or more frequently if impairment indicators arise).
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives.

The acquisition discussed in Note 2 was accounted for in accordance with the
transition provisions of SFAS No. 141 and No. 142. In connection with the
adoption of SFAS No. 142, goodwill will be tested at least annually and also
whenever events or circumstances occur indicating that goodwill might be
impaired. The annual impairment test will be completed in the fourth quarter of
each fiscal year.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is effective for the Company on January 1,
2002. SFAS No. 144 addresses accounting and reporting of all long-lived assets,
except goodwill, that are either held and used or disposed of through sale or
other means.

The Company adopted SFAS No's. 141, 142 and No. 144 during the first quarter of
fiscal year 2002 without a material impact on its financial position or results
of operations. If the Company had accounted for goodwill and other intangibles
in accordance with SFAS 142 during the quarter ended March 31, 2001, the
results of operations would not be different from those previously reported.


                                       7

<PAGE>


In November 2001, the Emerging Issues Task Force issued Topic No. D-103 (Topic
D-103) relating to the accounting for reimbursements received for out-of-pocket
expenses. In accordance with Topic D-103, reimbursements received for
out-of-pocket expenses incurred should be characterized as revenue in the
statement of operations. The Company has historically accounted for
reimbursements received for out-of-pocket expenses incurred as a reduction to
the cost of service revenues in the statement of operations to offset the costs
incurred. The Company adopted Topic D-103 for the financial reporting period
ended March 31, 2002 and approximately $249,000 has been reclassified for the
quarter ended March 31, 2001 to comply with this guidance.

NOTE 2:  ACQUISITION

On December 14, 2001 (the Acquisition Date) the Company acquired, for aggregate
consideration of $70.2 million, all of the outstanding stock of DataChannel,
Inc., a Washington Corporation (DataChannel). On the Acquisition Date,
DataChannel, a leading provider of enterprise portal solutions, became a
wholly-owned subsidiary of the Company (the Acquisition). The aggregate
consideration included approximately $17.5 million in cash (including assumed
debt of approximately $1.4 million), $3.0 million in acquisition costs and
2,499,968 shares of the Company's Common stock valued at approximately $49.7
million.

The Acquisition was accounted for using the purchase method of accounting in
accordance with SFAS No. 141, "Business Combinations." Accordingly the excess of
the purchase price over the fair value of the tangible net liabilities assumed
of approximately $71.3 million was allocated to acquired technology, in-process
research and development (IPRD), and goodwill in the amounts of approximately
$11.0 million, $3.0 million and $57.3 million, respectively. Results of
operations of DataChannel from the Acquisition Date are included in the
Company's consolidated results of operations.

In connection with the Acquisition, the Company initiated an overall integration
plan that included the elimination of redundant headcount and facilities. The
Company accrued approximately $2.2 million of cost related to the integration
plan consisting of approximately $1.8 million of facilities costs and $0.4
million for planned workforce reductions consisting primarily of duplicative
general and administrative functions. Approximately $381,000 of these costs were
paid during the quarter ended March 31, 2002.

The total goodwill of approximately $57.3 million related to the Acquisition is
not amortized in accordance with SFAS No.'s 141 and 142. The Company is
amortizing the acquired existing technology of approximately $11.0 million on a
straight-line basis over an estimated remaining useful life of three years. The
amount allocated to IPRD of $3.0 million was charged to expense in the fourth
quarter of fiscal year 2001.

The following unaudited pro forma financial information presents the combined
results of operations of the Company and DataChannel as if the Acquisition
occurred on January 1, 2001, after giving effect to certain adjustments,
including amortization expense. Due to the non-recurring nature of the IPRD
charge, the amount has not been included in the unaudited pro forma financial
information. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Acquisition
been completed as of the dates indicated or of the results that may be obtained
in the future (in thousands except per share information).

                                                                THREE MONTHS
                                                                   ENDED
                                                               MARCH 31, 2001
                                                               --------------

Revenues......................................................... $28,638
Net loss attributable to common shareholders....................  $(4,637)
 Net loss per basic and fully diluted common share............... $ (0.14)

NOTE 3:  TENDER OFFER

On August 9, 2001 and as subsequently amended, the Company filed a tender offer
statement with the Securities and Exchange Commission in connection with certain
stock options issued after December 1, 1999 (the Option Offer). Under the Option
Offer, the Company offered to exchange certain employee options to purchase
shares of the Company's common stock for new options to purchase shares of its
common stock. The Option Offer, which excluded executive officers, directors and
non-employees of the Company and which expired on September 7, 2001, provided
for the grant of new options on or about March 11, 2002 to eligible employees
who were actively employed on the grant date. The number of shares underlying
the new options was equal to the number of shares underlying the cancelled
eligible options. The exercise price of the new options was equal to the fair
market value of one share of common stock on the date of grant of the new
options as determined in accordance with the applicable option plans. Each new
option will vest in accordance with a vesting schedule that is equivalent to
what would have been in place had the cancelled option remained in effect.


                                       8

<PAGE>


On March 11, 2002, the Company granted options to purchase an aggregate of
2,103,406 shares of its common stock in connection with the Option Offer. In
accordance with FASB Interpretation No. 44, since the replacement options were
granted more than six months after cancellation of the old options, the new
options were considered a fixed award and therefore did not result in any
compensation expense.

NOTE 4:  OPERATING SEGMENTS AND GEOGRAPHICAL INFORMATION

(a) OPERATING SEGMENTS

The Company has one operating segment that provides products to securely manage
e-business relationships. Operating segments are defined as components of the
enterprise about which separate financial information is available that is
reviewed regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing their performance.

(b)  GEOGRAPHIC INFORMATION

The Company operates in three geographic regions: North America, Europe and Asia
Pacific. Revenues (based on the location of the customer) and long-lived assets
(including marketable securities) by geographic region are as follows:

                                       FOR THE THREE MONTHS
                                           ENDED MARCH 31,
                                           (UNAUDITED)
                                      ---------------------
                                        2001          2002
                                      -------       -------
Revenues:
     North America .................. $22,007       $19,221
     Europe .........................   2,645         2,368
     Asia Pacific ...................   1,633           381
                                      -------       -------
     Total .......................... $26,285       $21,970
                                      =======       =======
Long-Lived Assets:
     North America ..................   6,491        18,215
     Europe .........................     138           272
     Asia Pacific ...................     117           531
                                      -------       -------
     Total .......................... $ 6,746       $19,018
                                      =======       =======


                                       9

<PAGE>

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

                  FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This report and the documents incorporated in it by reference contain
forward-looking statements about our plans, objectives, expectations and
intentions. You can identify these statements by words such as "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," "may," "will" and
"continue" or similar words. You should read statements that contain these words
carefully. They discuss our future expectations, contain projections of our
future results of operations or our financial condition or state other
forward-looking information, and may involve known and unknown risks over which
we have no control. You should not place undue reliance on forward-looking
statements. We cannot guarantee any future results, levels of activity,
performance or achievements. Moreover, we assume no obligation to update
forward-looking statements or update the reasons actual results could differ
materially from those anticipated in forward-looking statements, except as
required by law. The factors discussed in the sections captioned "Business",
"Risk Factors," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this report and the documents incorporated in it
by reference identify important factors that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements.

This report and the documents incorporated in it by reference contain data
related to the e-business market. These market data have been included in
studies published by the market research firms of International Data
Corporation, the META Group and The Gartner Group. These data include
projections that are based on a number of assumptions, including increasing
worldwide business use of the Internet, the growth in the number of web access
devices per user, the absence of any failure of the Internet, and the continued
improvement of security on the Internet. If any of these assumptions is
incorrect, actual results may differ from the projections based on those
assumptions.

                                  RISK FACTORS

The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. In that context, the discussion in
this item contains forward-looking statements that involve certain degrees of
risk and uncertainty, including statements relating to liquidity and capital
resources. Except for the historical information contained herein, the matters
discussed in this section are such forward-looking statements that involve risks
and uncertainties, including:

WE HAVE INCURRED SUBSTANTIAL LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.

In recent years, we have incurred substantial operating losses. We cannot
predict if we will achieve profitability for any substantial period of time.
Failure to maintain levels of profitability as expected by investors may
adversely affect the market price of our common stock. In the quarter ended
March 31, 2002, we had a net loss of $2.8 million. As a result of historical
operating losses, including during the last two quarters of the year ended
December 31, 2001, as of March 31, 2002, we had an accumulated deficit of
approximately $23.2 million.

DISAPPOINTING QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO FALL SUBSTANTIALLY.

Our quarterly revenues and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. If our quarterly revenues or
operating results fall below the expectations of investors, the price of our
common stock could fall substantially. Our quarterly revenues may fluctuate for
several reasons, including, but not limited to, the following:

     -    customers choosing to delay their purchase commitments or purchase in
          smaller than expected quantities due to a general slowdown in the
          economy;

     -    market acceptance of our SiteMinder, DMS, NIS and related products;

     -    our success in obtaining follow-on sales to existing customers;

     -    the long sales and deployment cycle of our products;

     -    our ability to hire and retain personnel, particularly in development,
          services and sales and marketing;

     -    the release of new versions of SiteMinder, DMS, NIS or other products;

     -    the development of our direct and indirect sales channels; and



                                       10


<PAGE>


     -    Integration issues with acquired technology.

In addition, because our revenues from services are largely correlated with our
software revenues, a decline in software revenues could also cause a decline in
our services revenues in the same quarter or in subsequent quarters. Other
factors, many of which are outside our control, could also cause variations in
our quarterly revenues and operating results.

Most of our expenses, such as employee compensation and rent, are relatively
fixed. Moreover, our expense levels are based, in part, on our expectations
regarding future revenue increases. We expect to continue to invest in all
areas, particularly in research and development and sales and marketing, in
order to execute our business plan. As a result, any shortfall in revenues in
relation to our expectations could cause significant changes in our operating
results from quarter to quarter and could result in future losses.

OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO MARKET OUR PRODUCTS AND RELATED
SERVICES SUCCESSFULLY.

We currently derive a substantial majority of our total revenues from the sale
of SiteMinder software licenses and related products and services. Commercial
deployments of SiteMinder products have grown to include not only
business-to-business and e-business applications, but large intranet and
multi-million user business-to-consumer deployments, as well. Broad market
acceptance of our products will depend on the development of a market for access
control and identity management, including usage of our products for software
business-to-consumer applications, and customer demand for the specific
functionality of our products. Market acceptance for our products, and customer
demand for the services they provide, may not develop.

Our ability to develop the market for our products depends in part on our
ability to provide support services on a 24 hour per day, seven day per week
basis. Any damage or disruptions to our service centers, including the recently
opened service center in Malaysia, whether as a result of terrorism or some
other cause, could seriously impact our ability to provide the necessary service
to our customers and fulfill our service contracts.

There are currently 41 commercial deployments of our NIS. Broad market
acceptance of NIS and related services will depend on continued development of
the enterprise portal market, and consequent customer demand for the specific
functionality of NIS. If we fail in marketing our products and services, for
whatever reason, our business will be harmed.

OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO ENHANCE OUR PRODUCT LINES AND DEVELOP
NEW PRODUCTS.

We believe our success is dependent, in large part, on our ability to enhance
and broaden our product lines to meet the evolving needs of both the
business-to-business intranet and business-to-consumer market. We may be unable
to respond effectively to technological changes or new industry standards or
developments. In the past, we have been forced to delay introduction of several
new product versions. In the future, we could be adversely affected if we incur
significant delays or are unsuccessful in enhancing our product lines or
developing new products, or if any of our enhancements or new products do not
gain market acceptance.

OUR PERFORMANCE DEPENDS ON OUR ABILITY TO OBTAIN FOLLOW-ON SALES.

Customers typically place small initial orders for a Netegrity product
installation to allow them to evaluate its performance. Our strategy is to
pursue more significant follow-on sales after these initial installations. Our
financial performance depends on successful initial deployments of our products
that, in turn, lead to follow-on sales. If the initial deployments of our
products are not successful, we may be unable to obtain follow-on sales.

WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES AND WE MAY NOT
BE ABLE TO COMPETE EFFECTIVELY.

The market for access control, identity management and portal products and
services is highly competitive. We expect the level of competition to increase
as a result of the anticipated growth of e-business. Our primary competitors
include IBM, RSA/Securant, Entrust, OpenNetwork Technology, Plumtree,
Epicentric, BEA, Oblix and many early-stage companies. In addition, a number of
other security and software companies have indicated that they offer products
which may compete with ours. We also face competition from web development
professional services organizations. We expect that additional competitors will
emerge in the future. Current and potential competitors have established, or may
in the future establish, cooperative relationships with third parties to
increase the availability of their products to the marketplace. It is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Potential competitors may have significantly greater financial,
marketing, technical and other competitive resources than we have. If, in the
future, a competitor chooses to bundle a competing secure user management
product with other e-commerce applications, the demand for our products might be
substantially reduced. Because of these factors, many of


                                       11

<PAGE>


which are out of our control, we may be unable to maintain or enhance our
competitive position against current and future competitors.

REGULATIONS OR CONSUMER CONCERNS REGARDING THE USE OF "COOKIES" ON THE INTERNET
COULD REDUCE THE EFFECTIVENESS OF OUR SITEMINDER SOFTWARE PRODUCTS.

Our SiteMinder products use cookies to support their single sign-on
functionality. A cookie is information keyed to a specific user that is stored
on the hard drive of the user's computer, typically without the user's
knowledge. Cookies are generally removable by the user, and can be refused by
the user at the point at which the information would be stored on the user's
hard drive. A number of governmental bodies and commentators in the United
States and abroad have urged passage of laws limiting or abolishing the use of
cookies. The passage of laws limiting or abolishing the use of cookies, or the
widespread deletion or refusal of cookies by web site users, could reduce or
eliminate the effectiveness of SiteMinder's single sign-on functionality and
could reduce market demand for our SiteMinder products.

WE MAY BE UNABLE TO HIRE AND RETAIN SKILLED PERSONNEL.

Qualified personnel are in great demand throughout the software industry. Our
success depends, in large part, upon our ability to attract, train, motivate and
retain highly skilled employees, particularly software engineers, professional
services personnel, sales and marketing personnel and other senior personnel.
Our failure to attract and retain the highly trained technical personnel that
are integral to our product development, professional services and direct sales
teams may limit the rate at which we can generate sales and develop new products
or product enhancements. This could have a material adverse effect on our
business, operating results and financial condition.

OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP OUR DIRECT SALES AND INDIRECT
DISTRIBUTION CHANNELS.

To increase our revenues, we must develop our direct sales channel and increase
the number of our indirect channel partners. There is intense competition for
sales personnel in our business, and we cannot be sure that we will be
successful in attracting, integrating, motivating and retaining sales personnel.
In addition, we must increase the number of strategic partnerships and other
third-party relationships with system integrators, vendors of Internet-related
systems and application software and resellers. Our existing, or future, channel
partners may choose to devote greater resources to marketing and supporting the
products of other companies or conflicts may develop among our sales force and
channel partners. If we fail to develop these relationships or these
relationships do not result in successful partnerships, our revenue could
suffer.

WE RELY ON THIRD PARTY TECHNOLOGY TO ENHANCE OUR PRODUCTS.

We incorporate into our products software licensed from third-party software
developers that enhance and enable the functionality of our product. Third-party
software may not continue to be available on commercially reasonable terms or
with acceptable levels of support, or at all. Failure to maintain those license
arrangements or defects and errors in those third-party products could delay or
impair our ability to develop and sell our products.

OUR FAILURE TO EXPAND OUR PROFESSIONAL SERVICES RESOURCES COULD LIMIT OUR
ABILITY TO INCREASE OUR PRODUCT SALES.

Our professional services organization and our system integrators provide
critical support to our customers' installation and deployment of our products.
If we fail to expand our professional services resources and/or adequately
develop our system integrator relationships, our ability to increase products
sales may be limited. In addition, if we cannot adequately support product
installations, our customers' use of our products may fail which could harm our
reputation and hurt our business.

OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING
RESULTS.

We have a long sales cycle because we generally need to educate potential
customers regarding the use and benefits of our products. The length of our
sales cycle varies depending on the size and type of customer contemplating a
purchase and whether we have conducted business with a potential customer in the
past. In addition, these potential customers frequently need to obtain approvals
from multiple decision makers prior to making purchase decisions. Our long sales
cycle, which can range from several weeks to several months or more, makes it
difficult to predict the quarter in which sales will occur. Delays in sales
could cause significant variability in our revenues and operating results for
any particular period.

OUR FAILURE TO EFFECTIVELY MANAGE CHANGES IN THE BUSINESS ENVIRONMENT IN WHICH
WE OPERATE COULD HURT OUR BUSINESS.


                                       12


<PAGE>

Our failure to effectively manage changes in the business environment in which
we operate could have a material adverse effect on the quality of our products,
our ability to retain key personnel and our business, operating results and
financial condition. Historically, we had been experiencing a period of rapid
growth that was placing a significant strain on all of our resources. From
December 31, 2000 to March 31, 2002, we increased the number of our employees
from 292 to 485 (including 95 from our acquisition of DataChannel on December
14, 2001). Currently, based upon economic factors beyond our control, we are
implementing a reduction in force. We may experience similar changes in the
future. To effectively manage changes in the business environment in which we
operate we must maintain and enhance our financial and accounting systems and
controls, integrate new personnel and manage effected operations.

IF WE LOSE THE SERVICES OF BARRY BYCOFF OR ANY OTHER MEMBER OF OUR MANAGEMENT
TEAM, OUR BUSINESS COULD SUFFER.

Our future success depends, to a significant degree, on the skill, experience
and efforts of Barry Bycoff, our chief executive officer, and the rest of our
management team. The loss of any member of our management team or the inability
of our officers and key employees to work effectively as a team could have a
material adverse effect on our business, operating results and financial
condition.

AS WE CONTINUE TO EXPAND OUR INTERNATIONAL OPERATIONS, WE WILL FACE CONTINUED
RISKS TO OUR SUCCESS.

We intend to continue to expand our international operations in the future. This
expansion will require additional resources and management attention, and will
subject us to increased regulatory, economic and political risks. We have very
little experience in international markets and we cannot be sure that our
continued expansion into global markets will be successful. In addition, we will
face increased risks in conducting business internationally. These risks could
reduce demand for our products and services, increase the prices at which we can
sell our products and services, or otherwise have an adverse effect on our
operating results. Among the risks we believe are most likely to affect us are:

     -    longer decision making cycles;

     -    longer payment cycles and problems in collecting accounts receivable;

     -    adverse changes in trade and tax regulations, including restrictions
          on the import and export of sensitive technologies, such as encryption
          technologies, that we use or may wish to use in our software products;

     -    the absence or significant lack of legal protection for intellectual
          property rights;

     -    difficulties in managing an organization spread over several
          countries, including complications arising from cultural, language and
          time differences that may lengthen sales and implementation cycles;

     -    currency risks, including fluctuations in exchange rates;

     -    political and economic instability;

     -    increased use of contractors on a global basis for both professional
          services and development works, as business requirements dictate that
          may result in increased cost of services and/or less direct control;
          and

     -    disruption caused by terrorist activities in various regions around
          the world.

OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.

Our success depends to a significant degree upon the protection of our software
and other proprietary technology. The unauthorized reproduction or other
misappropriation of our proprietary technology could enable third parties to
benefit from our technology without paying us for it. This could have a material
adverse effect on our business, operating results and financial condition. We
depend upon a combination of patent, trademark, trade secret and copyright laws,
license agreements and non-disclosure and other contractual provisions to
protect proprietary and distribution rights in our products. In addition, we
attempt to protect our proprietary information and the proprietary information
of our vendors and partners through confidentiality and/or license agreements
with our employees and others. Although we have taken steps to protect our
proprietary technology, they may be inadequate. Existing trade secret, copyright
and trademark laws offer only limited protection. Moreover, the laws of other
countries in which we market our products may afford little or no effective
protection of our intellectual property. If we resort to legal proceedings to
enforce our intellectual property rights, the proceedings could be burdensome
and expensive, even if we were to prevail.


                                       13


<PAGE>


CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD
HURT OUR FINANCIAL CONDITION.

If we discover that any of our products violated third-party proprietary rights,
there can be no assurance that we would be able to reengineer our product or to
obtain a license on commercially reasonable terms to continue offering the
product without substantial reengineering. We do not conduct comprehensive
patent searches to determine whether the technology used in our products
infringes patents held by third parties. In addition, product development is
inherently uncertain in a rapidly evolving technology environment in which there
may be numerous patent applications pending for similar technologies, many of
which are confidential when filed. Any claim of infringement, even if invalid,
could cause us to incur substantial costs defending against the claim and could
distract our management from our business. Furthermore, a party making such a
claim could secure a judgment that requires us to pay substantial damages. A
judgment could also include an injunction or other court order that could
prevent us from selling our products. Any of these events could have a material
adverse effect on our business, operating results and financial condition.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS.

Software products as complex as ours may contain undetected errors or "bugs"
that result in product failures. The occurrence of errors could result in loss
of, or delay in, revenues, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation, or
damage to our efforts to build brand awareness, any of which could have a
material adverse effect on our business, operating results and financial
condition.

WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' USE OF OUR PRODUCTS.

Many of the e-commerce applications supported by our products are critical to
the operations of our customers' businesses. Any failure in a customer's web
site or application caused or allegedly caused by our products could result in a
claim for substantial damages against us, regardless of our responsibility for
the failure. Although we maintain general liability insurance, including
coverage for errors and omissions, we cannot be sure that our existing coverage
will continue to be available on reasonable terms or will be available in
amounts sufficient to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim.

OUR ACQUISITION OF OTHER COMPANIES MAY INCREASE THE RISKS WE FACE.

On December 14, 2001, we acquired the capital stock of DataChannel, Inc., a
privately held Washington corporation. In the future, we may pursue other
acquisitions to obtain complementary products, services and technologies.
DataChannel and any other such acquisition may not produce the revenues,
earnings or business synergies that we anticipated, and an acquired product,
service or technology might not perform as we expected. In pursuing any
acquisition, our management could spend a significant amount of time and effort
in identifying and completing the acquisition. If we complete an acquisition, we
would probably have to devote a significant amount of management resources to
integrate the acquired business with our existing business. To pay for an
acquisition, we might use our stock or cash. Alternatively, we might borrow
money from a bank or other lender. If we use our stock, our stockholders would
experience dilution of their ownership interests. If we use cash or debt
financing, our financial liquidity will be reduced.

THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.

Our stock price, like that of other technology companies, has been extremely
volatile. The announcement of new products, services, technological innovations
or distribution partners by us or our competitors, quarterly variations in our
operating results, changes in revenues or earnings estimates by securities
analysts and speculation in the press or investment community are among the
factors affecting our stock price.

The stock market in general and the market prices for Internet-related companies
in particular, have experienced extreme volatility that often has been unrelated
to the operating performance of these companies. These broad market and industry
fluctuations may adversely affect the market price of our common stock,
regardless of our operating performance. Recently, when the market price of a
stock has been volatile, holders of that stock have often instituted securities
class action litigation against the company that issued the stock. If any of our
stockholders brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time and attention of
our management.

The general economic uncertainties in the United States and abroad continue to
cause significant volatility in the stock markets. The continued threat of
terrorism in the United States and abroad, the ongoing military action and
heightened security measures


                                       14

<PAGE>


undertaken in response to that threat can be expected to cause continued
volatility in securities markets. In addition, foreign political unrest may
continue to adversely effect the economy.

WE MAY LOSE MONEY ON FIXED-PRICE CONSULTING CONTRACTS.

In the future, an increased portion of our services revenues may be derived from
fixed-price contracts. We work with complex technologies in compressed time
frames and it can be difficult to judge the time and resources necessary to
complete a project. If we miscalculate the resources or time we need to complete
work under fixed-price contracts, our operating results could be materially
harmed. As of March 31, 2002, the Company had no fixed-price contracts.

CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF OUR
COMPANY MORE DIFFICULT.

Our corporate documents and Delaware law contain provisions that might enable
our management to resist a takeover of our company. These provisions might
discourage, delay or prevent a change in the control of Netegrity or a change in
our management. These provisions could also discourage proxy contests and make
it more difficult for you and other stockholders to elect directors and take
other corporate actions. The existence of these provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock.

      CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Netegrity's discussion and analysis of its financial condition and results of
operations are based on the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported revenues and expenses
during the reporting periods. On an ongoing basis, management evaluates its
estimates and judgments, including those related to revenue recognition, bad
debts, valuation of long-lived and intangible assets and goodwill, and income
taxes. Management bases its estimates on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

The significant accounting policies that management believes are most critical
to aid in fully understanding and evaluating our reported financial results
include the following:

Revenue Recognition

The Company's revenues are primarily generated from the sale of perpetual
licenses to its proprietary SiteMinder, DMS and NIS products and services. The
Company generates its services revenue from consulting and training services
performed for customers and from maintenance and support. As described below,
significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
management made different judgments or utilized different estimates.

We license our software products on a perpetual basis. We apply the provisions
of Statement of Position No. 97-2, "Software Revenue Recognition," as amended by
Statement of Position No. 98-9, "Software Revenue Recognition, with Respect to
Certain Transactions," to all transactions involving the sale of software
products. We recognize revenue from the sale of software licenses when
persuasive evidence of an arrangement exists, the product has been delivered,
the fees are fixed or determinable and collection of the resulting receivable is
reasonably assured. The Company does not offer a right of return on its
products.

For all sales, we use either a binding purchase order or signed license
agreement as evidence of an arrangement. For arrangements with multiple
obligations (for example, product, undelivered maintenance and support, and
training and consulting), we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. We defer revenue from the arrangement equivalent to the
fair value of the undelivered elements. Fair values for the ongoing maintenance
and support obligations are based upon separate sales of renewals to other
customers. Fair value of services, such as training or consulting, is based upon
separate sales of these services to other customers.


                                       15


<PAGE>


At the time of the transaction, we assess whether the fee associated with the
transaction is fixed or determinable based on the payment terms associated with
the transaction. If a significant portion of the fee is due after our normal
payment terms, which are 30 to 90 days from invoice date, we account for the fee
as not being fixed or determinable. In these cases, we recognize revenue as the
fees become due. In addition, we assess whether collection is probable or not
based on the credit worthiness of the customer. Initial credit worthiness is
assessed through Dun & Bradstreet or similar credit rating agencies. Credit
worthiness for follow-on transactions is assessed through a review of the
transaction history with the customer. We do not request collateral from our
customers. If we determine that collection of a fee is not reasonably assured,
we defer the fee and recognize revenue at the time collection becomes reasonably
assured, which is generally upon receipt of cash.

Revenues for maintenance and support are recognized ratably over the term of the
support period. Revenues from consulting and training services are recognized as
the services are performed.

Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. The estimated allowance for uncollectible amounts
is based primarily on a specific analysis of accounts in the receivable
portfolio and historical write-off experience. While management believes the
allowance to be adequate, if the financial condition of the Company's customers
were to deteriorate, resulting in impairment of their ability to make payments,
additional allowances may be required.

Valuation of Long-lived and Intangible Assets and Goodwill

The acquisition of DataChannel, Inc. on December 14, 2001 was accounted for in
accordance with the transition provisions of SFAS No. 141 and No. 142. The
Company adopted SFAS No. 142 during the first quarter of fiscal year 2002
without a material impact on its financial position or results of operations.
Under SFAS No. 142, goodwill is not amortized but is reviewed at least annually
for impairment (or more frequently if impairment indicators arise). Separable
intangible assets that are not deemed to have indefinite lives are amortized
over their useful lives. The annual impairment test will be completed in the
fourth quarter of each fiscal year.

The Company adopted SFAS No. 141 and SFAS No. 144, which addresses accounting
and reporting of all long-lived assets, except goodwill, that are either held
and used or disposed of through sale or other means, during the first quarter of
fiscal year 2002 without a material impact on it's financial position or results
of operations. If the Company had accounted for goodwill and other intangibles
in accordance with SFAS 142 during the quarter ended March 31, 2001, the
results of operations would not be different from those previously reported.

The Company is required to assess the impairment of long-lived assets,
identifiable intangibles and goodwill whenever events and circumstances indicate
that the carrying value may not be recoverable. Factors we consider important
that could trigger an impairment review include the following:

     -    significant underperformance relative to expected historical or
          projected future operating results;

     -    significant changes in the manner of our use of the acquired assets or
          the strategy of our overall business;

     -    significant negative industry or economic trends;

     -    significant decline in our stock price for a sustained period; and

     -    our market capitalization relative to net book value.

When we determine that the carrying value of long-lived assets, intangibles and
goodwill may not be recoverable based upon the existence of one or more of the
above indicators of impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model.

Accounting for Income Taxes

The preparation of our consolidated financial statements require us to estimate
our income taxes in each of the jurisdictions in which we operate, including
those outside the United States which may be subject to certain risks that
ordinarily would not be expected in the United States. The income tax accounting
process involves our estimating our actual current exposure together with
assessing temporary differences resulting from differing treatment of items,
such as deferred revenue, for tax and accounting purposes. These


                                       16


<PAGE>


differences result in the recognition of deferred tax assets and liabilities.
The Company must then record a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized.

Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. The Company has recorded a
valuation allowance of $65.8 million as of March 31, 2002, due to uncertainties
related to our ability to utilize some of our deferred tax assets, primarily
consisting of certain net operating losses carried forward before they expire.
The valuation allowance is based on our estimates of taxable income by
jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods we may need to adjust
our valuation allowance which could materially impact our financial position and
results of operations.

RESULTS OF OPERATIONS


The following table presents statement of operations data as percentages of
total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS
                                                                                                      ENDED MARCH 31,
                                                                                                      ---------------
                                                                                                      2001      2002
                                                                                                      ----      ----
<S>                                                                                                    <C>       <C>
   STATEMENT OF OPERATIONS DATA:
   Revenues:
     Software licenses.............................................................................    71%       62%
     Services......................................................................................    25        34
     Other.........................................................................................     4         4
                                                                                                      ---       ---
        Total revenues.............................................................................   100       100
   Cost of revenues:
     Cost of software licenses.....................................................................     3         7
     Cost of services..............................................................................    15        17
     Cost of other.................................................................................     3         2
                                                                                                      ---       ---
        Total cost of revenues.....................................................................    21        26
                                                                                                      ---       ---
   Gross profit....................................................................................    79        74
   Selling, general and administrative expenses....................................................    56        61
   Research and development expenses...............................................................    15        28
                                                                                                      ---       ---
   Income (loss) from operations...................................................................     8       (15)
   Other income, net...............................................................................     6         3
                                                                                                      ---       ---
   Income (loss) before provision for income taxes.................................................    14       (12)
   Provision for income taxes......................................................................     1         1
                                                                                                      ---       ---
   Net income (loss)...............................................................................    13%      (13)%
                                                                                                      ===       ====
</TABLE>

    Revenues. Total revenues decreased by $4.3 million, or 16%, to $22.0 million
in the three months ended March 31, 2002, from $26.3 million in the three months
ended March 31, 2001.

    Software licenses revenues decreased by $5.2 million, or 15%, to $13.6
million in the three months ended March 31, 2002, from $18.8 million in the
three months ended March 31, 2001. This decrease is due to broad based economic
weakness and reduced technology spending which resulted in deals being reduced
in both number and size.

    Services revenues increased by $1.1 million, or 18%, to $7.6 million in the
three months ended March 31, 2002, from $6.5 million in the three months ended
March 31, 2001. This increase is attributable to maintenance and service
arrangements for a growing customer base together with the full quarter effect
of the Acquisition of Data Channel.

    Other revenues which decreased by $296,000 or 28%, to $775,000 in the three
months ended March 31, 2002, from $1,071,000 in the three months ended March 31,
2001 are not expected to have a significant impact in future periods.

    Cost of revenues. Total cost of revenues increased by $74,000 or 1%, to $5.8
million in the three months ended March 31, 2002, from $5.7 million in the three
months ended March 31, 2001.

    Cost of software license revenue increased by $586,000 or 66% to $1,472,000,
in the three months ended March 31, 2002 from $886,000 in the three months ended
March 31, 2001. This increase is primarily due to the amortization of purchased
software in connection with the acquisition of DataChannel of approximately
$917,000 offset by proportional decreases in software revenues.

    Cost of services decreased by $264,000 or 6% to $3.9 million, in the three
months ended March 31, 2002 from $4.1 million in the


                                       17

<PAGE>


three months ended March 31, 2001. Cost of services decreased by 6% while
services revenue increased by 18% during the first quarter of 2002 when compared
with the first quarter of 2001, as a result of leveraging our system integrator
partner relationships and increasing utilization of professional services staff.
This leveraging allowed us to grow services revenues without increasing our
fixed infrastructure costs as a percentage of service revenue.

    Cost of other revenues decreased by $248,000 or 35% to $453,000 in the three
months ended March 31, 2002 from $701,000 in the three months ended March 31,
2001 in relative proportion to the decrease in revenue.

    Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $958,000, or 7%, to $13.5 million in the
three months ended March 31, 2002, from $14.4 million in the three months ended
March 31, 2001. This decrease was attributable to several factors. Personnel
expenses declined by approximately $1.0 million in the quarter ended March 31,
2002 versus the respective period in the previous year. Substantially all of
this decline is attributable to lower recruiting and relocation costs during the
first quarter of 2002 versus 2001 as the Company hired approximately 100 new
employees (including senior managers) in the previous year. While payroll
(salaries and wages) increased by approximately $1.1 million associated with the
full quarter effect of increasing headcount throughout 2001, the impact of this
increase was offset by approximately $1.0 in reduced commission expense in
connection with decreased license revenues. In addition, the increase in
depreciation expense of approximately $621,000 was offset by reduced expenses in
attending trade shows ($466,000) and declines in marketing collateral printing
and mailing costs.

    Research and development costs. Research and development costs increased by
$2.1 million, or 53%, to $6.1 million in the three months ended March 31, 2002,
from $4.0 million in the three months ended March 31, 2001. The increase was
primarily due to the addition of approximately 68 employees (including 40 from
the acquisition of DataChannel in the fourth quarter of 2001) engaged in
research and development activities between the first quarter of 2001 and the
first quarter of 2002. We expect to continue to increase the amount spent on
research and development in the foreseeable future as we continue to develop and
enhance our product line to address the evolving needs of customers deploying
large scale and transaction-based e-business applications.

    Other income, net. Other income, net decreased by approximately $844,000 or
56%, to $656,000 in the three months ended March 31, 2002, from $1.5 million, in
the three months ended March 31, 2001. This decrease was attributable to a
decline in the average cash and marketable securities balance invested from
approximately $116.9 million during the first quarter of 2001 to approximately
$108.6 million during the first quarter of 2002 combined with lower average
interest rates on such investment balances.

    Provision for income taxes. The provision for income taxes decreased by
approximately $275,000, or 87%, to $40,000 in the three months ended March 31,
2002, from approximately $315,000 in the three months ended March 31, 2001. This
decrease was attributable to the net loss position in the quarter ended March
31, 2002 versus net income from the same period in the previous year.

LIQUIDITY AND CAPITAL RESOURCES

Cash used for operating activities in the three months ended March 31, 2002 was
$2.2 million, primarily due to net losses and decreases in accrued compensation
and benefits and other accrued expenses partially offset by the provision for
depreciation and amortization and decreases in accounts receivable.

Cash used for investing activities was $10.9 million in the three months ended
March 31, 2002. Investing activities for the period consisted primarily of net
purchases of marketable securities of approximately $8.2 million, purchases of
approximately $869,000 of equipment, primarily computer related, and the payment
of approximately $1.8 million in obligations in connection with the acquisition
of DataChannel.

Cash provided by financing activities in the three months ended March 31, 2002
was approximately $348,000 which primarily related to the exercise of employee
stock options.

As of March 31, 2002, our primary financial commitments consisted of obligations
outstanding under operating leases.

As of March 31, 2002, we had cash and cash equivalents totaling $13.7 million,
short-term marketable securities of $81.1 million and long-term marketable
securities of $9.8 million.

In recent years, we have significantly increased our operating expenses. We
anticipate that we will continue to experience significant growth in our
operating expenses for the foreseeable future and that our operating expenses
and capital expenditures will constitute a


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<PAGE>


material use of our cash resources. In addition, we may utilize cash resources
to fund acquisitions or investments in businesses, technologies, products or
services that are complementary to our business. We believe that our existing
cash and cash equivalents together with our short-term marketable securities
will be sufficient to meet our anticipated cash requirements for working capital
and capital expenditures for at least the next twelve months.



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<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency

In the quarter ended March 31, 2002, the Company generated approximately 13% of
its revenues outside of the United States. International sales are typically
denominated in U.S. dollars. Our foreign subsidiaries incur most of their
expenses in the local currency. Accordingly, all foreign subsidiaries use the
local currency as their functional currency. Translation gains and losses
(amounting to a loss of approximately $14,000 as of March 31, 2002) are deferred
and accumulated as a separate component of stockholders' equity (accumulated
other comprehensive income (loss)). Net gains and losses resulting from foreign
exchange transactions, amounting to a loss of approximately $72,000 during the
three months ended March 31, 2002, are included in other income, net in the
accompanying consolidated statements of operations. A 10% change in the
valuation of the functional currencies relative to the U.S. dollar as of March
31, 2002 would not have a material impact on the Company's results of operations
for the quarter then ended.

Interest Rates

We invest our cash in a variety of financial instruments including floating rate
bonds, municipal bonds, asset-backed securities and money market instruments in
accordance with an investment policy approved by the Company's Board of
Directors. These investments are denominated in U.S. dollars. Cash balances in
foreign currencies overseas are operating balances and are only invested in
short-term deposits of the local operating bank.

Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. However, due to the conservative nature of
our investment portfolio, a sudden change in interest rates would not have a
material effect on the value of the portfolio. We estimate that if the average
yield of our investments had decreased by 100 basis points, our interest income
for the quarter ended March 31, 2002 would have decreased by less than $0.1
million. This estimate assumes that the decrease occurred on the first day of
the quarter and reduced the yield of each investment instrument by 100 basis
points. The same 100 basis point change in interest rates would not have a
material impact on the fair value of the investment portfolio. The impact on our
future interest income and future changes in investment yields will depend
largely on the gross amount of our investment portfolio.


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<PAGE>

                          PART II. - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not presently a party to any legal proceedings, the adverse outcome of which, in
management's opinion would have a material adverse effect on the Company's
results of operations or financial position.

ITEM 2.   CHANGES IN SECURITIES

Not Applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not Applicable

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

Not Applicable

ITEM 5.  OTHER INFORMATION

Not Applicable

ITEM 6.  EXHIBITS

     10.1  2000 Stock Incentive Plan dated January 3, 2000
     10.2  First Amendment to the Netegrity, Inc. 2000 Stock Incentive Plan
             dated June 30, 2000
     10.3  Second Amendment to the Netegrity, Inc. 2000 Stock Incentive Plan
             dated May 30, 2001
     10.4  Third Amendment to the Netegrity, Inc. 2000 Stock Incentive Plan
             dated August 8, 2001
     10.5  2001 Interim General Stock Incentive Plan dated December 10, 2001.
     10.6  2002 Employee Retention General Incentive Plan dated March 15, 2002.



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<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                 NETEGRITY, INC.

Date:  May 10, 2002              By: /s/  Barry N. Bycoff
                                     ------------------------------------------
                                     Barry N. Bycoff
                                     President, Chief Executive Officer,
                                     Director and Chairman of the Board


Date:  May 10, 2002              By: /s/ Regina O. Sommer
                                     ------------------------------------------
                                     Regina O. Sommer
                                     Chief Financial Officer and Treasurer
                                     (Principal Financial Officer and Principal
                                     Accounting  Officer)




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