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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File No. 0-22158

NetManage, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes o         No þ

     The approximate aggregate market value of the Common Stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock reported on the Nasdaq National Market, was $29,267,300 as of June 30, 2002(1).

     The number of shares of Common Stock outstanding as of January 31, 2003 was 8,646,029.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive Proxy Statement to be delivered to stockholders for the registrant’s annual meeting of stockholders to be held on May 30, 2003, which is expected to be filed on or before April 30, 2003 with the Securities and Exchange Commission, are incorporated by reference into Part III of this report.

     (1) Excludes 1,496,465 shares of Common Stock held by directors and officers and stockholders whose beneficial ownership exceeds five percent of the shares outstanding at June 30, 2002. Exclusion of shares held by any person should not be construed to indicate that such persons possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant or that such person is otherwise an “affiliate” for any other purpose.

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PART I

      Some of the statements contained in this Annual Report on Form 10-K are forward-looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements, including those described in this report under the caption “factors that may affect our future results and financial condition”. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. 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. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Item 1 — Business.

General

      NetManage, Inc. was incorporated in 1990 as a California corporation and we reincorporated in Delaware in 1993 in connection with our initial public offering. References in this Annual Report on Form 10-K to “NetManage,” “we”, “our”, and “us” collectively refer to NetManage, Inc., a Delaware corporation, its subsidiaries and its California predecessor.

      NetManage®, OnWeb®, RUMBA®, ViewNow®, OnNet®, Chameleon®, SupportNow®, InterDrive®, the NetManage logo, NetManage partner logo and the lizard logo are registered trademarks, registered service marks, trademarks or service marks of NetManage, Inc., its subsidiaries and its affiliates in the United States and/or other countries. UNIX is a registered trademark in the United States and other countries, licensed exclusively through X/Open Company Limited. Windows and ActiveX are registered trademarks in the United States and other countries of Microsoft Corporation. AIX and AS/400 are registered trademarks in the United States and other countries of International Business Machines Corporation (IBM). Java is a trademark of Sun Microsystems, Inc. All other trademarks are the property of their respective owners.

Overview

      We develop and market software and service solutions that allow our customers to access and leverage their considerable investment in host-based business applications, processes and data.

      Our business is primarily focused on providing a broad spectrum of specific personal computer and network or application server-based software and tools. These products allow our customers to access and use their mission-critical line-of-business host applications and resources; to publish information from existing host systems in a web presentation, particularly to new users, via the Internet; to create new web-based applications that leverage the corporation’s existing business processes and applications; and, to ensure the continued operation of these solutions through the incorporation and deployment of innovative, real-time, Internet-based support solutions.

      Our business is targeted at taking advantage of the trend of major corporations worldwide to adopt Business-to-Business (B2B), or Business-to-Consumer (B2C) initiatives. In this market, we enable our customers to bridge between their existing access systems and technologies (Business-to-Employee, or B2E) and those required to compete in the B2B, and B2C marketplaces. The corporate resources internal to the organization, those behind existing B2E solutions, are generally the system of record for the business and are therefore the basis of any eBusiness transformation for an existing company. Alongside these solutions, we are focused on providing products that allow existing corporate business processes to be extended to business

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      We develop and market these software solutions to allow our customers to access and leverage applications, business processes and data on IBM corporate mainframe computers, and IBM, midrange computers such as AS/400 and on UNIX-based servers. We provide professional support, maintenance, and technical consultancy services to our customers in association with the products we develop and market. We provide professional applications and management consultation to our customers in association with the server-based products we deliver that allow customers to develop and deploy new web-based applications.

      Our principal products are compatible with Microsoft, Windows .NET, Windows XP, Windows 2000, Windows NT, Windows 98, Windows 95, and Windows 3.x operating systems; IBM mainframe and mid-range host operating systems, Novell, Inc.’s, network operating systems and various implementations of the industry standard UNIX operating system such as IBM’s AIX, Hewlett-Packard Company’s (HP) HP/UX, Sun Microsystems, Inc.’s (Sun) Solaris™, and the open source Linux system.

      Our Host Access products allow the applications and solutions that enable end-user devices, including personal computers, and devices running web browsers, to communicate with large centralized corporate computer systems and the applications that are hosted on them. Our Host Access products are marketed and sold under the brand name of RUMBA for client-side solutions that run on personal computers and under the OnWeb brand for server-side solutions that deliver connectivity for web browser users without the requirement for software on the user’s device other than the browser (collectively known as “zero footprint” solutions). Our Host Integration products provide server-side solutions that allow the integration of multiple host applications and business processes to create new applications for the web. Our Host Integration products also allow our customers to integrate existing legacy applications with new platform solutions such as those built using IBM’s WebSphere, BEA Systems’ (BEA) WebLogic or Microsoft’s .NET. Host Integration products are marketed and sold under the OnWeb brand name. We believe our customers benefit from the fact that the underlying technology employed by our server-side Host Access and server-side Host Integration solutions is the same.

Industry background

      Four important industry trends have had strong influences on our business strategy during the past three years: (1) the rapid adoption of eBusiness and electronic trading approaches by major corporations worldwide and the spread of these approaches to mid-tier and mid-sized companies; (2) the continuing development of the Internet, intranets and extranets for delivery of mission-critical business applications in large and mid-sized companies; (3) an increased desire on the part of corporations to make business processes and information stored in mainframes and midrange computers (legacy systems) broadly accessible internally and externally to their employees and business partners; and (4) the continued mobilization of users of personal computers and the proliferation of wireless and handheld devices requiring corporate host access on a global basis.

      We use the term internetworking to describe the technology of global connectivity. Internetworking had its origins in the Internet, a worldwide network of networks that allows communication between different organizations and locations, each with their own individual network of computers. With the rapid development of the Internet, the breadth of the connectivity industry has quickly expanded beyond proprietary-based solutions to Web-based technologies and other open protocol solutions. The application of this same internetworking technology within a company on its own computer networks is known as an intranet to distinguish it from the larger public Internet. When companies use internetworking technology for connecting to their partners (i.e. outside customers and suppliers) it is known as an extranet. An extranet is a network upon which all users are known and authenticated as opposed to the Internet where the identities of users are

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      The number and variety of applications and services that utilize the internetworking infrastructure is growing rapidly — pushed along by the Internet and corporate eBusiness initiatives. We are focused on several levels of product that utilize the internetworking infrastructure. These include traditional host access products for corporate desktops and servers, which provide users with the ability to communicate with corporate host systems; products that allow organizations to transform legacy applications into systems that can service external users, partners and customers — particularly through the Web; and development platforms that allow organizations to leverage and augment their existing Legacy applications and draw one or more existing applications, and information sources together to create new applications for new internal and external users. In addition to this, we provide products that allow access to and use of existing business processes and transactions for customers using application server development platforms such as IBM’s WebSphere, BEA’s WebLogic™ and Microsoft’s .NET. These products are referred to as “connectors” or “adaptors” and allow legacy applications to be presented as new technologies in formats such as Web Services.

      The personal computer has continued to be an important tool for facilitating communications, information sharing, and group productivity in large companies. As professional workers have become more mobile, there is an accelerated effort to connect personal computers easily and reliably to corporate networks to improve communication and organizational productivity. As a result, the personal computer has become an important tool to connect workers to shared repositories of information and to other people, regardless of location, network or type of computer. Internetworking also facilitates activities such as mobile computing by allowing users to use and to access more effectively all of a company’s computer systems from a remote location within the confines of an organization’s security and access-control policies. As the Internet grows, the number of different communication and internetworking options required by major corporations to support their businesses is increasing. The number and type of mobile computing and communication devices is also increasing and now includes wireless handheld devices, Personal Digital Assistants, or PDAs, and Internet and Web-enabled cellular phones.

      Within organizations, personal computers must connect not only to other personal computers via Local Area Networks, or LANs, but also to workstations, servers, minicomputers and mainframes, many of which may run different operating system software, and are connected to different physical networks. In addition, more companies are seeking ways to link their computer systems directly with those of vendors, customers and other business partners to enhance the flow of information and reduce expenses. This major move, utilizing the Internet as the internetworking solution, is termed eBusiness or eCommerce. eBusiness covers the full migration of business processes to the web and the sharing of those business processes with partners. eCommerce covers the elements that allow electronic selling, trading and transactions on the Web. These two terms are now augmented by specific terms that incorporate the advent of the wireless Internet. eMobile or mCommerce describes the use of a wide range of handheld, mobile and wireless devices as a part of an overall eBusiness or eCommerce solution.

      For a network to function properly, all connected devices must follow rules or protocols that govern access to the network and communication with other devices. Transmission Control Protocol/ Internet Protocol, or TCP/IP, is the name of the data communications protocol family that has become the de facto networking standard application because it is an open, or non-proprietary protocol capable of linking disparate environments. We were one of the first software vendors to deliver the TCP/IP protocol and related applications for the Microsoft Windows platform. Selling primarily to the business user, we have promoted standards based on our implementation of TCP/IP that have been adopted by the industry at large. The most notable example is the Windows Sockets, or WinSock, interface, which is used today by a wide range of Windows internetworking software vendors including Microsoft.

      We believe that the open and interoperable characteristics of internetworking technology, the use of intranets and the software that enables them, will continue to grow within organizations. The software required to implement an internetworking solution includes applications for the desktop, the software that transports

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      Our vision is to provide Host Access and Host Integration products, along with solutions built with those products that greatly improve and extend the reach of existing corporate host-centric systems — regardless of what the end-user devices are and regardless of where the end-user devices are located. As we continue to deliver on our vision, we will support our customers in implementing B2E, B2B, and B2C business solutions. We will support them in the Internet economy, and allow both internal and external users to access and leverage corporate applications, data and information efficiently, and utilize business processes in a manageable, secure and supportable way.

Products and technology

      Our broad suite of products provides organizations with cost-effective solutions for connecting people, their computers and their businesses. Our products extend the functionality of these organizations’ technology investments by providing essential services that are not included in desktop and network operating systems. Our solutions are designed to streamline communication, reduce the total cost of ownership, and increase productivity throughout an organization.

      We have been a long-time proponent of industry standards, and we pursue partnerships and alliances with key industry players. In addition to promoting technological progress, these alliances are designed to help strengthen our market insight and lead to improved customer solutions with greater value. Some of our strategic partners include Microsoft, Intel, IBM, Novell, Dell Computer Corporation and AT&T Corporation. All of our products are developed around the following:

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		software problems, thereby reducing downtime and enhancing the value of our product offerings to customers. We also offer integrated support capabilities in the development tools we deliver with our OnWeb products.
• Adherence to Standards		The Internet is predicated upon the notion that any client can talk to any server, and that all Application Programming Interfaces, or APIs, and protocols are published as free open standards. In the corporate computing environment, it is impossible to guarantee a common set of software on every client and every server. Our commitment to open standards ensures that the plug-and-play interoperability that has made the Internet successful extends to corporate intranets as well.

      Our products include the RUMBA and OnWeb product families. We also continue to market select UNIX connectivity products under our ViewNow™ brand. Our current products include:

      A significant portion of our net revenues has been derived from the sale of products that provide host access and host integration applications for the Microsoft Windows environment (clients and servers), and are marketed primarily to Windows users. As a result, sales of our products might be negatively impacted by developments adverse to Microsoft’s Windows products. In addition, our strategy of developing products based

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      Some of our newer OnWeb products have been developed to run on the UNIX operating system, including Linux and Solaris and are marketed primarily to the Fortune 1000 companies running UNIX platforms as their servers. As a result, sales of our products might be negatively impacted by developments adverse to the UNIX operating system or developments in the Open Source community based around Linux adverse to our own Linux-based products. In addition, our strategy of developing products based on the UNIX operating environment is substantially dependent on our ability to gain pre-release access to, and to develop expertise in, current and future UNIX developments by Sun, IBM, HP and others. No agreement between a developer of UNIX operating systems and us exists to provide pre-release access to future UNIX products. No assurance can be given as to our ability to provide, on a timely basis, products compatible with future UNIX releases.

      Our competitors could seek to expand their product offerings by designing and selling similar or new technology that could render our products obsolete or adversely affect sales of our products. These developments may adversely affect the sales of our own products either by directly affecting customer-purchasing decisions or by making potential customers delay their purchases of our products. See “Competition” below.

Sales and marketing

      We participate in two primary markets, Host Access and Host Integration. The Host Access market is made up of a range of products that allow IT departments to provide end users access to applications running on IBM Mainframes, iSeries (AS/400), and Unix systems. Three primary technologies are employed to provide the solution; these include traditional Fat Client or Desktop solutions, Thin Client or browser-based solutions, and Zero Footprint or Server-based solutions. Within this market place, we believe the trend is away from Desktop solutions toward Zero Footprint solutions. We believe this movement is primarily driven by a desire to reduce the total cost of ownership associated with deploying these solutions. The Host Integration market is made up of a number of products that allow organizations to reduce costs or increase revenue by allowing customers or business partners to interact via the Internet, with legacy (Mainframe or AS/400) business applications that are the backbone of their business processes. A primary example of this kind of solution is found in call center applications. Companies are building solutions that allow customers to determine order status over the Internet without involving a customer support representative. This approach simultaneously minimizes staffing costs and improves customer service. Our goal is to assist our customers in building solutions that quickly transform host applications into Web-based solutions.

      We have developed products that allow our customers to deploy solutions across a wide range of industries. To date we have installed Host Integration solutions in over 200 companies around the world. Successful installations can be found in government agencies, as well as companies in the finance, health care, manufacturing and insurance industries. Our products are designed to improve business processes throughout these organizations.

      To bring our products to market in the United States, we use a combination of telesales and direct sales personnel specifically assigned to meet the needs of major accounts. As part of our continuing strategy to develop multiple distribution channels, we expect to continue our use of indirect channels, such as resellers, particularly value added resellers and systems integrators, distributors and original equipment manufacturers, both in the United States and internationally. Any material increase in our indirect sales may adversely affect our average selling prices and gross margins due to the lower unit costs that are typically charged when selling through indirect channels. There can be no assurance that we will be able to attract or retain resellers and distributors who will be able to market our products effectively or will be qualified to provide timely and cost-

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      Internationally, we have sales offices in Belgium, Brazil, Canada, France, Germany, Sweden, Israel, Italy, Mexico, the Netherlands, Spain, and the United Kingdom. We also utilize local distributors and resellers internationally. We support the sales activity of these sales offices and distributors in target countries through localization of products and sales material, local training, and participation in local trade shows.

      In 2002, 2001, and 2000 respectively, we derived approximately 28%, 29%, and 28% of net revenues from sales outside of North America (United States and Canada). We believe that the potential international markets for our products are substantial, based on the extent to which Windows, UNIX and internetworking products are used internationally. Accordingly, we localize many of our products for use in the native language of target countries. We intend to continue to target major European countries for additional sales and marketing activity, and expand our Israel subsidiary in the support of our international sales. For a summary of international operations by geographic area, see Note 9 of the Notes to Consolidated Financial Statements included herein. While we expect that international sales will continue to account for a significant portion of our net revenues, there can be no assurance that we will be able to maintain or increase international market demand for our products, or that our international distributors and resellers will be able to effectively meet that demand.

      Risks inherent in our international business activities generally include unexpected changes in regulatory requirements, tariffs, and other trade barriers, costs and risks of localizing products for foreign countries, longer accounts receivable payment cycles, weak or unenforced international intellectual property laws, difficulties in managing international operations, currency fluctuations, potentially adverse tax consequences, repatriation of earnings, and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have an adverse effect on our future international sales, and consequently, on our results of operations.

Customer support

      Our domestic support organization consists of a staff of engineers and other professionals providing support by telephone from our facilities in the State of Washington and Ottawa, Ontario, Canada. Both telephone support and regular update releases of our products are provided to customers that purchase an annual or multi-year maintenance agreement. Our sales and customer support organizations work together closely to provide customer satisfaction. International customers are supported by our personnel located in Haifa, Israel, by various international sales offices and by local distributors and resellers who are trained by us.

Research and development

      We believe that our future success will depend on our ability to enhance our existing products and to develop and introduce new products related to host access and host integration solutions, which address the B2B, B2C, and B2E markets. Our research and development expenses for the years ended December 31, 2002, 2001, and 2000 were $13.1 million, $18.0 million, and $24.5 million, respectively.

Competition

      The market for our products is intensely competitive and characterized by rapidly changing technology, evolving industry standards, changes in customers’ needs, and frequent new product introductions. To maintain or improve our position in this industry, we must continue to successfully develop, introduce and market new products and product enhancements on a timely and cost-effective basis. Three key factors will contribute to the continued growth of our marketplace: the proliferation of Microsoft Windows client server

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      If we fail to anticipate or respond adequately to changes in technology and customer preferences, or experience any significant delay in product development or introduction, our results of operations could be materially adversely affected. The failure to develop on a timely basis new products and product enhancements incorporating new functionality could cause customers to delay purchase of our current products or cause customers to purchase products from our competitors; either of which would adversely affect our results of operations. There can be no assurance that we will be successful in developing new products or enhancing our existing products on a timely basis, or that such new products or product enhancements will achieve market acceptance.

      We compete directly with providers of Windows internetworking applications, such as IBM, Attachmate Corporation, WRQ, Inc. and Hummingbird Ltd. as well as other major PC connectivity vendors. We also compete with companies such as Jacada Ltd., Seagull Holding NV, IBM, BEA, and Computer Associates International, Inc. in the web integration server markets. It is imperative that our development efforts remain competitive in this marketplace, particularly given that the market is rapidly evolving, and subject to rapid technological change. There is no assurance that we will be successful in our efforts to do so.

      Many of our competitors have substantially greater financial, technical, sales, marketing, personnel, and other resources, as well as greater name recognition and a larger customer base, than we do. Significant price competition characterizes the market for our products and we anticipate that we will face increasing pricing pressures from competitors in the future. Moreover, given that there are low barriers to entry into the software market, and the market is rapidly evolving and subject to rapid technological change, we believe that competition will persist and intensify in the future. Accordingly, there can be no assurance that we will be able to provide products that compare favorably with the products of our competitors or that competitive pressures will not require us to reduce our prices. We experienced price declines throughout 2002. Any further material reduction in the price of our products would continue to negatively affect gross margins as a percentage of net revenues, and would require us to further increase software unit sales, in order to maintain net revenues at existing levels.

Proprietary rights

      We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures, and contractual provisions to protect our proprietary rights. However, the basic TCP/IP protocols on which our products are based are non-proprietary, and other companies have developed their own versions. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection, and to a lesser extent, patent laws. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In selling our products, we rely primarily on shrink-wrap or click-wrap licenses that are not signed by licensees, and may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights will be adequate, or our competitors will not independently develop similar technology. In addition, the number of patents applied for and granted for software inventions is increasing. Consequently, there is a growing risk of third parties asserting patent claims against us. We have received, and may receive in the future, communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of third parties, seeking indemnification against such infringement or indicating that we may be required to obtain a license or royalty from such third parties. There can be no assurance that any such claims would not result in protracted and costly litigation or that additional claims will not be made in the future, or that we will not be required to enter into a costly license agreement.

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      We believe that, due to the rapid pace of innovation within our industry, factors such as the technological and creative skills of our personnel are more important to establishing and maintaining a technology leadership position within the industry than are the various legal means of protecting our technology.

Employees

      As of December 31, 2002, we had a total of 350 full-time employees, of whom 168 were engaged in sales, marketing, technical support and consulting, 78 in general management, administration and finance, 93 in software development and engineering and 11 in production. None of our employees are subject to a collective bargaining agreement, and we have not experienced any work stoppage.

      On January 30, 2003 we announced a restructuring of NetManage in response to the sluggish North America and European economies. We believe it was necessary to refocus our operations and reduce our operating expenses to bring them in line with our revised anticipated revenue levels. As part of the restructuring, we reduced our workforce by more than 20% and expect to record a restructuring charge under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, in first quarter of 2003. For further discussion please see Note 11 of the Notes to Consolidated Financial Statements.

      The majority of our workforce is located in the competitive employment markets of the Silicon Valley in California; the suburban Boston area; the suburban Seattle area; Ottawa, Ontario, Canada; and Haifa, Israel. From the latter half of 1996 until recently, we (and prior to their acquisitions, both FTP Software, Inc., or FTP, and Wall Data Incorporated, or Wall Data) experienced high attrition at all levels and across all functions. The attrition experienced by us was attributable to various factors including, among others, industry-wide demand exceeding supply for experienced engineering and sales professionals, the effects of our restructurings and acquisitions, and our results of operations. Our future operating results will be dependent in part on our ability to attract and retain our key employees, and to train and manage our management and employee base. There can be no assurance that we will be able to manage such challenges successfully.

Executive officers of the registrant

      The executive officers, their ages and their positions as of February 21, 2003 are as follows:

      Zvi Alon is the founder of NetManage, Inc. and has served as our Chairman of the Board, President and Chief Executive Officer since our formation in 1990. From 1986 to 1989, Mr. Alon was the President of Halley Systems, a manufacturer of networking equipment including bridges and routers. He also has served as Manager, Standard Product Line at Sytek, Inc., a networking company, and Manager of the Strategic Business Group for Architecture, Graphics and Data Communications at Intel Corporation, a semiconductor manufacturer. Mr. Alon received a B.S. degree in electrical engineering from the Technion-Israel Institute of Technology in Haifa, Israel. Mr. Alon is the former son-in-law of Mr. Uzia Galil, a director of the Company. Mr. Alon is a board member of easyBASE Ltd., a private company in which we have an investment interest.

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      Michael R. Peckham joined us in November 1999 as Senior Vice President, Finance, Chief Financial Officer, and Secretary. From February 1993 until November 1999, Mr. Peckham was Vice President, Finance and Administration for Simware Inc., an international software development company. Prior to that, he served as Chief Financial Officer for NORR Partnership Limited, architects and engineers from June 1987 to February 1993. Mr. Peckham holds a Bachelor of Commerce (Honors Degree) from the University of Ottawa in Ottawa, Canada. Mr. Peckham is also a Chartered Accountant in the Province of Ontario, Canada.

      Ido Hardonag re-joined us in October 2002 as Senior Vice President, Research and Development. Mr. Hardonag is responsible for worldwide engineering and was previously employed by NetManage from July 1992 to January 2000 in several engineering management positions, the most recent as Vice President, Research and Development. He comes to NetManage from TeleKnowledge Group, a start-up company in Israel where he served as Vice President, Research and Development from January 2000 to September 2001. He was responsible for core product development, new product releases and customer-related projects for its Total e-billing product. Mr. Hardonag received a B.S. in computer science from Tel-Aviv University in Tel-Aviv, Israel and a M.S. in computer science from the University of Southern California.

      Peter R. Havart-Simkin joined us in August 1998 and became Senior Vice President of Marketing in January 1999. In November 1999, he was appointed as Senior Vice President, Worldwide Strategic Development. Mr. Havart-Simkin came to NetManage as part of the FTP Software acquisition, where he had served as Chief Technology Officer since July 1996, when FTP acquired Firefox Communications Inc., a networking software company. Prior to joining FTP, Mr. Havart-Simkin served with Firefox as Vice President and Chief Technical Officer from January 1994 to July 1996, and as Vice President of Marketing and Product Strategy from August 1989 until January 1994. One of the founders of Firefox, Mr. Havart-Simkin also served as a director of Firefox from August 1989 to February 1995. Before that time, Mr. Havart-Simkin held sales and marketing positions with a number of hardware and software companies over a 20-year period. Mr. Havart-Simkin studied physics and mathematics at Windsor College in the United Kingdom. Mr. Havart-Simkin is also a Fellow of the Institute of Sales and Marketing Management and a registered consultant in Information Technology.

      Michael O’Leary joined us in May 2001 as Senior Vice President, Worldwide Sales. Mr. O’Leary is responsible for managing all of our sales and customer support efforts domestically and internationally. He is a 20-year veteran software and services sales and marketing executive. Immediately prior to joining NetManage, Mr. O’Leary served as an independent consultant from November 2000 to April 2001. He served as Vice President of Sales at software maker Kintana Inc., in Sunnyvale, California from January 2000 to October 2000. Mr. O’Leary was Vice President of International Operations from May 1995 to January 1999 with Intermec Technologies Corporation, a mobile networking system manufacturer. Prior to Intermec, from July 1994 to April 1995, he was Senior Vice President of Worldwide Sales and Service for desktop publishing products supplier Rasterops/ Truevision, Santa Clara, California. Previously, he held sales and marketing management positions with IBM and Spectra-Physics, San Jose, California. Mr. O’Leary holds a B. S. in Industrial Management from San Jose State University.

      David P. Desjardins joined us in November 1999 as part of the acquisition of Simware. Mr. Desjardins was appointed Vice President, Worldwide Consulting in January 2001 after acting as Vice President, OnWeb since March 2000. While with Simware, Mr. Desjardins was appointed Vice President, Solutions Group in June 1998 after acting as Director, Solutions Group since joining Simware in January 1997. From November 1995 until December 1997, Mr. Desjardins was Vice President Operations for Appian Interactive Corporation, a software company selling web-publishing solutions. Mr. Desjardins served as an independent systems and technology consultant on large-scale projects in the energy industry from April 1994 until September 1997. From February 1993 to March 1994, Mr. Desjardins held various positions, the most recent of which was Chief Operating Officer, with Intera Tydac Technologies Inc., a provider of geographic information software and services. Mr. Desjardins studied Computer Sciences at McGill University, Montreal and the University of Ottawa. He also studied RIA (CMA) at Concordia University, Montreal and the University of Calgary.

      Robert Lee joined us as Vice President, Human Resources in July 2000. Prior to joining us, Mr. Lee, from April 1999 to June 2000, served as an independent consultant in the human resources field working on

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      Charles Mawby joined us in November 1999 as part of the acquisition of Simware. Mr. Mawby was appointed Vice President, Worldwide Engineering in October 2000 after serving as Vice President of Engineering for our eSolutions group from November 1999 to October 2000. Mr. Mawby was with Simware from October 1997 to October 1999, serving as Manager of New Products and Director of Development. Prior to that, he was the Director of Integration Services at Systems Xcellence, Inc., a software development and integration company, from January 1997 to October 1997. From April 1994 until December 1996, Mr. Mawby was President of TechNode Inc., a software company focused on the development and marketing of systems management products for use in terrestrial and wireless networks based on scaleable agent technology developed by Mr. Mawby. Prior to that he served as Vice President of Operations and Engineering for Remuera Corporation from September 1988 to August 1991, and as President of Remuera Research & Development (Canada) Inc. from September 1991 to March 1994. Mr. Mawby received his Bachelor of Science from Carleton University in Ottawa, Canada.

      Bertram W. Rankin joined us in October 2000 as Vice President, Worldwide Marketing. Prior to joining us, Mr. Rankin was with Ricoh Silicon Valley, or RSV, a division of Ricoh Company Ltd. from July 1998 until September 2000. RSV developed and sold a line of information management solutions. While with RSV, Mr. Rankin was appointed General Manager in November 1999 after acting as Vice President of Marketing from July 1998. From October 1995 to June 1998, Mr. Rankin was Vice-President of Marketing with MindWorks Corporation, a developer of networked document management software. Mr. Rankin served as Director of Product Marketing with Xerox Corporation from September 1992 to September 1995. Mr. Rankin holds a B.A. in Economics from Harvard University and an M.B.A. in Marketing Concepts and Financial Management from Stanford University Graduate School of Business.

      Steve Mitchell joined us in October 2002 as General Counsel. Prior to joining us, Mr. Mitchell served from January 1990 to July 2002 in increasingly responsible positions for Hitachi Data Systems Corporation (Hitachi), a supplier of large and medium scale servers and data storage devices. While with Hitachi, Mr. Mitchell was President and Chief Operating Officer from June 2001 to April 2002 and Vice President, General Counsel and Secretary from October 2000 to June 2001 of its subsidiary, Hitachi Innovative Solutions Corporation, a systems integrator and CRM software implementer. From January 1990 until October 2000, Mr. Mitchell held a number of responsible legal positions at Hitachi and assisted with patent infringement litigation and other legal matters. Mr. Mitchell initiated his career with sales and contracts management positions with Sears, Radionix Corp., and Fujitsu America, Inc. Mr. Mitchell holds a B.S. in Organizational Psychology from the University of San Francisco and a J.D. from the Monterey College of Law. Mr. Mitchell is admitted to practice law in California and before the U.S. Supreme Court.

Item 2 — Properties.

      Substantially all of our office space is leased. We have approximately 161,000 square feet of total leased space in North America including our 40,000 square foot headquarters building in Cupertino, California. This location supports executive, legal, finance, human resources, marketing, sales, and administration. Other primary sites are located in Kirkland, Washington, which supports sales, technical support, and marketing, and Bellingham, Washington that supports research and development. Andover, Massachusetts supports the east coast of the U.S. with sales and technical support. Ottawa, Ontario, Canada supports the consulting and research and development groups primarily for the OnWeb product line since. Since December 31, 2001, our North American real estate lease obligations have been reduced through subleases, lease terminations, and natural expiration. Regional sales offices are located in New York, New York; Austin, Texas; and Reston, Virginia.

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      Internationally, we lease approximately 31,000 square feet of office space in Haifa, Israel for the purpose of international sales, marketing, technical support, administration, and research and development. We also lease sales office space in Belgium, Brazil, France, Germany, Italy, Mexico, Spain, Sweden, the Netherlands, and the United Kingdom. We also own an approximately 6,000 square foot office facility in Mevaseret Zion, Israel that is leased to a third party through December 2004. Since December 31, 2001, European and Israeli real estate obligations have been reduced through subleases, lease terminations, and natural expirations.

Item 3 — Legal proceedings.

      On November 22, 1999, Kenneth Fisher filed a complaint alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq., against us, and our affiliates Network Software Associates, Inc. or NSA, and NetSoft Inc., or NetSoft, in the United States District Court of the District of Columbia. We acquired NSA and NetSoft in 1997. The United States government declined to pursue the action on its own behalf and, therefore, the action was pursued by Kenneth Fisher. We, and our affiliates, first learned of the action when we were served with the amended complaint in May 2001. On September 5, 2001, Mr. Fisher agreed to voluntarily dismiss NetManage from this action in exchange for our agreement to suspend applicable statutes of limitation as to Mr. Fisher’s claims.

      On January 31, 2002, on an order of the court following defendant’s successful motion to dismiss the May 2001 amended complaint, Mr. Fisher filed a Second Amended Complaint, or Second Complaint, in the United States District Court of the District of Columbia against NSA and NetSoft among numerous other defendants. On May 13, 2002, on an order of the court following defendants’ successful motion to strike the Second Complaint, Mr. Fisher filed a Third Amended Complaint, or Complaint, in the United States District Court of the District of Columbia against NSA and NetSoft among numerous other defendants. The Complaint alleges that NSA, NetSoft and the other defendants made false claims to the government to obtain government contracts set aside for entities owned and controlled by disadvantaged persons admitted to the Section 8(a) Minority Small Business Development Program. Specifically, the Complaint alleges that from 1987 to 1997, NSA, NetSoft, and the other defendants presented false or fraudulent claims for payment or approval to the government in violation of 31 U.S.C. § 3729 (a) (1), and used false records or statements to get claims paid or approved by the government in violation of 31 U.S.C. § 3729 (a) (2) in connection with NSA’s application and certification as a Section 8 (a) minority owned and controlled company. In addition, the Complaint alleges that NSA, Netsoft and the other defendants conspired to defraud the government by fraudulently obtaining NSA’s certification as a Section 8 (a) entity for alleged use by NSA’s Federal Systems Division, in violation of 31 U.S.C. § 3729 (a) (3). We did not acquire NSA until July 1997 and had no involvement with the events alleged by Mr. Fisher. However, Mr. Fisher alleges that any liabilities of NSA and Netsoft passed to us. Mr. Fisher alleges damages in excess of $30,000,000. On May 31, 2002, NSA and NetSoft and the other defendants answered the complaint and filed a motion to strike the complaint. We, and our affiliates, vigorously dispute Mr. Fisher’s allegations.

      In addition, we may be contingently liable with respect to certain asserted and unasserted claims that arise during the normal course of business.

      Not applicable.

PART II

Market price of common stock

      Our common stock is traded on the Nasdaq National Market under the symbol NETME. As of January 31, 2003, there were 1,176 stockholders of record and approximately 19,415 beneficial owners of our common stock.

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      On August 28, 2002, our stockholders approved a one-for-seven reverse split of our common stock for stockholders of record on July 15, 2002. The reverse stock split became effective at the close of business on September 3, 2002. The following table of high and low closing sales prices of our common stock has been adjusted to reflect the reverse stock split. The high and low closing sales prices of our common stock as reported on the Nasdaq National Market for each quarter of 2002 and 2001 were as follows:

      We have not declared or paid cash dividends on our common stock and do not currently intend to pay any cash dividends in the foreseeable future.

Item 6 — Selected financial data.

      The following selected consolidated financial data should be read in conjunction with our consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7, “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements and notes to those financial statements included in Item 8 of this Form 10-K. The selected financial data for 2001, 2000, and 1999 contains certain financial information that has been restated. See Note 10 of the Notes to Consolidated Financial Statements for further discussion of this matter.

(1)	As discussed in Note 3 of the Notes to Consolidated Financial Statements, we acquired Aqueduct Software, Inc., Wall Data Incorporated, Simware Inc., and FTP Software, Inc. in 2000, 1999, 1999, and 1998, respectively.
(2)	Loss from operations includes write-offs of in-process research and development of $1.7 million, $19.1 million, and $9.5 million for the years ended December 31, 2000, 1999, and 1998, respectively. Additionally, loss from operations includes restructuring charges of $4.7 million, $5.6 million, $3.8 million, and $7.0 million for the years ended December 31, 2002, 2000, 1999, and 1998, respectively. Also, loss from operations includes asset impairment charges of approximately $5.6 million and $39.8 million

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	for the years ended December 31, 2002 and 2000, respectively and an insurance recovery of $3.8 million for the year ended December 31, 2000. See further discussion in “Management’s discussion and analysis of financial condition and results of operations.”
(3)	All share and per share data has been retroactively adjusted to give effect to our one-for-seven reverse stock split. The reverse stock split was approved by our stockholders on August 28, 2002 for stockholders of record on July 15, 2002 and became effective at the close of business on September 3, 2002.

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      Some of the statements contained in this Annual Report on Form 10-K are forward-looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements, including those described in this report under the caption “factors that may affect our future results and financial conditions”. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. 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. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

      The accompanying management’s discussion and analysis of financial condition and results of operations give effect to the restatement of the consolidated financial statements for the years ended December 31, 2001 and 2000 as described in Note 10 of the Consolidated Financial Statements.

Overview

      We develop and market software and service solutions that are designed to enable our customers to access and leverage the considerable investment they have in their host-based business applications, processes and data. Our business is primarily focused on providing a broad spectrum of specific personal computer and network or application server-based software and tools. These products are designed to allow our customers to access and use their mission-critical line-of-business host applications and resources; to publish information from existing host systems in a web presentation, particularly to new users, via the Internet; to create new web-based applications that leverage the corporation’s existing business processes and applications; and, to ensure the continued operation of these solutions through the incorporation and deployment of innovative, real-time, Internet-based support solutions. We have operations worldwide with offices located in the United States, Canada, Israel, Europe and Latin America.

      Our software solutions allow our customers to access and leverage applications, business processes and data on International Business Machines, or IBM, corporate mainframe computers, and IBM midrange computers such as the A/S 400™ series and on UNIX based servers. We also develop and market software that is designed to allow real time application sharing on corporate networks and across the Internet for the purposes of application support, help and training. We provide professional support, maintenance, and technical consultation services to our customers in association with the products we develop and market. We provide professional applications and management consultancy to our customers in association with the server-based products we deliver that are designed to allow customers to develop and deploy new web-based applications.

      Our principal products are compatible with Microsoft Corporation’s, or Microsoft’s Windows XP, Windows 2000, Windows NT, Windows 98, Windows 95, and Windows 3.x operating systems, Novell, Inc., or Novell operating systems and various implementations of the industry standard UNIX operating system such as IBM’s AIX, Hewlett-Packard Com