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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x    Annual Report Pursuant To Section 13 or 15(d)

of The Securities Exchange Act of 1934

For the fiscal year ended June 30, 2004

OR

¨    Transition Report Pursuant To Section 13 or 15(d)

of The Securities Exchange Act of 1934

For the transition period from                          to                        

Commission File Number 000-26757

NetIQ CORPORATION

(Exact name of Registrant as specified in its charter)

(408) 856-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:    None

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  x  No  ¨

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.  x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act rule 12b-2).  Yes  x  No  ¨

As of December 31, 2003, the aggregate market value of Registrant’s voting stock held by non-affiliates was approximately $753.4 million based upon the closing sales price of the Common Stock as reported on the Nasdaq National Stock Market on such date. Shares of Common Stock held by officers, directors and holders of more than ten percent of the outstanding Common Stock have been excluded from this calculation because such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of August 31, 2004, the Registrant had outstanding 55,321,457 shares of Common Stock.

Certain sections of Registrant’s definitive Proxy Statement for the 2004 Annual Meeting of Stockholders to be held on November 18, 2004 are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

Table of Contents

NetIQ Corporation

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED JUNE 30, 2004

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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 of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, intentions, strategies, and expected operating results and financial condition. Forward-looking statements also include statements regarding events, conditions and financial trends that may affect our future plans of operations, business strategy, results of operations and financial position. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995. Factors that could cause or contribute to such differences include, but are not limited to, those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the heading “Factors That May Affect Future Operating Results” and elsewhere in this Annual Report on Form 10-K.

PART I

ITEM 1.    BUSINESS

Overview

We are a provider of cross-platform systems and security management software and web analytics software and services.

Our systems and security management solutions enable organizations to monitor and proactively manage their information technology (IT) infrastructure to assure the performance, availability, security, and more-efficient utilization of their IT environments. While our business initially focused on management of systems and applications running on the Microsoft Windows operating system, we have expanded our business to include cross-platform systems management solutions and security management solutions for the Windows, UNIX, Linux and IBM iSeries operating systems, as well as web analytics software and services. We also offer software to test, migrate and administer Microsoft Windows and active directory systems as well as voice over internet protocol systems. As a result, organizations currently are able to manage and secure many of their applications, servers and operating systems using our products.

Our web analytics offerings, which are available as hosted services or software-based solutions, enable organizations to track, report and analyze web site traffic and usage. Our offerings are used by web site owners to convert web site visitors into customers and to improve the returns generated on their investments in online marketing.

We were founded and incorporated as a California corporation in June 1995, reincorporated in Delaware and completed our initial public offering in July 1999. We acquired Mission Critical Software, Inc. in May 2000, WebTrends Corporation in March 2001 and PentaSafe Security Technologies, Inc. in December 2002. In September 2000 we entered into a licensing agreement with Microsoft Corporation whereby we granted Microsoft a perpetual license to our Operations Manager product technology and source code for $175 million paid in quarterly installments through August 2003. For additional information on these and other recent developments see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Through a link on our web site, www.netiq.com, we provide free of charge access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Proxy Statements, as soon as reasonably practicable after the reports are electronically filed with or furnished to the Securities and Exchange Commission.

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Markets and Products

Today’s organizations are highly dependent on computer systems to conduct their operations. The typical information technology environment is characterized by distributed information systems and networks that support multiple business-critical applications for financial reporting, human resources, enterprise resource planning, supply chain management, customer relationship management and email, as well as other industry-specific applications. In addition to the internal networks that connect employees to these geographically dispersed computing services, the Internet has become an essential medium for connecting businesses with customers, suppliers, investors and employees.

The critical nature and growing complexity of these systems have placed increasing pressure on systems managers and chief information officers to ensure the reliability and availability of their computer systems. Organizations must keep their information technology infrastructures secure and available 24 hours per day, 7 days per week, and must be able to support widely distributed global organizations with varying technological requirements. Failure to ensure business-appropriate service levels can result in substantial costs, including loss of productivity and revenue. We offer products in the following four key areas:

Systems Management.

The primary function of our systems management software is to promptly identify and provide notification and an automated response to system problems such as application failures, system software crashes, hardware failures, slow response times and insufficient resource capacity. Our software continually monitors the performance, responsiveness and availability of systems and applications, and evaluates the capabilities of network services. These functions enable systems administrators to respond to actual or threatened performance degradation, and to plan and budget for additions, upgrades and configuration changes.

Windows,UNIX and Linux Management.    Windows server operating systems represent a large share of the platforms that organizations use for deploying their mission critical applications. Many applications, however, continue to run on UNIX and the Linux operating system continues to gain market momentum. The growth and deployment of varied systems and applications in highly complex computing environments have expanded and further complicated the challenges of managing the performance and availability of information technology systems. These challenges range from basic tasks, such as monitoring central processing unit utilization, memory and disk-space availability, to complex tasks such as monitoring Internet traffic, application response times and IT service levels. We offer the following products to address these challenges:

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VoIP and Network Management.    Increasingly, companies are migrating voice communications onto Internet protocol-based computer network infrastructures using a technology called Voice over Internet Protocol or VoIP. Because network performance is essential to continuous and consistent availability of all critical services throughout the infrastructure, systems administrators continually monitor application performance and routinely test the impact of new applications, such as VoIP, on the network to identify and correct potential performance problems prior to deployment of new systems and upgrades to existing systems. Pre-deployment tests of a network to predict performance and assess readiness and post-deployment monitoring to maintain consistent performance are critical for a smooth VoIP implementation and high quality operations. We offer the following network management solutions and VoIP products:

    In July 2003, we granted Ixia exclusive distribution rights to our Chariot products in the United States and Canada through December 31, 2004, as well as a perpetual license to the source code for the Chariot products to develop and distribute derivative products. In addition to the license rights, Ixia was granted an option to purchase assets associated with our Chariot products. The purchase option expires on January 15, 2005. To date, Ixia has not exercised this option.

Security Management.

Today’s organizations face expanding security threats to their information technology systems as they rely on information technology to conduct critical business operations; as they gather, store and utilize growing amounts of highly sensitive customer and operational data; and as electronic attacks on information technology systems proliferate. Simultaneously, privacy legislation, such as HIPAA, and internal control legislation, such as Sarbanes-Oxley, are increasing the need for organizations to deploy a range of information technology security solutions. To meet today’s information technology security challenges, we offer security management solutions that combine vulnerability management with security event detection, as well as products for content security. Our security management products include:

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Windows Administration.

We provide administration solutions that allow organizations to securely delegate administrative tasks, automate user account provisioning, implement end-user self-service, and enable auditing and policy enforcement. Our products for Windows administration include:

Web Analytics.

In recent years, there has been an increased focus on building external and internal web sites for business functions, including eCommerce, information distribution, and customer/employee self-service. As a result, web sites have become an integral part of overall business strategy, facilitating communications with customers, vendors, employees, and investors. Successful web-based strategies require an understanding of how visitors interact with the company’s Internet and intranet sites and how various online and offline initiatives

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translate into bottom line results. Businesses need a means of forecasting, tracking, and integrating historical visitor data with other corporate and market databases in order to optimize these business functions, thereby reducing costs and growing revenues through higher returns on marketing investments. We offer the following products to address these challenges:

Sales and Distribution

Our products are sold through the following:

Our products are also co-marketed or integrated and sold with the offerings of certain strategic partners, which include Internet service providers, original equipment manufacturers, system integrators, and others.

Field and Inside Sales.    We market our software and services through our 14 domestic and 21 international field sales offices.

During fiscal 2004, our direct sales organization was organized to reflect a named account focus. The field team is organized into three tiers; Major Account Managers, Account Managers and Corporate Sales Representatives. Both the Major Account Managers and Account Managers are field sales positions and they typically support enterprise clients. The Corporate Sales Representatives are inside sales personnel who support small to medium businesses. Our field and inside sales representatives are supported by system engineers and product specialists who assist with pre-sales activities.

Typically, our field sales process includes an initial sales presentation in person or over the phone, a product demonstration, a product evaluation period, a closing meeting and a purchasing process. Our sales process normally takes 30 to 180 days depending on the product, but this process can be longer for larger customers or enterprise-wide opportunities. A majority of our sales are from repeat customers who often purchase additional software and complementary NetIQ products as their environments become more complex, their needs change, and as we introduce new offerings.

Value Added Resellers, System Integrators, Distributors and Original Equipment Manufacturers.    The NetIQ Authorized Reseller Program provides training, technical support and priority communications, and facilitates joint sales and marketing activities with our channel partners. Our channel sales representatives focus on managing the sales activities of our regional channel partners and the branch sales offices of our national reseller partners. As of June 30, 2004 we had over 700 third-party channel partners who resold our products and

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provided services to our customers worldwide. Our top ten channel partners represented approximately 21%, 16% and 14% of our worldwide license revenue, in the aggregate, during fiscal 2004, 2003 and 2002, respectively.

International Revenue.    International revenue represented 36%, 23%, and 18% of total revenue during fiscal 2004, 2003 and 2002, respectively. Total revenue includes domestic revenue from the Microsoft agreement of $5.0 million, $60.0 million and $85.0 million during fiscal 2004, 2003 and 2002, respectively. As we expanded our international sales efforts and as revenue from Microsoft decreased in accordance with our agreement, the percentage of our revenues derived from international sources increased. During fiscal 2004 a majority of our international business was conducted in U.S. dollars.

Pricing.    We typically license our software to customers under non-exclusive, perpetual license agreements priced on a per-server or per-user basis. Our hosted web analytics service, WebTrends 7 On Demand, typically is sold on a page-view basis and customers are charged based on usage and time. Original purchases of maintenance and renewal maintenance are priced at specified percentages of the related list prices or license fees as specified in the contract. Training and consulting services generally are priced on a daily rate.

Marketing

Our marketing programs are designed to inform customers about the capabilities and benefits of our products and services, to connect our sales force with prospective customers and to attract third parties who can serve as distributors and resellers of our products and services. Our marketing efforts include participation in industry trade shows, technical conferences, technology seminars, preparation of competitive analyses, sales training, publication of technical and educational articles in industry journals, targeted database-driven direct response communications, advertising, public relations, and analyst and press tours.

We often work with third parties to expand the market for our products. We have cooperative business relationships with developers of Windows and UNIX-based systems, including Dell Computer Corporation, Hewlett-Packard Company, International Business Machines Corporation, Microsoft Corporation, Oracle Corporation, Sun Microsystems, Inc., and Unisys Corporation. We have similar relationships with developers of applications and technologies, including Akamai Technologies, Inc., Check Point Software Technologies Ltd., Cisco Systems, Inc., Research in Motion Limited, Trend Micro Inc., and VERITAS Software Corporation. As part of these relationships, we may cooperate in our engineering efforts or develop joint marketing programs with these partners.

We have a range of relationships with systems integration and consulting organizations that may recommend or sell our products to their customers or where we cooperate in serving joint customers. Examples of these relationships include Accenture, Avanade Inc., Electronic Data Systems Corp., HP Services, IBM Global Services, Siemens AG and Wipro.

Customer Support and Services

Customers typically purchase software maintenance with each new product license. Software maintenance generally includes software updates, telephone and e-mail support as well as customer self service on our web site. Customers are typically provided an option to renew their maintenance agreements on an annual basis. Our technical support organization provides product support to our current customers and to prospective customers in connection with product sales. Our support offerings are two tiered and our premium level offering includes support availability 24 hours per day, 7 days per week.

Our professional services group provides implementation and other services. Our training courses focus on enabling customers and partners to successfully implement, use and extend our products in their respective environments in a timely and cost-effective manner. End-user training is provided on a regularly scheduled basis at our training facilities in Houston, Texas, Portland, Oregon and Staines, United Kingdom and through our authorized training partners.

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Research and Development

Our research and development organizations are responsible for the design, development and release of our products. These groups are organized into product management, development, quality assurance, documentation and localization disciplines by major product family. Members from each discipline form separate product teams that work closely with sales, marketing and customer support to better understand market needs and user requirements. Additionally, we have an information feedback loop with our customers designed to enable us to respond to and address their changing systems and security management and web analytics requirements. We also purchase or license third-party technology to shorten our time to market. The focus of our research and development efforts is to bring new products and services as well as new versions of existing products to market quickly in order to keep pace with the rapid evolution of technology and increasing customer demands. During fiscal 2004, 2003 and 2002 research and development costs were $68.1 million, $71.1 million and $61.0 million, respectively.

Competition

The markets for systems and security management software solutions and web analytics solutions are intensely competitive, and we expect competition to increase in the future. While there are few substantial barriers to entry at the low end, we expect to see increasing consolidation in the software industry, including among our competitors, which could increase the resources available to our competitors and the scope of their product offerings. Our competitors and potential competitors may have more name and brand recognition, develop more advanced technology, undertake more extensive sales and marketing campaigns, adopt more aggressive pricing policies and sales terms, and be able to leverage more extensive financial, customer and partner resources.

Our principal competitors include:

We also expect future product consolidation to be an important competitive factor, and that competitors may bundle their products with products similar to ours, or incorporate functionality into existing products that could render certain of our products unmarketable or obsolete. For example, Microsoft is a competitor of ours in certain markets and has a history of adding functionality to new versions of Windows in ways that may impair the success of formerly complementary products. Customer perception of this pattern could also adversely affect or delay sales of our products.

In addition, our ability to sell our products depends, in part, on their compatibility with other third-party products, such as operating systems and messaging, Internet and database applications. Some third-party

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software developers may change their products so that they compete with our products or are no longer compatible with our products. In particular, our business continues to be largely focused on the Microsoft Windows environment and Microsoft has typically provided to us pre-release notification of feature enhancements to its products and necessary development tools and information. If Microsoft stops this practice, we may be unable to coordinate our product offerings with Microsoft or to otherwise capitalize on new Microsoft product releases and feature enhancements.

Intellectual Property

Our success is heavily dependent on our ability to create proprietary technology and to protect and enforce our intellectual property rights in that technology, as well as our ability to defend against adverse claims of third parties with respect to our technology and intellectual property. We rely primarily on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property rights in our products and services. These laws and procedures provide only limited protection. We presently have 18 issued or allowed patents in the United States, 24 pending patent applications in the United States, 6 issued or allowed foreign patents, and 24 pending patent applications in certain foreign jurisdictions. However, these patents may not provide sufficiently broad protection or they may not be enforceable in actions against alleged infringers. In addition, despite precautions that we take, it may be possible for unauthorized third parties to copy or reverse engineer aspects of our current or future products, to independently develop similar or superior technology, or to design around the patents we own. Policing unauthorized use and transfer of our software is difficult and software piracy currently is and can be expected to continue to be a persistent problem. In licensing our products, other than in enterprise license transactions, we typically rely on “shrink wrap” or “clickwrap” licenses that are not signed by licensees. Such licenses may be unenforceable, in whole or in part, under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect our intellectual property rights to as great an extent as do the laws of the United States. It may be necessary to enforce our intellectual property rights through the process of litigation, arbitration or other adversarial proceedings. As well, third parties may bring actions against us alleging intellectual property infringement, such as that brought by BMC against us and discussed under Legal Proceedings. The participation in such proceedings could be costly and distracting to management, and there is no assurance that we would prevail.

Employees

As of June 30, 2004 we had 1,322 employees, 526 of whom were in sales and marketing, 401 in research and development, 194 in customer support and services, and 201 in general and administration. None of our employees is represented by a collective bargaining agreement. We have not experienced any work stoppages and consider our relations with our employees to be good.

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Executive Officers

The following table sets forth information regarding our executive officers as of June 30, 2004.

Charles M. Boesenberg joined NetIQ as President and Chief Executive Officer in January 2002, was named Chairman of the Board of Directors in August 2002 and in April 2004 Mr. Boesenberg’s title was changed to Chief Executive Officer and Chairman of the Board of Directors. Prior to joining NetIQ, he was President of Post PC Ventures, a management and investment group from March 2000 to December 2001. From December 1998 to February 2000, Mr. Boesenberg served as President and Chief Executive Officer of Integrated Systems, Inc., a provider of embedded systems software. Before joining Integrated Systems, Mr. Boesenberg was President and Chief Executive Officer of Magellan Corporation, which was the surviving corporation of a merger with Ashtech, Inc., a position that he assumed in January 1995 with Ashtech. Magellan specializes in satellite navigation and communication products. Mr. Boesenberg has held senior executive positions with a number of technology companies including International Business Machines Corporation and Apple Computer, Inc. Mr. Boesenberg served as a member of the Board of Directors of Symantec Corporation, a provider of Internet security technology, from June 1994 until September 12, 2002, but did not participate in Symantec Corporation board meetings after assuming his position with NetIQ. Mr. Boesenberg currently serves as a member of the Board of Directors of Maxtor Corporation, a provider of hard disk drive storage products and solutions, where he serves on the Compensation Committee. Mr. Boesenberg served as a member of the Board of Directors of Epicor Software, a provider of integrated enterprise software solutions for mid-market companies, from December 2000 until May 2003. Mr. Boesenberg holds a B.S. in mechanical engineering from the Rose Hulman Institute of Technology and a M.S. in business administration from Boston University.

James A. Barth was named Senior Vice President, Finance and Administration, and Chief Financial Officer of NetIQ in November 2001, and for the period November 2000 to November 2001 he served as Senior Vice President, Finance, Chief Financial Officer and Secretary of NetIQ. From March 1999 to November 2000, he served as Vice President, Finance, Chief Financial Officer and Secretary of NetIQ. From November 1997 until March 1999, Mr. Barth served as the Vice President, Chief Financial Officer and Secretary of Interlink Computer

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Sciences, a developer of enterprise networking software designed for the IBM mainframe platform. From October 1994 to November 1997, Mr. Barth served as Executive Vice President, Chief Financial Officer and Secretary of MagiNet, a provider of interactive entertainment and information systems. Mr. Barth also served as the Chief Financial Officer of Rational Software from July 1982 to March 1994. Mr. Barth holds a B.S. in business administration from the University of California at Los Angeles and is a certified public accountant.

Marc B. Andrews was named Senior Vice President and General Manager of our Systems and Security Management business unit in January 2004 and for the period July 2002 through January 2004 he served as our Vice President and as General Manager for NetIQ Ltd, our UK subsidiary. Prior to joining NetIQ, Mr. Andrews was employed by BMC Software Inc., where he served as Vice President of Marketing for Europe, the Middle East and Africa from April 2001 through June 2002. Mr. Andrews also served as the Director of Strategic Business Unit Marketing at BMC for Europe, the Middle East and Africa from January 2000 through March 2001 and prior to that he served as the Regional Director of BMC in Dubai, United Arab Emirates from 1997 through 1999.

Betsy E. Bayha joined NetIQ as Vice President, General Counsel and Secretary in November 2001. Prior to joining NetIQ, Ms. Bayha was in private practice representing high technology corporations for more than 20 years. Ms. Bayha was a partner at General Counsel Associates from November 1994 through October 2001. From December 1986 through October 1994, Ms. Bayha was a partner at the international law firm of Coudert Brothers. Prior to 1986, Ms. Bayha held various positions with private law firms. Ms. Bayha holds a J.D. from Harvard Law School, an M.A. in public administration from The Ohio State University and a B.A. in economics from Oakland University.

Holly E. Files served as Senior Vice President, Worldwide Support and Services from April 2003 until her departure in June 2004, and for the period of February 2002 through March 2003 she served as our Vice President, Worldwide Services and Support. From July 2001 until February 2002, she served as the Chief Information Officer of 800.com. Ms. Files served as Vice President of Worldwide Services for WebTrends Corporation from November 1998 and continued in that position after it was acquired by NetIQ until July 2001. From July 1997 until November 1998, she served as Executive Director of Operations at Radiant Systems/RapidFire, a point-of-sale systems provider for the retail sector.

Gregory L. Drew was named Senior Vice President and General Manager, Web Analytics business unit in October 2003 and for the period April 2003 to October 2003 he served as Senior Vice President, Web Analytics Sales and Marketing. In April 2002 Mr. Drew founded DrewVentures, LLC, a management consulting firm specializing in advising clients on marketing, sales, customer service, operations and Internet strategies and he served as the Managing Partner from April 2002 until March 2003. In January 1998, Mr. Drew founded 800 Electronics and served as the President, Chief Executive Officer and Chairman of the Board from October 1998 until April 2002. From January 1997 until December 1997 Mr. Drew was employed by Now Software as Vice President, General Manager, End User Products Group and Vice President Worldwide Sales from April 1996 until December 1996. Mr. Drew has also held a variety of positions at Clientele Software, Central Point Software and Hewlett Packard Company. Mr. Drew is a graduate of Farleigh Dickenson University, with a B.S. in business management.

David J Ehrlich was named Senior Vice President, Corporate Strategy and Development in January 2004, after joining NetIQ as Vice President, Corporate Development in February 2003. Prior to joining NetIQ, Mr. Ehrlich was a consultant to the CEO and Board of Visual Networks from January 2002 until January 2003, and held the position of Senior Vice President, Product Marketing, Strategy, and Business Development at Visual Networks from November 2000 to January 2002, and Vice President from September 1998 to November 2000. Prior to joining Visual Networks, Mr. Ehrlich held various management positions at McKinsey & Company Inc., Orbyx Global Trade Group, Inc., and Wells Fargo Bank. Mr. Ehrlich holds an M.B.A from Harvard University and an B. A. and a M. S. in industrial engineering from Stanford University.

Mark P. Marron joined NetIQ as Senior Vice President, Worldwide Sales in August 2001. Prior to joining NetIQ, from 1999 to August 2001, Mr. Marron served as General Manager Worldwide Channel Sales for

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Computer Associates International Inc., a provider of software and services that enable organizations to manage their IT environments. From 1997 to 1999, he served as Senior Vice President of Channel Sales and Operations for Europe, the Middle East and Africa, from 1993 to 1997, he served as Senior Vice President of Channel Sales for United States and from 1991 to 1993, he served as Vice President of Telesales at Computer Associates International, Inc. From 1989 to 1991 he served as District Sales Manager/Account Manager at On-Line Software International, and from 1988 to 1989, he was National Account Manager at Information Sciences, Inc. Mr. Marron holds a B.S. in computer science from Montclair State University.

Olivier J. Thierry was named Senior Vice President Marketing and Alliances in January 2004. Prior to being named to his current position with NetIQ Mr. Thierry served as Vice President of International Marketing for NetIQ from June 2001 until January of 2004. From February 1998 until June 2001 Mr. Thierry served as Vice President of Marketing and Product Management for Mission Critical Software, Inc. and continued in that position after it was acquired by NetIQ in May, 2000. He received his Bachelor of Commerce degree with a joint major in both Marketing and Computers and Systems from McGill University.

Richard M. Schell was named Chief Technology Officer in February 2004. From April 2003 until June 2004 Dr. Schell was Executive Vice President Products and for the period June 2002 through March 2003 he served as our Chief Technology Officer and General Manager, Performance and Availability Management. From February 2001 to June 2002, Dr. Schell was self-employed. Dr. Schell served as the Chief Executive Officer of iSharp, a provider of hosted solutions to monitor and administer site infrastructure performance, from September 1999 to February 2001, when the company filed for bankruptcy protection. From October 1994 to February 1998, he served as Senior Vice President, Product Development, at Netscape Communications, a provider of open client, server and integrated applications software. He holds an A.B., M.S. and a Ph.D. in computer science from the University of Illinois.

Richard H. Van Hoesen joined NetIQ in February 2003 as Vice President, Finance and was named Chief Accounting Officer in April 2004. From February 2000 until January 2003 Mr. Van Hoesen was Vice President and CFO at privately-held XACCT Technologies, Inc., a network-mediation software company. Mr. Van Hoesen held the position of Senior Vice President and General Manager from January 1999 through January 2000 of the Micro Focus business unit of Merant Inc. which was formed as a merger between Micro Focus PLC and Intersolv, Inc. From March 1998 until January 2000, Mr. Van Hoesen was Senior Vice President and Chief Financial Officer of Micro Focus PLC. Mr. Van Hoesen holds a B.S. in industrial engineering from Lehigh University and an M.B.A. from the Wharton School of the University of Pennsylvania.

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ITEM 2.    PROPERTIES

Our corporate and administrative headquarters and certain research and development and sales and marketing personnel are located at the 85,000 square foot facility that we own in San Jose, California.

We lease properties in the following locations to house our additional research and development, sales and marketing, and general and administrative personnel:

We also lease various other smaller properties in the United States and foreign countries primarily for our sales and marketing personnel. A majority of these leases are for a period of less than one year. We believe that our properties are in good condition, adequately maintained and suitable for the conduct of our business. Certain of our lease agreements provide options to extend the lease for additional specified periods. For additional information regarding our obligations under leases, see Note 13 to our Consolidated Financial Statements.

ITEM 3.    LEGAL PROCEEDINGS

In January 2003 BMC Software, Inc. (BMC) filed suit against us in the U.S. District Court for the Southern District of Texas (Court) for patent and trademark infringement. In August 2003 the Court ordered the litigation stayed, pending arbitration. In September 2003 BMC submitted to the American Arbitration Association a statement of claim seeking a declaratory judgment that BMC’s claims are not subject to arbitration and alleging that it believes that at least AppManager and our former operations manager product, the underlying technology of which is licensed to Microsoft, infringe the BMC patent. In October 2003 we submitted our initial answer, denying the claims of infringement asserted by BMC. In November 2003 we filed an amended answer and counterclaim alleging that BMC infringes a valid patent that we own. BMC has denied the allegations in our counterclaim. Each party seeks injunctive relief, compensatory and treble damages, interest, and attorneys’ fees with respect to its claims. Currently, discovery is in the very early stages.

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

Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock is traded on the Nasdaq National Stock Market under the trading symbol “NTIQ”. The following table presents the range of high and low closing prices for our common stock for the two years ended June 30, 2004:

The number of record holders of the shares of our common stock was 264 as of August 31, 2004, which does not include stockholders whose shares are held in trust by other entities. The actual number of stockholders is greater than this number of holders of record. Based on the number of annual reports requested by brokers, we estimate that we have approximately 11,000 beneficial owners of our common stock.

We have never declared or paid any cash dividends on shares of our common stock and do not expect to do so in the foreseeable future. We anticipate that all future earnings, if any, generated from operations will be retained to develop and expand our business. Any future decision to pay cash dividends will depend on our growth, profitability, financial condition and other factors our Board of Directors may deem relevant.

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ITEM 6.    SELECTED FINANCIAL DATA

The following selected historical consolidated financial data should be read in conjunction with our Consolidated Financial Statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.