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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 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 000-25683



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MARIMBA, INC.

(Exact name of registrant as specified in its charter)



|                         |  |                                  
|------------------------ |  | ---------------------------------
|Delaware                 |  | 77-0422318                       
|(State of incorporation) |  | (IRS Employer Identification No.)



440 Clyde Avenue,
Mountain View, California 94043

(Address of principal executive offices, including ZIP code)



(650) 930-5282

(Registrants telephone number, including area code)



None

(Former name, former address
and former fiscal year, if changed since last report)



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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 whether the registrant is an accelerated filer (as
defined in Rule12b-2 of the Securities Exchange Act of 1934).    Yes ̈No  x.



The number of shares
outstanding of the registrants Common Stock as of March 31, 2004 was 26,362,679.

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MARIMBA, INC.

INDEX



|                              |  |                                                                                                    |  |         
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                    |  | Page No.
|Part I. Financial Information |  |                                                                                                   
|                              |  |                                                                                                   
|Item 1.                       |  | Financial Statements                                                                               |  |         
|                              |  |                                                                                                   
|                              |  | Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                   |  | 2       
|                              |  |                                                                                                   
|                              |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 |  | 3       
|                              |  |                                                                                                   
|                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 |  | 4       
|                              |  |                                                                                                   
|                              |  | Notes to the Condensed Consolidated Financial Statements                                           |  | 5       
|                              |  |                                                                                                   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 9       
|                              |  |                                                                                                   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 24      
|                              |  |                                                                                                   
|Item 4.                       |  | Controls and Procedures                                                                            |  | 24      
|                              | 
|Part II. Other Information    |  |                                                                                                   
|                              |  |                                                                                                   
|Item 1.                       |  | Legal Proceedings                                                                                  |  | 25      
|                              |  |                                                                                                   
|Item 2.                       |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                   |  | 26      
|                              |  |                                                                                                   
|Item 3.                       |  | Defaults Upon Senior Securities                                                                    |  | 26      
|                              |  |                                                                                                   
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                |  | 26      
|                              |  |                                                                                                   
|Item 5.                       |  | Other Information                                                                                  |  | 26      
|                              |  |                                                                                                   
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                   |  | 27      
|                              | 
|Signature                     |  | 28                                                                                                



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MARIMBA, INC.



CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)



|                                                                                                                        |  |                |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                        |  | March 31, 2004 |         |   | December 31, 2003 |  
|                                                                                                                        |  | (unaudited)    |         |   | (*)               |  
|ASSETS                                                                                                                  |  |                |         |   |                   |   |         |  
|Current assets:                                                                                                         |  |                |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                               |  | $              | 14,196  |   |                   | $ | 25,902  |  
|Available-for-sale securities                                                                                           |  |                | 38,654  |   |                   |   | 27,195  |  
|Accounts receivable, net of allowances of $434 and $551, respectively                                                   |  |                | 7,191   |   |                   |   | 9,530   |  
|Prepaid expenses and other current assets                                                                               |  |                | 1,317   |   |                   |   | 876     |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|Total current assets                                                                                                    |  |                | 61,358  |   |                   |   | 63,503  |  
|Property and equipment, net                                                                                             |  |                | 1,563   |   |                   |   | 1,511   |  
|Acquired technology                                                                                                     |  |                | 1,109   |   |                   |   | 1,194   |  
|Other assets                                                                                                            |  |                | 300     |   |                   |   | 300     |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|                                                                                                                        |  | $              | 64,330  |   |                   | $ | 66,508  |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  |                |         |   |                   |   |         |  
|Current liabilities:                                                                                                    |  |                |         |   |                   |   |         |  
|Accounts payable                                                                                                        |  | $              | 927     |   |                   | $ | 428     |  
|Accrued liabilities                                                                                                     |  |                | 919     |   |                   |   | 945     |  
|Accrued compensation                                                                                                    |  |                | 2,217   |   |                   |   | 3,015   |  
|Deferred revenue                                                                                                        |  |                | 8,404   |   |                   |   | 8,442   |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|Total current liabilities                                                                                               |  |                | 12,467  |   |                   |   | 12,830  |  
|Deferred rent                                                                                                           |  |                | 216     |   |                   |   | 234     |  
|Deferred revenues non-current                                                                                           |  |                | 156     |   |                   |   | 949     |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|Total long-term liabilities                                                                                             |  |                | 372     |   |                   |   | 1,183   |  
|Commitments and contingencies                                                                                           |  |                |         |   |                   |   |         |  
|Stockholders equity:                                                                                                   |  |                |         |   |                   |   |         |  
|Preferred stock; $.0001 par value, 10,000 shares authorized, no shares designated, issued and outstanding               |  |                |        |   |                   |   |        |  
|Common stock; $.0001 par value, 80,000 shares authorized, 26,363 and 26,251 shares issued and outstanding, respectively |  |                | 2       |   |                   |   | 2       |  
|Additional paid-in capital                                                                                              |  |                | 99,790  |   |                   |   | 99,563  |  
|Deferred compensation                                                                                                   |  |                |        |   |                   |   |        |  
|Accumulated other comprehensive (loss) income                                                                           |  |                | (117    | ) |                   |   | (87     | )
|Accumulated deficit                                                                                                     |  |                | (48,184 | ) |                   |   | (46,983 | )
|                                                                                                                        |  |                |         |   |                   |   |         |  
|Stockholders equity                                                                                                    |  |                | 51,491  |   |                   |   | 52,495  |  
|                                                                                                                        |  |                |         |   |                   |   |         |  
|                                                                                                                        |  | $              | 64,330  |   |                   | $ | 66,508  |  
|                                                                                                                        |  |                |         |   |                   |   |         |  



|(*) | The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes.



2



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MARIMBA, INC.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                                                                          |  |                             |        |   |      |   |       
|--------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                                                                                                          |  | Three Months EndedMarch 31,
|                                                                                                          |  | 2004                        |        |   | 2003
|                                                                                                          |  | (unaudited)                
|Revenues:                                                                                                 |  |                             |        |   |      |   |       
|License                                                                                                   |  | $                           | 3,751  |   |      | $ | 6,520 
|Service                                                                                                   |  |                             | 4,500  |   |      |   | 3,611 
|                                                                                                          |  |                             |        |   |      |   |       
|Total revenues                                                                                            |  |                             | 8,251  |   |      |   | 10,131
|Cost of revenues:                                                                                         |  |                             |        |   |      |   |       
|License                                                                                                   |  |                             | 265    |   |      |   | 163   
|Service                                                                                                   |  |                             | 1,318  |   |      |   | 1,363 
|                                                                                                          |  |                             |        |   |      |   |       
|Total cost of revenues                                                                                    |  |                             | 1,583  |   |      |   | 1,526 
|                                                                                                          |  |                             |        |   |      |   |       
|Gross profit                                                                                              |  |                             | 6,668  |   |      |   | 8,605 
|Operating expenses:                                                                                       |  |                             |        |   |      |   |       
|Research and development                                                                                  |  |                             | 2,224  |   |      |   | 2,026 
|Sales and marketing                                                                                       |  |                             | 4,716  |   |      |   | 5,302 
|General and administrative                                                                                |  |                             | 1,161  |   |      |   | 1,172 
|Amortization of deferred compensation                                                                     |  |                             |       |   |      |   | 54    
|                                                                                                          |  |                             |        |   |      |   |       
|Total operating expenses                                                                                  |  |                             | 8,101  |   |      |   | 8,554 
|                                                                                                          |  |                             |        |   |      |   |       
|Income (loss) from operations                                                                             |  |                             | (1,433 | ) |      |   | 51    
|Interest income                                                                                           |  |                             | 166    |   |      |   | 298   
|Other income, net                                                                                         |  |                             | 82     |   |      |   | 23    
|                                                                                                          |  |                             |        |   |      |   |       
|Income (loss) before income taxes                                                                         |  |                             | (1,185 | ) |      |   | 372   
|Provision for income taxes                                                                                |  |                             | 16     |   |      |   | 29    
|                                                                                                          |  |                             |        |   |      |   |       
|Net income (loss)                                                                                         |  | $                           | (1,201 | ) |      | $ | 343   
|                                                                                                          |  |                             |        |   |      |   |       
|Basic and diluted net income (loss) per share                                                             |  | $                           | (0.05  | ) |      | $ | 0.01  
|                                                                                                          |  |                             |        |   |      |   |       
|Weighted-average shares of common stock outstanding used in computing basic net income (loss) per share   |  |                             | 26,302 |   |      |   | 25,311
|                                                                                                          |  |                             |        |   |      |   |       
|Weighted-average shares of common stock outstanding used in computing diluted net income (loss) per share |  |                             | 26,302 |   |      |   | 25,452
|                                                                                                          |  |                             |        |   |      |   |       



See accompanying notes.



3



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MARIMBA, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                   |  |                             |         |   |      |   |        |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                                   |  | Three Months EndedMarch 31, |        
|                                                                                                   |  | 2004                        |         |   | 2003 |  
|                                                                                                   |  | (unaudited)                 |        
|Operating activities:                                                                              |  |                             |         |   |      |   |        |  
|Net income (loss)                                                                                  |  | $                           | (1,201  | ) |      | $ | 343    |  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                             |         |   |      |   |        |  
|Depreciation                                                                                       |  |                             | 249     |   |      |   | 375    |  
|Amortization of deferred compensation                                                              |  |                             |        |   |      |   | 54     |  
|Amortization of acquired technology                                                                |  |                             | 85      |   |      |   | 86     |  
|Changes in operating assets and liabilities:                                                       |  |                             |         |   |      |   |        |  
|Accounts receivable, net                                                                           |  |                             | 2,339   |   |      |   | (2,277 | )
|Prepaid expenses and other current assets                                                          |  |                             | (441    | ) |      |   | (81    | )
|Accounts payable                                                                                   |  |                             | 499     |   |      |   | (47    | )
|Accrued liabilities                                                                                |  |                             | (26     | ) |      |   | (290   | )
|Accrued compensation                                                                               |  |                             | (798    | ) |      |   | 238    |  
|Deferred revenue                                                                                   |  |                             | (831    | ) |      |   | (253   | )
|Deferred rent                                                                                      |  |                             | (18     | ) |      |   | (2     | )
|                                                                                                   |  |                             |         |   |      |   |        |  
|Net cash used in operating activities                                                              |  |                             | (143    | ) |      |   | (1,854 | )
|                                                                                                   |  |                             |         |   |      |   |        |  
|Investing activities:                                                                              |  |                             |         |   |      |   |        |  
|Capital expenditures                                                                               |  |                             | (301    | ) |      |   | (136   | )
|Purchases of available-for-sale securities                                                         |  |                             | (38,222 | ) |      |   | (6,868 | )
|Proceeds from maturities and sales of available-for-sale securities                                |  |                             | 26,753  |   |      |   | 15,181 |  
|                                                                                                   |  |                             |         |   |      |   |        |  
|Net cash provided by (used in) investing activities                                                |  |                             | (11,770 | ) |      |   | 8,177  |  
|                                                                                                   |  |                             |         |   |      |   |        |  
|Financing activities:                                                                              |  |                             |         |   |      |   |        |  
|Proceeds from issuance of common stock, net of repurchases                                         |  |                             | 227     |   |      |   | (293   | )
|Effect of exchange rate changes on cash                                                            |  |                             | (20     | ) |      |   | (5     | )
|                                                                                                   |  |                             |         |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                             | (11,706 | ) |      |   | 6,025  |  
|Cash and cash equivalents at beginning of period                                                   |  |                             | 25,902  |   |      |   | 11,704 |  
|                                                                                                   |  |                             |         |   |      |   |        |  
|Cash and cash equivalents at end of period                                                         |  | $                           | 14,196  |   |      | $ | 17,729 |  
|                                                                                                   |  |                             |         |   |      |   |        |  



See accompanying notes.



4



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MARIMBA, INC.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|1. | Description of Business
|-- | -----------------------



Marimba, Inc. was incorporated in Delaware in February 1996. We develop, market and support software change management and software configuration
management solutions. Our products help customers reduce their total cost of information technology (IT) ownership and improve quality of IT service by streamlining the distribution and management of software applications and content.
Our customer base spans multiple vertical markets, including financial services, retail, healthcare, manufacturing and government entities. We market our products worldwide through a combination of a direct sales force and resellers.



|2. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited condensed consolidated financial statements have been prepared by Marimba, Inc. (Marimba, we,
our or us) and reflect all adjustments, consisting only of normal recurring accruals, which in the opinion of management are necessary to present fairly the financial position and the results of operations for the interim
periods. The balance sheet at December 31, 2003 has been derived from audited financial statements at that date. The financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (the
SEC), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles. For further information, refer to the Consolidated Financial Statements and Notes
thereto included in Marimbas Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 16, 2004. Results for the interim periods are not necessarily indicative of results for the fiscal year ending December
31, 2004 or for any future interim or full-year period.



Net Income (Loss)
Per Share



Basic earnings per share is computed using the
weighted-average number of common shares outstanding. Diluted earnings per share includes the weighted-average number of common share equivalents outstanding during the period. Dilutive common share equivalents consist of employee stock options and
are calculated by using the treasury stock method. The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):



|                                                      |  |                             |        |   |      |   |        |  
|----------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | Three Months EndedMarch 31, |       
|                                                      |  | 2004                        |        |   | 2003 |  
|Net income (loss)                                     |  | $                           | (1,201 | ) |      | $ | 343    |  
|Weighted-average sharesBasic:                        |  |                             |        |   |      |   |        |  
|Weighted-average shares of common stock outstanding   |  |                             | 26,302 |   |      |   | 25,356 |  
|Less weighted-average shares subject to repurchase    |  |                             |       |   |      |   | (45    | )
|                                                      |  |                             |        |   |      |   |        |  
|Weighted-average sharesBasic                         |  |                             | 26,302 |   |      |   | 25,311 |  
|Effect of dilutive securities: Employee stock options |  |                             |       |   |      |   | 141    |  
|                                                      |  |                             |        |   |      |   |        |  
|Weighted average sharesDiluted                       |  |                             | 26,302 |   |      |   | 25,452 |  
|                                                      |  |                             |        |   |      |   |        |  
|Net income (loss) per shareBasic                     |  | $                           | (0.05  | ) |      | $ | 0.01   |  
|                                                      |  |                             |        |   |      |   |        |  
|Net income (loss) per shareDiluted                   |  | $                           | (0.05  | ) |      | $ | 0.01   |  
|                                                      |  |                             |        |   |      |   |        |  



For the three months
ended March 31, 2004 and 2003, 4,620,945 and 4,171,007 shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share, because the effect was antidilutive.



5



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Guarantees



We enter into standard indemnification agreements with our customers and technology partners. Pursuant to these agreements, we typically indemnify, hold
harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any U.S. patent, copyright or other intellectual property infringement claim by any third party with respect to our
products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments that Marimba could be required to make under these indemnification agreements is
unlimited. We have, in the past, incurred costs to defend intellectual property lawsuits.



We generally warrant that our software products will perform in all material respects in accordance with our standard published specifications for a specified period of time from the date of license. Additionally, we
warrant that our maintenance and other services will be performed consistent with generally accepted industry standards through completion of the agreed upon services. Historically, costs related to these warranties have not been significant. We
maintain a warranty accrual in the event that we incur expenses associated with customer claims made under our warranty provisions.



We have agreements in place with our directors and officers whereby we indemnify them for certain events or occurrences while the officer or director is,
or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that may
enable us to recover a portion of any future amounts paid.



Accounting for
Stock-Based Compensation



The following table summarizes
relevant information as to reported results under Marimbas intrinsic value method of accounting for stock awards, with supplemental information as if the fair value recognition provisions of FASB Statement 123 had been applied (in thousands,
except per share data):



|                                                                     |  |                             |        |   |      |   |     
|-------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ----
|                                                                     |  | Three MonthsEnded March 31,
|                                                                     |  | 2004                        |        |   | 2003
|Net income (loss) as reported                                        |  | $                           | (1,201 | ) |      | $ | 343 
|Add: Stock-based compensation included in reported net income (loss) |  |                             |       |   |      |   | 54  
|Deduct: Total stock-based compensation (expense) under SFAS 123      |  |                             | (469   | ) |      |   | 147 
|                                                                     |  |                             |        |   |      |   |     
|Pro forma net income (loss)                                          |  | $                           | (1,670 | ) |      | $ | 544 
|Basic and diluted net income (loss) per share:                       |  |                             |        |   |      |   |     
|Reported net income (loss) per common share                          |  | $                           | (0.05  | ) |      | $ | 0.01
|                                                                     |  |                             |        |   |      |   |     
|Pro forma net income (loss) per common share                         |  | $                           | (0.06  | ) |      | $ | 0.02
|                                                                     |  |                             |        |   |      |   |     



6



---

|3. | Comprehensive Income (Loss)
|-- | ---------------------------



Comprehensive income (loss) is comprised of net income (loss), foreign currency translation gains or losses and unrealized gains or losses on
available-for-sale marketable securities. Our total comprehensive income (loss) is as follows (in thousands):



|                                                                       |  |                             |        |   |      |   |     |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | --- | -
|                                                                       |  | Three MonthsEnded March 31, |       
|                                                                       |  | 2004                        |        |   | 2003 |  
|Net income (loss)                                                      |  | $                           | (1,201 | ) |      | $ | 343 |  
|Other comprehensive income (loss):                                     |  |                             |        |   |      |   |     |  
|Change in unrealized gains and losses on available-for-sale securities |  |                             | (11    | ) |      |   | (71 | )
|Foreign currency translation adjustment                                |  |                             | (19    | ) |      |   | (5  | )
|                                                                       |  |                             |        |   |      |   |     |  
|Comprehensive income (loss)                                            |  | $                           | (1,231 | ) |      | $ | 267 |  
|                                                                       |  |                             |        |   |      |   |     |  



|4. | Legal Matters
|-- | -------------



Beginning in April 2001, a number of substantially identical class action complaints alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York naming Marimba, Inc., certain of its officers and directors, and certain underwriters of the companys initial public offering (Morgan Stanley & Co., Inc., Credit Suisse
First Boston Corp. and Bear Stearns & Co., Inc.) as defendants. The complaints have since been consolidated into a single action, and a consolidated amended complaint was filed in April 2002. The complaint alleges, among other things, that the
underwriters of our initial public offering violated the securities laws by failing to disclose certain alleged compensation and tie-in arrangements (such as undisclosed commissions or stock stabilization practices) in the registration statement
filed in connection with the offering. Marimba and certain of its officers and directors were named in the complaint pursuant to Section 11 of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The
complaint seeks unspecified damages, attorney and expert fees, and other unspecified litigation costs. Similar complaints have been filed against over 300 other issuers that had initial public offerings since 1998 and all such actions have been
included in a single coordinated proceeding. In July 2002, the defendants in the consolidated actions filed motions to dismiss all of the cases in the litigation (including the case involving Marimba). On February 19, 2003, the court ruled on the
motions and granted Marimbas motion to dismiss the claims against it under Section 10(b) and Rule 10b-5. The motions to dismiss the claims under Section 11 were denied as to virtually all of the defendants in the consolidated cases, including
Marimba. In addition, the Marimba individual defendants in the litigation each signed a tolling agreement and were dismissed from the action without prejudice on October 9, 2002. On June 30, 2003, a special committee of our Board of Directors
conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Marimba and Marimbas individual defendants for the conduct alleged in the action to be
wrongful. Marimba would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert and release certain potential claims Marimba may have against its underwriters. Any direct financial impact
of the proposed settlement is expected to be borne by Marimbas insurers. The special committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants
in the proposed settlement, the consent of Marimbas insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the court
overseeing the litigation. In the event the settlement is not consummated, the defense of the litigation may increase our expenses and divert our managements attention and resources. Due to the inherent uncertainties of litigation, we cannot
accurately predict the ultimate outcome of the litigation, and any unfavorable outcome could have a material adverse impact on our business, financial condition and operating results.



7



---

|5. | Subsequent Events
|-- | -----------------



Merger Agreement with BMC Software, Inc.



On April 29, 2004, we entered into a definitive agreement to be acquired by BMC Software, Inc. (BMC). Pursuant to the agreement, upon the
closing of the merger, each outstanding share of Marimbas common stock would be exchanged for the right to receive $8.25 in cash without interest, and outstanding Marimba stock options would be assumed by BMC upon the same terms and
conditions, except that each such option will be exercisable for an adjusted number of shares of BMC common stock.



The merger is conditioned upon, among other things, approval by Marimbas stockholders, clearance under applicable antitrust laws, no pending or
threatened litigation seeking to prevent the merger, and other customary closing conditions. We currently expect that the merger will be consummated in the third calendar quarter of 2004. We expect cost associated with the merger to be approximately
$3.8 million. In the event the merger is not completed, the costs are expected to be approximately $850,000. In the event that the merger agreement is terminated, then in specified instances, we will be obligated to pay BMC a termination fee of
$8.75 million.



Fiduciary Suit



On April 30, 2004, an alleged holder of Marimbas common stock filed
a purported class action lawsuit in California Superior Court for the County of Santa Clara. The complaint names as defendants Marimba, Inc. and each member of our board of directors. The complaint alleges that, in pursuing the transaction with BMC
Software and approving the merger agreement, the directors violated their fiduciary duties to the holders of Marimbas common stock by, among other things, failing to obtain the highest price reasonably available, tailoring the terms of the
transaction to meet the needs of BMC Software, engaging in self-dealing and obtaining personal financial benefits not shared equally by the plaintiffs and other stockholders. The complaint also alleges that the merger agreement resulted from a
flawed process designed to ensure a sale to one buyer. The complaint seeks a preliminary and permanent injunction to enjoin Marimba from consummating the acquisition until Marimba implements a process to seek a higher price, as well as
attorneys fees and costs and other remedies. Based on our review of the complaint, we believe that the allegations in the complaint are without merit and intend, along with our directors, to defend the lawsuit vigorously.



8



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The information in this report contains forward-looking statements, which
are subject to safe harbors created under the U.S. federal securities laws. Such statements are based upon current expectations that involve risks and uncertainties. Statements that refer to our proposed acquisition by BMC Software (and the lawsuit
filed in connection with this proposed transaction), projections of our future financial performance, anticipated revenue growth, large transaction, profitability, expenses, cash flows, capital needs, competition and market share growth, the
development of new products and technologies and market acceptance of such products or technologies, business and sales strategies, developments in our target markets, matters relating to distribution channels and partnerships, proprietary rights,
litigation, and other trends in our businesses, may be deemed to be forward-looking statements. In addition, the words believes, anticipates, plans, expects, intends and similar expressions
are intended to identify forward-looking statements. Marimbas actual results and the timing of certain events may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy
include, but are not limited to, those discussed in Other Factors Affecting Operating Results, Liquidity and Capital Resources below All forward-looking statements in this report are based on information available to Marimba as of the
date hereof, and Marimba undertakes no obligation to release publicly any updates or revisions to any such forward-looking statements.



Overview



Marimba, Inc. was incorporated in Delaware in February 1996. We develop, market and support software change management and software configuration
management solutions. Our products help customers reduce their total cost of information technology (IT) ownership and improve quality of IT service by streamlining the distribution and management of software applications and content.
Our customer base spans multiple vertical markets, including financial services, retail, healthcare, manufacturing and government entities. We market our products worldwide through a combination of a direct sales force and resellers.



Revenues to date have been derived from the license of our products and from
support and maintenance, consulting and training services. Customers who license our products generally purchase maintenance contracts, typically covering a 12-month period. Additionally, customers may purchase consulting services, which are
customarily billed at a fixed daily rate plus out-of-pocket expenses. We also offer training services that are billed on a per student or per class session basis.



Since inception, we have made substantial investments in sales, marketing and research and development to expand and enhance
our product lines and increase the market awareness of Marimba and our products. We have incurred significant losses since inception and had an accumulated deficit of approximately $48.2 million at March 31, 2004. We believe that our future success
depends in part on our ability to increase our customer base and on growth in our market overall. Accordingly, over the long term, we intend to continue to invest heavily in sales, marketing and research and development.



Our financial results for the first quarter of 2004 did not meet our
expectations. Our license revenues were down 42% from the same period in 2003. This was caused primarily by our failure to close large license transactions, as no transaction represented more than 10% of our license revenues during the quarter, as
compared to the first quarter of 2003, where two transactions represented over 50% of our license revenues. As we have disclosed previously, we typically generate a significant portion of our license revenue from a relatively small number of large
transactions each quarter, and many of these transactions occur near the end of each quarter. A delay or failure to close one or more of these transactions can significantly impact our quarterly license revenues and overall operating results, as
occurred during the first quarter of 2004.



In view of the
rapidly changing nature of our business and our limited operating history, we believe that period-to-period comparisons of revenues and operating results are not necessarily meaningful, and historical trends that may be drawn from these comparisons
should not be relied upon as indications of future performance, growth or financial results.



9



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Proposed Merger with BMC Software



On April 29, 2004, we entered into a definitive agreement to be acquired by BMC Software, Inc. (BMC). Pursuant
to the agreement, upon the closing, each outstanding share of Marimba common stock would be exchanged for the right to receive $8.25 in cash without interest, and outstanding Marimba stock options would be assumed by BMC upon the same terms and
conditions, except that each such option will be exercisable for an adjusted number of BMC common stock.



The merger is conditioned upon, among other things, approval by Marimbas stockholders, clearance under applicable antitrust laws, no pending or
threatened litigation seeking to prevent the merger, and other customary closing conditions. We currently expect that the merger will be consummated in the third calendar quarter of 2004.



Critical Accounting Policies and Estimates



We believe there have been no significant changes in our critical accounting policies during the three months ended March 31, 2004 as compared to what
was previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003.



Results of Operation



The following table sets forth certain statements of operations data as a percentage of total revenues for the three months ended March 31, 2004 and 2003:



|                                      |  |                             |    |  |       |  
|------------------------------------- |  | --------------------------- | -- |  | ----- | -
|                                      |  | Three MonthsEnded March 31, |   
|                                      |  | 2004                        |    |  | 2003  |  
|Revenues:                             |  |                             |    |  |       |  
|License                               |  | 45.5                        | %  |  | 64.4  | %
|Service                               |  | 54.5                        |    |  | 35.6  |  
|                                      |  |                             |    |  |       |  
|Total revenues                        |  | 100.0                       |    |  | 100.0 |  
|Cost of revenues:                     |  |                             |    |  |       |  
|License                               |  | 3.2                         |    |  | 1.6   |  
|Service                               |  | 16.0                        |    |  | 13.5  |  
|                                      |  |                             |    |  |       |  
|Total cost of revenues                |  | 19.2                        |    |  | 15.1  |  
|                                      |  |                             |    |  |       |  
|Gross margin                          |  | 80.8                        |    |  | 84.9  |  
|Operating expenses:                   |  |                             |    |  |       |  
|Research and development              |  | 26.9                        |    |  | 20.0  |  
|Sales and marketing                   |  | 57.2                        |    |  | 52.3  |  
|General and administrative            |  | 14.1                        |    |  | 11.6  |  
|Amortization of deferred compensation |  |                            |    |  | 0.5   |  
|                                      |  |                             |    |  |       |  
|Operating expenses                    |  | 98.2                        |    |  | 84.4  |  
|                                      |  |                             |    |  |       |  
|Income (loss) from operations         |  | (17.4                       | )  |  | 0.5   |  
|Net income (loss)                     |  | (14.6                       | )% |  | 3.4   | %
|                                      |  |                             |    |  |       |  



The data presented
above and elsewhere in this section has been derived from the unaudited consolidated financial statements contained in this report which, in the opinion of management include all adjustments, consisting only of normal recurring accruals, necessary
to present fairly the financial position and results of operations for the interim periods. The operating results for any quarter should not be considered indicative of results of any future period. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 16, 2004.



10



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Revenues



The following table presents selected revenue data for the periods indicated (in thousands except for percentages):



|                              |  |                              |       |   |      |   |        |  
|----------------------------- |  | ---------------------------- | ----- | - | ---- | - | ------ | -
|                              |  | Three Months Ended March 31, |      
|                              |  | 2004                         |       |   | 2003 |  
|Revenues:                     |  |                              |       |   |      |   |        |  
|License                       |  | $                            | 3,751 |   |      | $ | 6,520  |  
|Service                       |  |                              | 4,500 |   |      |   | 3,611  |  
|                              |  |                              |       |   |      |   |        |  
|Total revenues                |  | $                            | 8,251 |   |      | $ | 10,131 |  
|Percentage of total revenues: |  |                              |       |   |      |   |        |  
|License                       |  |                              | 45    | % |      |   | 64     | %
|Service                       |  |                              | 55    |   |      |   | 36     |  



Total revenues
decreased $1.9 million, or approximately 19%, to $8.3 million in the first quarter of 2004 from $10.1 million in the first quarter of 2003. The decrease in total revenues was due primarily to a decrease in license revenues, partially offset by an
increase in service revenues, both of which are discussed below.



License Revenues. License revenues decreased $2.8 million, or approximately 42%, to $3.8 million in the first quarter of 2004 from $6.5 million in the first quarter of 2003. As a percentage of total revenues, license revenues
decreased to 45% of total revenues in the first quarter of 2004, from 64% in the comparable period of 2003. We generally rely on a small number of relatively large orders each quarter, and these transactions typically represent a large percentage of
our license revenues. For example, in the first quarter of 2003, two large transactions represented 50% of our license revenue. The decrease in license revenues for the first quarter of 2004 was due primarily to not closing large orders during the
quarter. In the first quarter of 2004, our largest transaction represented less than 10% of our license revenues. We expect large transactions to continue to play an important role in our license revenues going forward.



Included in license revenue was $185,000, which was recognized out of
deferred revenue related to an expired reseller contract. The reseller contract was entered into in the fiscal year 1999, and the last sale by this reseller was in the fiscal year 2000. During the quarter ended March 31, 2004, we discovered that we
had no future obligation to the reseller and that the contract expired in the quarter ended March 31, 2002. We also determined that the amount is not material to either the quarter ended March 31, 2002 or the fiscal year 2002.



The mix of products sold each quarter can vary significantly from quarter to
quarter. The following table presents the license revenues derived from each of our product lines as a percentage of total license revenues for the periods indicated:



|                                      |  |                              |   |  |      |  
|------------------------------------- |  | ---------------------------- | - |  | ---- | -
|                                      |  | Three Months Ended March 31, |  
|                                      |  | 2004                         |   |  | 2003 |  
|Percentage of total license revenues: |  |                              |   |  |      |  
|Desktop/Mobile Management             |  | 74                           | % |  | 85   | %
|Server Management                     |  | 26                           |   |  | 15   |  



Service Revenues.Service revenues include support and maintenance, consulting and training. Service revenues in the first quarter of 2004 increased $889,000, or approximately 25%, to $4.5 million, from $3.6 million in the first quarter of 2003. The increase is
attributable primarily to an increase in maintenance revenues of $655,000, the result of relatively strong license sales in fiscal 2003 and to a lesser extent to an increase in consulting revenues of approximately $220,000. The increase in service
revenues as a percentage of total revenues was due primarily to the decrease in license revenues in the first quarter of 2004.



11



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The following table presents the components of service revenues as a percentage of total service revenues for the periods
indicated:



|                                      |  |                              |   |  |      |  
|------------------------------------- |  | ---------------------------- | - |  | ---- | -
|                                      |  | Three Months Ended March 31, |  
|                                      |  | 2004                         |   |  | 2003 |  
|Percentage of total service revenues: |  |                              |   |  |      |  
|Consulting                            |  | 15                           | % |  | 12   | %
|Support and maintenance               |  | 81                           |   |  | 83   |  
|Training                              |  | 4                            |   |  | 5    |  



International.International revenues represented approximately 24% and 11% of total revenues for the three month period ended March 31, 2004 and 2003, respectively. In absolute terms, international revenues increased by $0.9 million, to $2.0 million in the
first quarter of 2004 from $1.1 million in the first quarter of 2003. The increase in international revenues was primarily the result of an increase in international license revenue of $590,000. The following table presents our revenues by region as
a percentage of total revenues:



|              |  |                              |   |  |      |  
|------------- |  | ---------------------------- | - |  | ---- | -
|              |  | Three Months Ended March 31, |  
|              |  | 2004                         |   |  | 2003 |  
|Revenues:     |  |                              |   |  |      |  
|United States |  | 76                           | % |  | 89   | %
|Europe        |  | 20                           |   |  | 10   |  
|Other regions |  | 4                            |   |  | 1    |  



Costs of Revenues and Gross Profit



Cost of License Revenues and Related Gross Profit.
Cost of license revenues consists primarily of cost of third-party software technology that was either integrated into our products or resold by us. Cost of license revenues in the first quarter of 2004 increased $102,000, or approximately 63%, to
$265,000 from $163,000 in the first quarter of 2003. The increase was primarily the result of increased costs incurred for third-party software technology that was integrated into our products, partially offset by a decrease in the costs of products
resold by us. The following table presents our gross profit on license revenues (in thousands except for percentages):



|                                                                     |  |                              |       |   |      |   |       |  
|-------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                     |  | Three Months Ended March 31, |      
|                                                                     |  | 2004                         |       |   | 2003 |  
|License revenues                                                     |  | $                            | 3,751 |   |      | $ | 6,520 |  
|Cost of license revenues                                             |  |                              | 265   |   |      |   | 163   |  
|                                                                     |  |                              |       |   |      |   |       |  
|                                                                     |  |                              |       |   |      |   |       |  
|Gross profit on license revenues                                     |  | $                            | 3,486 |   |      | $ | 6,357 |  
|Gross profit on license revenues as a percentage of license revenues |  |                              | 93    | % |      |   | 98    | %



Cost of Service
Revenues and Related Gross Profit. Cost of service revenues includes salaries and related expenses of our customer service and training organizations, consultants and third parties for billable consulting arrangements, and an allocation of
certain overhead expenses. Cost of service revenues during the first quarter of 2004 decreased by $45,000, or approximately 3%, to $1.3 million from $1.4 million in the first quarter of 2003. The decrease for the first quarter of 2004 primarily
resulted from lower expenses in our training and support organizations as a result of general cost cutting, offset partially by an increase in spending for our outsourced support organization in India.



12



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The following table presents our gross profit on service revenues (in thousands except for percentages):



|                                                                     |  |                              |       |   |      |   |       |  
|-------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                     |  | Three Months Ended March 31, |      
|                                                                     |  | 2004                         |       |   | 2003 |  
|Service revenues                                                     |  | $                            | 4,500 |   |      | $ | 3,611 |  
|Cost of service revenues                                             |  |                              | 1,318 |   |      |   | 1,363 |  
|                                                                     |  |                              |       |   |      |   |       |  
|Gross profit on service revenues                                     |  | $                            | 3,182 |   |      | $ | 2,248 |  
|Gross profit on service revenues as a percentage of service revenues |  |                              | 71    | % |      |   | 62    | %



Operating Expenses



Research and Development.Research and development expenses
increased $198,000, or approximately 10%, to $2.2 million in the first quarter of 2004 from $2.0 million in the first quarter of 2003. The increase was primarily due to increased headcount and contract resources in our engineering department as we
continue to invest in new products.



Sales and Marketing.Sales and marketing expenses decreased $586,000, or approximately 11%, to $4.7 million in the first quarter of 2004 from $5.3 million in the first quarter of 2003. The decrease was primarily due to lower commission expenses as a result of lower
license sales, as well as other general cost reductions.



General and Administrative.General and administrative expenses remained virtually flat at $1.2 million in the first quarter of 2004 and in the first quarter of 2003. We expect general and administrative expense to increase
significantly during the quarter ended June 30, 2004, due to investment banking, legal and other fees related to our proposed acquisition by BMC.



Amortization of Deferred Compensation.We record the amortization of deferred compensation net of credits resulting from the forfeiture of stock
options and repurchase of shares due to employee terminations. Given that our deferred compensation was fully amortized as of June 30, 2003, we did not record any amortization of deferred compensation in the first quarter of 2004, as compared to an
expense of $54,000 in the comparable period in 2003. Our deferred compensation charges resulted primarily from stock options granted prior to our initial public offering in April 1999 and restricted stock grants made in 2001 and 2002. All of these
stock options and restricted shares were fully vested or were cancelled in 2003, which resulted in no charges incurred for deferred compensation in 2004. We anticipate having no further deferred compensation charges unless we grant additional
restricted shares or non-employee stock options in the future or make modifications to the terms of outstanding stock options.



Interest Income and Other Income, Net.Interest income and other income, net, was $166,000 and $298,000 for three months ended March 31, 2004 and
2003, respectively. The decrease in interest income was due primarily to lower interest rates.



Provision for Income Taxes. Our provision for income taxes for the first quarter of 2004 consists of foreign income taxes, and with respect to the first quarter of 2003, the provision consists of state income
taxes, franchise taxes, foreign taxes and a provision for federal alternative minimum tax after utilization of available net operating loss carryforwards.



Liquidity and Capital Resources



As of March 31, 2004, our principal sources of liquidity included approximately $14.2 million of cash and cash equivalents, and $38.6 million in
available-for-sale securities. Available-for-sale securities consist primarily of investment grade securities that either mature within the next 12 months or have other characteristics of short-term investments. These include corporate debt, which
have contractual maturities ranging from one to two years.



Cash equivalents consisted of financial instruments, which are readily convertible to cash and have maturities of three months or less at the time of acquisition, including commercial paper, U.S. government and agency securities and money
market funds. These investments are recorded at cost, which approximates fair value and are managed by professional investment managers.



13



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All marketable debt securities classified as available-for-sale are available for working capital
purposes, as necessary. Available-for-sale securities are recorded at fair market value. The unrealized gains and losses related to these securities are included in Other Comprehensive Income (Loss). Fair market values are based on quoted market
prices. When securities are sold, their cost is determined based on the specific identification method. Available-for-sale securities consist of cost of $38.6 million, gross unrealized gain of $20,000 and fair market value of $38.6 million as of
March 31, 2004. The following table represents the maturities of our cash and cash equivalents and available-for-sale securities (in thousands):



March 31, 2004



|                              |  |                      |        |                                   |   |                           |  |       |        |  |   |       
|----------------------------- |  | -------------------- | ------ | --------------------------------- | - | ------------------------- |  | ----- | ------ |  | - | ------
|                              |  | Three months or less |        | Between three months and one year |   | Between one and two years |  | Total
|Cash and cash equivalents     |  | $                    | 14,196 |                                   |   |                          |  |       |       |  | $ | 14,196
|Available for sale securities |  |                      |       |                                   | $ | 18,773                    |  | $     | 19,881 |  |   | 38,654
|                              |  |                      |        |                                   |   |                           |  |       |        |  |   |       
|Total                         |  | $                    | 14,196 |                                   | $ | 18,773                    |  | $     | 19,881 |  | $ | 52,850



December 31, 2003



|                              |  |                      |        |                                   |   |                           |  |       |       |  |   |       
|----------------------------- |  | -------------------- | ------ | --------------------------------- | - | ------------------------- |  | ----- | ----- |  | - | ------
|                              |  | Three months or less |        | Between three months and one year |   | Between one and two years |  | Total
|Cash and cash equivalents     |  | $                    | 25,902 |                                   |   |                          |  |       |      |  | $ | 25,902
|Available for sale securities |  |                      |       |                                   | $ | 19,122                    |  | $     | 8,073 |  |   | 27,195
|                              |  |                      |        |                                   |   |                           |  |       |       |  |   |       
|Total                         |  | $                    | 25,902 |                                   | $ | 19,122                    |  | $     | 8,073 |  | $ | 53,097



Net cash used by
operating activities for the three months ended March 31, 2004 was approximately $143,000. This was primarily the result of the net loss for the period and a decrease in deferred revenue and accrued compensation, offset by a decrease in accounts
receivable and increase in accounts payable. The net cash used in investment activities for the three months ended March 31, 2004 was approximately $11.8 million. This was primarily the result of purchases of available-for-sale securities offset by
sales and maturities of available-for-sale securities. The net cash provided by financing activities for the three months ended March 31, 2004 was approximately $227,000. This was primarily the result of employee stock option exercises offset by
repurchases of common stock.



In addition, in the event that
our proposed business combination with BMC is not completed, the merger agreement requires that we pay BMC a termination fee of $8.75 million in specified circumstances, as described in the merger agreement referenced as an exhibit to this report,
including the following: (1) if BMC terminates the merger agreement due to a breach by Marimba, failure of the merger to close by October 31, 2004 or failure by Marimbas stockholders to approve the merger, and prior to such termination an
acquisition proposal was made or publicly disclosed; (2) if we terminate the merger agreement due to failure of the merger to close by October 31, 2004 or failure by Marimbas stockholders to approve the merger, and prior to such termination an
acquisition proposal was made or publicly disclosed; (3) if the agreement is terminated by either party due to failure by Marimbas stockholders to approve the merger, and within six months we accept an acquisition proposal (regardless of
whether such proposal was made or disclosed before the termination); or (4) if BMC terminates the merger agreement due to a change of approval or recommendation of the merger by Marimbas board, approval of an acquisition proposal by
Marimbas board, a breach of our non-solicitation obligations in the merger agreement or failure to take certain other actions to support the merger.



Even if the merger with BMC does not close and we are required to pay the termination fee of $8.75 million, we currently anticipate that our cash, cash
equivalents and available-for-sale securities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, it is possible that we could experience unexpected cash
requirements that would force us to seek financing, or at some point in the future we may otherwise seek financing to support our long-term operations. In any such event, we may seek to sell additional equity or debt securities or obtain a credit
facility. Any additional financings, if needed, might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our



14



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business and operating results. If additional funds were raised through the issuance of equity securities, the percentage
of ownership of our existing stockholders would be reduced.



Commitments



Our
contractual obligations consist of noncancellable operating lease agreements and a purchase obligation. As of March 31, 2004, future minimum payments under noncancellable operating leases and a minimum purchase obligation are expected to be
approximately $3.8 million, and become due as presented in the table below:



|                             |  |                                         |      
|---------------------------- |  | --------------------------------------- | -----
|                             |  | Operating Leases andPurchaseObligations
|                             |  | (in thousands)                         
|Less than 1 year             |  | $                                       | 1,312
|1 to 3 years                 |  |                                         | 2,229
|4 years and thereafter       |  |                                         | 271  
|                             |  |                                         |      
|Total minimum lease payments |  | $                                       | 3,812



Other Factors Affecting Operating
Results, Liquidity and Capital Resources



The factors
discussed below are cautionary statements that identify important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in this report. These risks are not the only ones
facing our company. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our business operations. For more information regarding the forward-looking statements contained in this report, see the
introductory paragraph to Item 2 of this report.



If Our Proposed Business
Combination with BMC is not Completed, Our Business and Stock Price May be Adversely Affected



On April 28, 2004, we entered into a definitive agreement to be acquired by BMC. The merger is subject to a number of contingencies, including approval by
Marimbas stockholders, clearance under applicable antitrust laws, no pending or threatened litigation seeking to prevent the merger, and other customary closing conditions, each of which must either be satisfied or waived prior to the closing.
Marimba and members of its board of directors have been named in a purported class action lawsuit filed in connection with the proposed transaction, as described in further detail under Item 1Legal Proceedings. Therefore, there is
a risk that the merger will not be completed or that it will not be completed in the expected time period. If the merger is not completed or the completion is substantially delayed, we could be subject to a number of risks that may adversely affect
our business and stock price, including:



| |  | our stock price may fluctuate prior to completion of the merger due to market assessments regarding the expected timing of the merger and risks relating to the completion of the
merger, and if the merger is not completed, our stock price may decline significantly, since the current trading price reflects a market assumption that the merger will be completed;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we could lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed merger;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we have and will continue to incur significant expenses related to the merger prior to its closing, including fees paid to an investment bank for a fairness opinion for the merger,
legal and accounting fees, that must be paid even if the merger is not completed;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | depending on the circumstances, we may be obligated to pay BMC a termination fee of $8.75 million, as discussed in greater detail under Liquidity and Capital Resources
above; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | we may experience the additional impacts described in the risk factor below.
| | - | ----------------------------------------------------------------------------



In connection with the proposed merger, we will mail to our stockholders and file with the SEC a definitive proxy statement that will contain important
information about Marimba, the proposed merger and related matters. We urge you to read the definitive proxy statement when it becomes available.



15



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Our Proposed Transaction with BMC May Adversely Affect Our Results of Operations



In response to our pending merger transaction with BMC, our customers may
defer purchasing decisions or elect to switch to other suppliers due to, among other things, competitive issues and uncertainty about the direction of our product offerings following the merger and our willingness to support and service existing
products. Uncertainty surrounding the proposed transaction also may have an adverse effect on employee morale and retention. In addition, focus on the merger and related matters has resulted in, and may continue to result in, the diversion of
management attention and resources. To the extent that there is uncertainty about the closing of the merger, or if the merger does not close, our business may be harmed to the extent that customers, strategic partners or others believe that we
cannot effectively compete in the marketplace without the merger or there is customer and employee uncertainty surrounding the future direction of our product and service offerings and strategy on a standalone basis. Finally, the merger
agreement imposes restrictions on our ability to conduct our business prior to the completion of the merger. Each of these potential impacts, and others, may leave us unable to respond effectively to competitive pressures, industry developments and
future opportunities, or may otherwise harm our results of operations going forward.



Our Revenues in Any Quarter Depend on a Small Number of Relatively Large Orders



Our quarterly revenues are especially subject to fluctuation, because they normally depend on the completion of relatively large license transactions. For
example, in the first quarter of 2003, two large transactions represented 50% of our license revenue. In the first quarter of 2004, we did not close large transactions, as no transaction represented more than 10% of license revenues, resulting in
financial results that were below our expectations. This dependence on large orders makes our net revenue and operating results more likely to vary from quarter to quarter, and more difficult to predict, because the loss of any particular large
order is significant. As a result, our operating results could continue to be adversely impacted if any large orders are delayed or canceled in any future period.



Our Quarterly Operating Results May be Volatile, which Could Adversely Affect Our Stock Price



A substantial portion of our license revenues for most quarters has been
recorded in the last month of the quarter and the magnitude of quarterly fluctuations in revenue may not become evident until late in or towards the end of a particular quarter. At the same time, our expense levels are relatively fixed for a
particular quarter and are based, in part, on expectations as to future revenues. As a result, if revenue levels fall below our expectations for a particular quarter, our operating results will be adversely affected as only a small portion of our
expenses vary with our revenues. A delay in recognizing revenue, even from a single transaction, could seriously harm our operating results.



We generally expect that revenues in the first and third quarters of each year will not substantially exceed, and may be lower than, revenues in the
immediate prior quarter due to the annual nature of companies purchasing and budgeting cycles. To the extent that seasonality makes it more difficult to predict our revenues, the volatility of our stock price may increase.



Our quarterly operating results have been volatile in the past and will
likely vary significantly in the future. As a result, we believe that period-to-period comparisons of our operating results should not be relied upon as indicators of our future performance. Operating results vary depending on a number of factors,
many of which are outside our control. Volatility in our operating results could adversely affect our stock price.



Recent Changes to Our Product Packaging and Pricing May Cause Revenues to Decline



We recently changed the way we package and price our products, allowing our customers to more easily license single solution
modules instead of having to license an entire product suite. The pricing of each solution module is significantly lower than the price of an entire product suite. We believe that, over time, the more modular packaging of our products will allow us
to sell into more opportunities, and that in the future we will be able to better upsell existing customers who choose to license single solution modules. In the near term, however, if our customers choose to purchase single modules instead of
purchasing full suites, this could adversely affect our



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revenues. Any such decrease in license revenues would adversely impact our gross profits and ultimately our net income.



Our Markets are Highly Competitive and are Experiencing Consolidation



The markets for our products are highly competitive, and
we expect this competition to persist and intensify in the future. We compete against both new entrants into our markets as well as existing companies. Our failure to maintain and enhance our competitive position could seriously harm our business
and operating results. We encounter competition from a number of sources, including:



| |  | Sellers of enterprise-wide management systems, which include electronic software distribution;
| | - | ----------------------------------------------------------------------------------------------



| |  | Companies that market products that support the distribution of software applications and content;
| | - | --------------------------------------------------------------------------------------------------



| |  | Desktop software management products;
| | - | -------------------------------------



| |  | Application server vendors and others that have introduced software distribution capabilities into their products;
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | Hardware suppliers that offer or bundle software management capabilities in conjunction with their hardware offerings; and
| | - | --------------------------------------------------------------------------------------------------------------------------



| |  | Our potential customers own information technology departments and internal development efforts.
| | - | -------------------------------------------------------------------------------------------------



Many of our competitors have longer operating histories and significantly greater financial, technical, marketing and other
resources than we do. Many of these companies have more extensive customer bases and broader customer relationships that they could leverage, including relationships with many of our current and potential customers. Many also have significantly more
established customer support and professional service organizations than we do. In addition, these companies may adopt aggressive pricing policies, which we are unable to match. In the past, we have lost potential customers to competitors for
various reasons, including lower prices. Furthermore, these companies may have greater brand name recognition than we do. To achieve widespread market acceptance, we will need to further establish the Marimba brand and be able to differentiate our
product and service offerings from those of our competitors.



Contributing to these challenges, our industry has been subject to consolidation, which subjects us to competition with larger companies offering integrated solutions and a wider breadth of products. Potential competitors may bundle their
products or incorporate additional components into existing products in a manner that discourages users from purchasing our products. Alliances among competitors or between competitors and other large software companies present similar competitive
challenges. As a result of consolidation or alliances, these competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can.



Furthermore, Microsoft has publicized its intentions to expand its offerings
in the systems management software market that may compete with our products. If Microsoft were to grow its market share in the systems management market with competing products, the demand for our products and our ability to increase or sustain our
market share may be harmed. In addition, the possible perception among our customers and potential customers that Microsoft is going to be successful in marketing expanded systems management software offerings that may compete with our products may
delay their buying decisions and harm our ability to market our products and services to them.



Failure to Further Develop and Sustain Our Indirect Sales Channel and Third-Party Distribution Relationships Could Limit or Prevent Future Growth



We have a limited number of distributor relationships for our products with systems integrators and other resellers, and we
may not be able to increase the number of distribution relationships or maintain our existing relationships. We are relying in part on the growth of our indirect sales channel for future revenue growth, and if this does not continue to develop, our
ability to generate revenues may be materially harmed.



Our
current agreements with our distribution partners typically do not prevent these companies from selling products of other companies (including products that may compete with our products), and they do not generally require these companies to
purchase minimum quantities of our products. Some of these relationships are governed



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by agreements that can be terminated by either party with little or no prior notice. These distributors could give higher
priority to the products of other companies or to their own products than they give to our products. In addition, sales through these channels generally result in lower fees to Marimba than direct sales. The loss of, or significant reduction in,
sales volume from any of our current or future distribution partners as a result of any of these or other factors could seriously harm our revenues and operating results.



We Depend on the Growth of Our Customer Base and Increased Business from Our Current Customers



Our success is substantially dependent on the continued growth of our
customer base. If we fail to increase our customer base, our business and operating results would be seriously harmed. Our ability to attract new customers will depend on a variety of factors, including the reliability, security, scalability and
cost-effectiveness of our products and services, as well as our ability to effectively market our products and services.



If we fail to generate repeat and expanded business from our current customers, our business and operating results would be seriously harmed. Many of our
customers initially make a limited purchase of our products and services for pilot programs. Also, with the release of Marimba Six, which enables customers to more easily license single solution modules instead of having to license an entire product
suite, we may depend on increased repeat business from our customers to sustain and grow revenues. These customers may not choose to purchase additional licenses to expand their use of our products. In addition, as we deploy new versions of our
products or introduce new products, our current customers may not require the functionality provided by our new products and may not ultimately license these products.



Our Success Depends on Our Desktop/Mobile Management Product Line



We expect to continue to derive a substantial portion of our revenues from our Desktop/Mobile Management product line and
related services. A decline in the price of our Desktop/Mobile Management products or our inability to increase sales of these products could seriously harm our business and operating results. We cannot predict the success of our Desktop/Mobile
Management products. We periodically update our Desktop/Mobile Management products to make improvements and provide additional enhancements.



In December 2003, we released Marimba Six, which includes a new version of our Desktop/Mobile Management product line. This new version and other future
versions of the Desktop/Mobile Management product line may not provide the functionality and benefits we expect and could fail to meet customers requirements or achieve widespread market acceptance.



We Need to Continue to Enhance and Develop Our Server Management Product Line and Develop
New Products and Services



There can be no assurance that
the revenues from our Server Management product line will continue to grow in absolute amount or as a percentage of total license revenues. In addition, we cannot assure you that our Server Management products will meet customer expectations or gain
widespread market acceptance.



In December 2003, we released
Marimba Six, which includes a new version of our Server Management product line. This new version of the Server Management product line, as well as other future versions of the Server Management product line, may not provide the functionality and
benefits we expect and could fail to meet customers requirements or achieve widespread market acceptance.



To provide comprehensive software change and configuration management solutions, we will need to develop and introduce new products and services, which
offer functionalities that we do not currently provide. We may not be able to develop these technologies, and therefore, we may not be able to offer a comprehensive software change management solution. In addition, we have in the past experienced
delays in new product releases, and we may experience similar delays in the future. If we fail to release new products on a timely basis, our business and operating results could be seriously harmed.



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Our Operating Results and Financial Condition May be Materially Harmed if We Are Not Successful At Expanding
Internationally



We plan to increase our international
sales force and operations over the long term. Expanding internationally requires significant management attention and financial resources, and we may not generate sufficient revenues to cover these expenses. For any such expansion, we will also
need to, among other things, expand our international sales channel management and support organizations and develop relationships with international service providers and additional distributors and system integrators. In addition, as international
operations become a larger part of our business, we could encounter, on average, greater difficulty with collecting accounts receivable, longer sales cycles and collection periods, greater seasonal reductions in business activity and increased tax
rates. Furthermore, products may need to be localized or customized to meet the needs of local users, before they can be sold in certain foreign countries. Developing localized versions of our products for foreign markets is difficult and could take
longer than we anticipate.



In addition, our international
business activities are subject to a variety of risks, including the adoption of or changes in laws, currency fluctuations and political and economic conditions that could restrict or eliminate our ability to conduct business in foreign
jurisdictions. To date, we have not adopted a hedging program to protect us against risks associated with foreign currency fluctuations.



Export clearances, and in some cases, import clearances must be obtained before our products can be distributed internationally. Current or new government
laws and regulations, or the application of existing laws and regulations, could expose us to significant liabilities, significantly slow our growth and seriously harm our business and operating results.



Our Business and Financial Performance Depends on Our Ability to Retain and Attract Key
Personnel



Our success depends largely on the skills,
experience and performance of the members of our senior management and other key personnel. A number of members of our senior management are relatively new to Marimba, and our success will depend in part on the successful assimilation and
performance of these individuals.



We may not be successful in
attracting qualified senior management personnel or be able to attract, assimilate and retain other key personnel in the future. None of our senior management or other key personnel in the U.S. is bound by an employment agreement. In addition, our
future success will depend largely on our ability to continue attracting and retaining highly skilled personnel. Like other companies in the software industry, we face competition for qualified personnel. The uncertainty created by the announcement
of the proposed acquisition of Marimba by BMC increases the risk that we could lose key personnel and have difficulty in hiring personnel in general. If we lose senior management or key employees and are unable to replace them with qualified
individuals, our business and operating results could be negatively affected.



If Requirements Relating to Accounting Treatment For Employee Stock Options Are Changed, We May Be Forced to Change Our Business Practices



We currently account for the issuance of stock options under APB Opinion No. 25, Accounting for Stock Issued to Employees. If proposals
currently under consideration by administrative and governmental authorities are adopted, we may be required to treat the value of the stock options granted to employees as a compensation expense. As a result, we could decide to decrease the number
of employee stock options that we would grant. This could affect our ability to retain existing employees and attract qualified candidates, and increase the cash compensation we would have to pay to them. In addition, such a change could have a
negative effect on our earnings.



We Have a Long Sales Cycle and Our
Products Require a Sophisticated Sales Effort



A customers decision to license our products typically involves a significant commitment of resources and is influenced by the customers budget cycles and internal approval procedures for IT purchases. In addition, selling our
products requires us to educate potential customers on our products uses and benefits. As a result, our products



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have a long sales cycle, which can take over six months. We face difficulty predicting the quarter in which sales to
expected customers may occur. The sale of our products is also subject to delays from the lengthy budgeting, approval and competitive evaluation processes of our customers that typically accompany significant capital expenditures. For example,
customers frequently begin by evaluating our products on a limited basis and devote time and resources to test our products before they decide whether to purchase a license for deployment. Customers may also defer orders as a result of anticipated
releases of new products or enhancements by our competitors or us.



Our products and services require a sophisticated sales effort targeted at senior management of our prospective customers. New hires require extensive training and typically take at least six months to achieve full productivity. There is no
assurance that new sales representatives will ultimately become productive. In prior quarters, a large portion of our license revenues has often resulted from contracts closed by just a few sales representatives. If we were to lose qualified and
productive sales personnel, our revenues could be adversely impacted.



Implementation of Our Products by Large Customers May Be Complex and Customers Could Become Dissatisfied if Implementation Proves Difficult, Costly or Time Consuming



Our products must integrate with many existing computer systems and software programs used by our customers. Integrating
with many other computer systems and software programs can be complex, costly and time consuming, and can cause delays in the deployment of our products for such customers. Customers could become dissatisfied with our products if implementations
prove to be difficult, costly or time consuming, and this could negatively impact our ability to sell our products.



Software Defects in Our Products Would Harm Our Business



Complex software products like ours often contain errors or defects, including errors relating to security, particularly when first introduced or when new
versions or enhancements are released. Our products extensively utilize digital certificates and other complex technology. Our use of this technology has in the past and may in the future result in product behavior problems, which may not be
anticipated by our customers or us. Defects or errors in our current or future products or in products comparable to ours could result in lost or delayed revenues or harm to the reputation of our business, either of which would seriously harm our
business and operating results.



We offer performance
warranties with the purchase of a license for our software products. Such warranties typically require us to repair or replace a defective or non-conforming product reported to us during the applicable warranty period, or if repairing or replacing
the product is commercially impracticable, to return the license fees paid for the defective or non-conforming product. We do not currently reserve for possible product returns. Because of this, any future product returns that require us to return
amounts paid to us, especially from large customers or with respect to large transactions, could have a material adverse effect on our business and operating results.



In addition, since many of our customers use our products for business-critical applications, errors, defects or other
performance problems could result in financial or other harm to our customers and could significantly impair their operations. Our customers could seek damages for losses related to any of these issues. A product liability claim or warranty claim
brought against us, even if not successful, would likely be time consuming and costly to defend and could adversely affect our marketing efforts.



We Rely on Third-Party Software and Applications



We integrate third-party software and digital certificates as a component of our software. There are inherent limitations in the use and capabilities of
much of the technology that we license from third parties. As a result, we face a number of challenges in integrating these technologies into our products. We would be seriously impacted if the providers from whom we license software ceased to
deliver and support reliable products, enhance their current products or respond to emerging industry standards. In addition, the third-party software may not continue to be available to us on commercially reasonable terms or at all. The loss of, or
inability to maintain or obtain, this software could result in shipment delays or reductions. Furthermore, we might be forced to limit the features available in our current or future product offerings. Either alternative could seriously harm our
business and operating results.



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Almost all of our products are written in Java and require a Java virtual machine in order to operate.
Vendors offering these Java virtual machines may not continue to make these implementations of the Java virtual machines available at commercially reasonable terms or at all. Furthermore, if Sun Microsystems were to make significant changes to the
Java language, if significant changes were to be made to Java virtual machine implementations of Sun Microsystems and other vendors or if they fail to correct defects and limitations in these products, our ability to continue to improve and ship our
products could be impaired. In the future, our customers may also require the ability to deploy our products on platforms for which technically acceptable Java implementations either do not exist or are not available on commercially reasonable
terms. Our customers may also use particular implementations of the Java virtual machines that may not be technically or commercially acceptable for integration into our products.



Protection of Our Intellectual Property Is Limited



We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology. These legal protections afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use our
proprietary information. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. To the extent that we have sufficient
resources to pursue such litigation, it could result in substantial costs and diversion of resources and could significantly harm our business and operating results. In addition, we sell our products internationally, and the laws of many
countries do not protect our proprietary rights as well as the laws of the United States.



We May Be Found to Infringe Proprietary Rights of Others



Other companies, including our competitors, may obtain patents or other proprietary rights that could prevent, limit or interfere with our ability to
make, use or license our products. As a result, we may be found to infringe the proprietary rights of others. Furthermore, companies in the software market are increasingly bringing suits alleging infringement of their proprietary rights,
particularly patent rights. We have been involved in two such patent infringement suits in the past.



We could incur substantial costs to defend any intellectual property litigation, and any such litigation could result in one or more of the following:



| |  | Our paying monetary damages, which could be tripled if the infringement is found to have been willful;
| | - | ------------------------------------------------------------------------------------------------------



| |  | The issuance of a preliminary or permanent injunction requiring us to stop selling one or more of our products in their current forms;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | Our having to redesign one or more of our products, which could be costly and time-consuming and could substantially delay shipments, assuming that a redesign is feasible;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our having to reimburse the holder of the infringed intellectual property for some or all of its attorneys fees and costs;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | Our having to obtain from the holder licenses to its intellectual property, which licenses might not be made available to us on reasonable terms; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our having to indemnify our customers against any losses they may incur due to the alleged infringement.
| | - | --------------------------------------------------------------------------------------------------------



In the event of a successful claim of infringement against us and our failure or inability to license the infringed
technology, our business and operating results would be significantly harmed. Regardless of the merits, these claims could be time-consuming and divert our managements attention from the operation of our business.



We May Have Difficulty Collecting Amounts Owed to Us



Certain of our existing and proposed customers have experienced
credit-related issues. Because a small number of customers account for a large portion of our revenues and cash flow in any given quarter, the credit-



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worthiness of our largest customers is critical to our business. At March 31, 2004, one customer represented 13% of net
accounts receivable. We perform ongoing credit evaluations of customers, but do not generally require collateral. We grant credit terms to most customers ranging from 30 to 90 days, however in some instances we provide longer payment terms. Should
we have more customers than we anticipate with liquidity issues, or if payment is not received on a timely basis, our business, operating results and general financial condition could be seriously harmed.



Our Ability to Grow and Sustain Service Revenues Depends on New License Customers and
Support Contract Renewals



The total amount of maintenance
and support fees we receive in any period depends in large part on the size and number of license orders that we have previously sold. Any downturn in our software license revenues could negatively impact our future service revenues. Our support and
maintenance programs are sold on an annual basis. Renewal of annual support and maintenance is generally at the customers election. If customers elect not to renew their support and maintenance agreements, our service revenues could be
significantly adversely impacted. If support and maintenance revenues were to decline, or not grow as rapidly as expected, we would need to generate additional license revenues and other service revenues in order to compensate for the decline in
support and maintenance revenues.



We Rely on Third-Party Marketing and
Technology Relationships For Future Sales Growth



We
currently have several marketing and technology relationships. These relationships include joint sales and marketing relationships that provide us access to potential sales to large enterprises that we might not otherwise have access to, as well as
product integration and other relationships. In addition, the success of key initiatives going forward depends in part on our ability to form and sustain strategic technology and product relationships. If we cannot maintain successful marketing and
technology relationships or if we fail to enter into additional marketing and technology relationships, we could experience difficulty expanding the sales of our products and our growth might be limited. Our marketing and technology relationships
are generally not documented in writing, or are governed by agreements that can be terminated by either party with little or no prior notice. In addition, companies with which we have marketing or technology relationships may promote products and
services of several different companies, including those of our competitors. If these companies choose not to promote our products or if they develop, market or recommend products or services that compete with our products, our business would be
harmed.



We Must Respond to Rapid Technological Change and Evolving Industry
Standards



The markets for our software change and
configuration management solutions are characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. New solutions based
on new technologies or new industry standards can quickly render existing solutions obsolete and unmarketable. Any delays in our ability to develop and release enhanced or new solutions could seriously harm our business and operating results. Our
technology is complex, and new products, enhancements and services can require long development and testing periods. Our failure to conform to prevailing standards could have a negative effect on our business and operating results.



We Are Subject to the Effects of General Economic and Geopolitical Conditions



Our business is subject to the effects of general
economic conditions and, in particular, market conditions in the industries that we serve. Recent political turmoil in many parts of the world, including terrorist and military actions, may put pressure on global economic conditions. Our
customers decisions to purchase our products are discretionary and subject to their internal budget and purchasing processes, which may be impacted by the above factors. If economic conditions deteriorate, our business and operating results
are likely to be adversely impacted.



Our Stock Price Is Likely to
Continue to be Volatile



The market price of our common
stock has been and is likely to continue to be volatile. The market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating



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results, announcements of technological innovations, new products or new contracts by us or our competitors, developments
with respect to patents or proprietary rights and related litigation, other material litigation involving Marimba, changes in our management or other key employees, adoption of new accounting standards affecting the software industry, general market
conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market price for the common stock of technology companies. Furthermore, our
common stock is relatively thinly traded, which contributes significantly to the volatility of our stock price. Due to the low trading volume of our stock, stockholders may not be able to purchase or sell shares, particularly large blocks of shares,
as quickly and as inexpensively as if the trading volume were higher. Volatility in the price of our common stock may adversely affect its market price.



We Are Involved in Securities Litigation and Are At Risk of Additional Similar Litigation



We are a party to the securities class action litigation described in Part II, Item 1Legal Matters of this
report. We have agreed to a settlement with the plaintiffs in this action. However, the settlement is subject to several conditions, including a hearing on fairness and approval by the court overseeing the litigation, and we cannot assure you that
the settlement will be consummated. In the event the settlement is not consummated, the defense of this litigation may increase our expenses and divert our managements attention and resources, and any unfavorable outcome could have a material
adverse effect on our business and results of operations. In addition, we may in the future be the target of other securities class actions or similar litigation.



Provisions in Our Charter Documents and in Delaware Law May Discourage or Delay Potential Acquisition Bids for Marimba and Prevent
Changes in Our Management



Our charter documents authorize
us to issue shares of preferred stock with rights, preferences and privileges designated by our Board of Directors, without further stockholder approval. While this provides desirable flexibility in connection with possible acquisitions and other
corporate purposes, any issued preferred stock could have the effect of delaying, deferring or preventing a change in control of our company. As a result, the market price of our common stock and the voting and other rights of the holders of our
common stock may be adversely affected. The issuance of preferred stock may result in the loss of voting control to others.



In addition, provisions in our charter documents eliminate the right of stockholders to act by written consent without a meeting and limit the right of
stockholders to call, and present items of business at, a special meeting of stockholders. These provisions are intended to increase the likelihood of continuity and stability in the composition of our Board of Directors and in the policies set by
the Board. These provisions also discourage certain types of transactions that may involve an actual or threatened change of control transaction, and are designed to reduce our vulnerability to an unsolicited acquisition proposal. As a result, these
provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. These provisions are also intended to discourage certain tactics that may be used in proxy fights. However, they could have the
effect of discouraging others from making tender offers for outstanding shares of our stock, and may prevent the market price of our common stock from reflecting the effects of actual or rumored takeover attempts. These provisions may also have the
effect of preventing changes in the management of our company.



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|ITEM  3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



We are generally subject to market risks associated with changes in interest rates and foreign currency exchange rates. A brief summary of these risks
follows below. For more information, please see our Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 16, 2004. We believe there have been no significant changes in our market risk exposure during the three
months ended March 31, 2004 as compared to the market risk exposure previously disclosed in our Form 10-K for the year ended December 31, 2003.



Interest Rate Sensitivity



Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Our investment policy requires us to invest funds in excess of current operating requirements in:



| |  | obligations of the U.S. government and its agencies;
| | - | ----------------------------------------------------



| |  | investment grade state and local government obligations;
| | - | --------------------------------------------------------



| |  | securities of U.S. corporations that, when purchased, are rated A1 or AA by Standard and Poors or the Moodys equivalent; and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | money market funds, deposits or notes issued or guaranteed by U.S. and non-U.S. commercial banks meeting particular credit rating and net worth requirements with maturities of less
than two years.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Sensitivity



We develop products in the United States, and sell our products and services
primarily in North America, Europe and Asia. As a result, our financial results could be affected by various factors, including changes in foreign currency exchange rates or weak economic conditions in foreign markets. Portions of our sales are
currently transacted in British Pounds and Euros, thereby potentially affecting our financial position, results of operations and cash flows due to fluctuations in exchange rates. Near-term changes in exchange rates may have a material impact on our
future revenues, earnings, fair values or cash flows. To date, we have not engaged in foreign currency hedging transactions. There can be no assurance that a sudden and significant change in the value of the British Pound or Euro would not seriously
harm our financial condition and results of operations.



|ITEM  4. | CONTROLS AND PROCEDURES
|-------- | -----------------------



Evaluation of Disclosure Controls and Procedures



The SEC defines the term disclosure controls and procedures to mean a companys controls and other procedures that are designed to ensure
that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Our
chief executive officer and our chief financial officer, based on their evaluation of our disclosure controls and procedures as of the end of the quarterly period covered by this report, concluded that our disclosure controls and procedures were
effective for this purpose.



Changes in Internal Controls Over Financial
Reporting



Internal control over financial reporting
consists of control processes designed to provide assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with GAAP. To the extent that components of our internal control over
financial reporting are included in our disclosure controls, they are included in the scope of the evaluation by our chief executive officer and chief financial officer referenced above. There were no significant changes in our internal control over
financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM  1. | LEGAL PROCEEDINGS
|-------- | -----------------



IPO Securities Litigation.Beginning in April 2001, a number of substantially identical class action complaints alleging violations of the federal
securities laws were filed in the United States District Court for the Southern District of New York naming Marimba, Inc., certain of its officers and directors, and certain underwriters of the companys initial public offering (Morgan Stanley
& Co., Inc., Credit Suisse First Boston Corp. and Bear Stearns & Co., Inc.) as defendants. The complaints have since been consolidated into a single action, and a consolidated amended complaint was filed in April 2002. The complaint alleges,
among other things, that the underwriters of our initial public offering violated the securities laws by failing to disclose certain alleged compensation and tie-in arrangements (such as undisclosed commissions or stock stabilization practices) in
the registration statement filed in connection with the offering. Marimba and certain of its officers and directors were named in the complaint pursuant to Section 11 of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities
Exchange Act of 1934. The complaint seeks unspecified damages, attorney and expert fees, and other unspecified litigation costs. Similar complaints have been filed against over 300 other issuers that had initial public offerings since 1998 and all
such actions have been included in a single coordinated proceeding. In July 2002, the defendants in the consolidated actions filed motions to dismiss all of the cases in the litigation (including the case involving Marimba). On February 19, 2003,
the court ruled on the motions and granted Marimbas motion to dismiss the claims against it under Section 10(b) and Rule 10b-5. The motions to dismiss the claims under Section 11 were denied as to virtually all of the defendants in the
consolidated cases, including Marimba. In addition, the Marimba individual defendants in the litigation each signed a tolling agreement and were dismissed from the action without prejudice on October 9, 2002. On June 30, 2003, a special committee of
our Board of Directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Marimba and Marimbas individual defendants for the conduct alleged
in the action to be wrongful. Marimba would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert and release certain potential claims Marimba may have against its underwriters. Any
direct financial impact of the proposed settlement is expected to be borne by Marimbas insurers. The special committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of
other issuer defendants in the proposed settlement, the consent of Marimbas insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and
approval by the court overseeing the litigation. In the event the settlement is not consummated, the defense of the litigation may increase our expenses and divert our managements attention and resources. Due to the inherent uncertainties of
litigation, we cannot accurately predict the ultimate outcome of the litigation, and any unfavorable outcome could have a material adverse impact on our business, financial condition and operating results.



Fiduciary Suit.On April 30, 2004, an alleged holder of Marimbas
common stock filed a purported class action lawsuit in California Superior Court for the County of Santa Clara. The complaint names as defendants Marimba, Inc. and each member of our board of directors. The complaint alleges that, in pursuing the
transaction with BMC Software and approving the merger agreement, the directors violated their fiduciary duties to the holders of Marimbas common stock by, among other things, failing to obtain the highest price reasonably available, tailoring
the terms of the transaction to meet the needs of BMC Software, engaging in self-dealing and obtaining personal financial benefits not shared equally by the plaintiffs and other stockholders. The complaint also alleges that the merger agreement
resulted from a flawed process designed to ensure a sale to one buyer. The complaint seeks a preliminary and permanent injunction to enjoin Marimba from consummating the acquisition until Marimba implements a process to seek a higher price, as well
as attorneys fees and costs and other remedies. Based on our review of the complaint, we believe that the allegations in the complaint are without merit and intend, along with our directors, to defend the lawsuit vigorously



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|ITEM  2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|-------- | --------------------------------------------------------------------------------



|                                      |  |                                |   |  |                             |      |                                                                              |   |                                                                                                           |  
|------------------------------------- |  | ------------------------------ | - |  | --------------------------- | ---- | ---------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------- | -
|Period                                |  | Total Numberof SharesPurchased |   |  | AveragePrice Paid Per Share |      | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |   | Maximum Number (or ApproximateDollar Value) of Shares that May YetBe Purchased Underthe
Plans or Programs
|January 1, 2004 to January 31, 2004   |  |                               |   |  |                             |     |                                                                              |  |                                                                                                           | 
|February 1, 2004 to February 29, 2004 |  | 21,780                         | * |  | $                           | 6.25 |                                                                              |  |                                                                                                           | 
|March 1, 2004 to March 31, 2004       |  |                               |   |  |                             |     |                                                                              |  |                                                                                                           | 
|Total                                 |  | 21,780                         | * |  | $                           | 6.25 |                                                                              |  |                                                                                                           | 



|* | The terms of the stock options granted under certain of our equity incentive plans allow employees to surrender shares of Marimba common stock as payment towards the exercise price
and tax withholding obligations in connection with the exercise of a stock option. In February 2004, one employee surrendered 21,780 shares, valued at $6.25 per share (equal to the closing price of Marimbas common stock on the date of such
exercise), as payment for such obligations.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM  3. | DEFAULT UPON SENIOR SECURITIES
|-------- | ------------------------------



None.



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



None.



|ITEM  5. | OTHER INFORMATION
|-------- | -----------------



Proposed Acquisition by BMC Software



On April 29, 2004, we entered into a definitive agreement to be acquired by BMC Software, Inc. Pursuant to the agreement, upon the closing, each
outstanding share of Marimba common stock would be exchanged for the right to receive $8.25 in cash without interest, and outstanding Marimba stock options would be assumed by BMC and converted into BMC stock options. The merger is conditioned upon,
among other things, approval by Marimbas stockholders, clearance under applicable antitrust laws, no pending or threatened litigation seeking to prevent the merger, and other customary closing conditions. We currently expect that the merger
will be consummated in the third calendar quarter of 2004.



Changes in Executive Team



Effective March 29,
2004, Bryant K. Macy was appointed as Vice President, Product Marketing of Marimba.



Effective May 31, 2004, Craig R. Parks has resigned as Vice President, Business Development of Marimba.



26



---

|ITEM  6. | EXHIBITS AND REPORTS ON FORM 8-K
|-------- | --------------------------------



(a) Exhibits.



The exhibits listed in the Exhibit Index appearing at the end of this Form 10-Q are filed as part of this report.



(b) Reports on Form 8-K.



On January 29, 2004, we furnished a report on Form 8-K to report under Item
12 regarding our issuance of a press release announcing our financial results for the quarter ended December 31, 2003 and the holding of a conference call regarding those financial results.



27



---

SIGNATURE



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



| |  |                    |  |               |  |     |  |                                                                                                                                                
| |  | ------------------ |  | ------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  |                    |  | MARIMBA, INC.
| |  |                    |  |              
| |  | Date: May 14, 2004 |  |               |  | By: |  | /s/    Andrew Chmyz                                                                                                                            
| |  |                    |  |               |  |     |  |                                                                                                                                                
| |  |                    |  |               |  |     |  | Andrew Chmyz Vice President, Finance and Chief
Financial Officer (Principal Financial and Chief Accounting Officer and duly authorized officer)



28



---

EXHIBIT INDEX



|               |   |  |                                                                                                                                                                                                             |      |                           |         |       |         |     |            |         |          |  
|-------------- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------------------- | ------- | ----- | ------- | --- | ---------- | ------- | -------- | -
|               |   |  | Exhibit Description                                                                                                                                                                                         |      | Incorporated by Reference |         | Filed
|Exhibit Number |   |  |                                                                                                                                                                                                             | Form |                           | FileNo. |       | Exhibit |     | FilingDate |         | Herewith
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|2.1            |   |  | Agreement and Plan of Merger, dated April 28, 2004, by and among BMC Software, Inc., Malta Merger Subsidiary, Inc. and Marimba, Inc.                                                                        |      | 8-K                       |         |       |         | 2.1 |            | 4/30/04 |          |  
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|10.1           | + |  | 1999 Employee Stock Purchase Plan, as amended to date.                                                                                                                                                      |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|10.2           | + |  | International Employee Stock Purchase Plan, as amended to date.                                                                                                                                             |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|10.3           | + |  | 2004 Officers Incentive Plan.                                                                                                                                                                               |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|10.4           | + |  | 2004 Officers Incentive PlanSales Vice Presidents.                                                                                                                                                         |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|10.5           | + |  | Contract of Employment dated May 2, 2001 between Adrian Rayner and Marimba Software UK Limited, as amended to date, and Offer Letter from Marimba Software UK Limited to Adrian Rayner dated
April 9, 2001. |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|31.1           |   |  | Section 302 Certification of Principal Executive Officer.                                                                                                                                                   |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|31.2           |   |  | Section 302 Certification of Principal Financial Officer.                                                                                                                                                   |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|32.1           |   |  | Section 906 Certification of Chief Executive Officer and President.                                                                                                                                         |      |                           |         |       |         |     |            |         |          | X
|               |   |  |                                                                                                                                                                                                             |      |                           |        
|32.2           |   |  | Section 906 Certification of Vice President, Finance and Chief Financial Officer.                                                                                                                           |      |                           |         |       |         |     |            |         |          | X

---

|+ | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------



|* | Marimba agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
|- | ------------------------------------------------------------------------------------------------