##### Table of Contents




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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A


AMENDMENT NO. 1





(Mark One)





| | x |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | 
| | - |  | ------------------------------------------------------------------------------------ | 

For the Fiscal Year Ended December 31, 2001





| |  ̈ |  | 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 00025683





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


(The Registrants telephone number, including area code)





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


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


Common Stock, $.0001 par value


(Title of class)





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





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





The aggregate market value of the Registrants
common stock, $.0001 par value, held by non-affiliates of the Registrant on February 28, 2002 was approximately $53 million. As of February 28, 2002, there were 24,228,892 shares of Registrants common stock, $.0001 par value, outstanding.





DOCUMENTS INCORPORATED BY REFERENCE





Portions of Registrants definitive proxy statement (the Proxy Statement) mailed to stockholders in connection with its 2002 annual meeting of stockholders held on June 6, 2002 are
incorporated by reference into Part III of this report. Except as expressly incorporated by reference, the Registrants Proxy Statement shall not be deemed to be part of this report.





EXPLANATORY NOTE





The Registrant is filing this Amendment No.
1 to its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2002, because it recently discovered adjustments that should have been made during 2001 and 2000 that resulted in an overstatement of amortization of
deferred stock compensation during these periods. Accordingly, in this Form 10-K/A, the Registrant is restating the financial statements for its fiscal years 2001 and 2000 (and for the related quarterly periods) to reflect these adjustments. The
specific items amended to reflect the impact of the restatement are Items 6, 7 and 8 of Part II and Item 14 of Part IV. Note 11 of the Consolidated Financial Statements contains a description of the restatement and its effects on the financial
statements for the years and quarters referenced above. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, or modify or update those disclosures in any way other than as required to reflect the
effects of the restatement.





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MARIMBA, INC.





Table of Contents





PART II.Item 6.

Selected Consolidated Financial Data

3Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations

5Item 8.

Consolidated Financial Statements and Supplementary Data

19PART IV.Item 14.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

41Signatures



42Certifications



42





NOTE REGARDING FORWARD-LOOKING STATEMENTS





This report contains forward-looking statements which are subject to safe harbors created under the U.S. federal securities laws When used
in this report, words such as may, might, will, should, expects, plans, anticipates, believes, estimates, predicts,
potential, intend, continue, and similar expressions, are intended to identify forward-looking statements. In addition, any statements which refer to projections of our future financial performance; our
anticipated growth and anticipated trends in our businesses; the features, benefits and advantages of our products; the development of new products, enhancements or technologies; business and sales strategies; developments in our target markets;
matters relating to distribution channels, proprietary rights, facilities needs, competition and litigation; future gross margins and operating expense levels; and capital needs are forward-looking statements. These statements reflect the current
views of Marimba or its management with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual
results, performance or achievements in fiscal 2002 and beyond could differ materially from those expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to material differences include, but are not
limited to, those discussed below in Item 7 under the heading Other Factors Affecting Operating Results, Liquidity and Capital Resources and the risks discussed in our other filings with the Securities and Exchange Commission. We
encourage you to read that section carefully. You should not regard the inclusion of forward-looking information as a representation by us or any other person that the future events, plans or expectations contemplated by us will be achieved. Marimba
undertakes no obligation to release publicly any updates or revisions to any forward-looking statements that may reflect events or circumstances occurring after the date of this report, except as otherwise required by law.




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##### Table of Contents




PART II.





ITEM 6.    
SELECTED CONSOLIDATED FINANCIAL DATA





The following is a summary of our selected
consolidated financial data as of and for the five years ended December 31, 2001. This data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our
Consolidated Financial Statements and the Notes thereto appearing elsewhere in this report. The yearly financial data presented below is restated, as described in Note 11 of the Consolidated Financial Statements included in Item 8. All figures below
are in thousands, except per share data.





Year Ended December 31,2001


2000


1999


1998


1997Consolidated Statements of Operations Data:

Restated


RestatedRevenues:License

$
27,801


$
31,329


$
23,637


$
13,901


$
5,011Service


16,229



12,718



7,776



3,184



552Total revenues


44,030



44,047



31,413



17,085



5,563Cost of revenues:License


595



681



402



75



13Service


5,940



4,256



3,036



1,964



621Total cost of revenues


6,535



4,937



3,438



2,039



634Gross profit


37,495



39,110



27,975



15,046



4,929Operating expenses:Research and development


10,508



11,114



8,497



5,773



2,410Sales and marketing


31,965



27,758



19,625



12,371



8,054General and administrative


7,934



12,570



5,066



2,779



2,367Restructuring costs


789















Amortization of deferred compensation (*)


361



809



1,410



251



Total operating expenses (*)


51,557



52,251



34,598



21,174



12,831Loss from operations (*)


(14,062
)


(13,141
)


(6,623
)


(6,128
)


(7,902
)Interest income and other expenses, net


2,774



4,541



2,506



488



338Loss before income taxes (*)


(11,288
)


(8,600
)


(4,117
)


(5,640
)


(7,564
)Provision for income taxes


199



179



97



41



154Net loss (*)

$
(11,487
)

$
(8,779
)

$
(4,214
)

$
(5,681
)

$
(7,718
)Basic and diluted net loss per share (*)

$
(.48
)

$
(.38
)

$
(.22
)

$
(.59
)

$
(1.57
)Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share


23,943



23,200



19,029



9,606



4,912*  See Note 11 of the Consolidated Financial
Statements.As of December 31,2001


2000


1999


1998


1997Consolidated Balance Sheet Data:

Restated


RestatedCash, cash equivalents and short-term investments

$
42,390


$
64,529


$
65,023


$
7,825


$
14,402Working capital


35,001



58,176



55,707



2,912



8,036Total assets


73,851



87,408



90,487



14,862



21,898Long-term obligations


265



153



48



747



211Redeemable convertible preferred stock














18,953



18,953Accumulated deficit (*)


(39,124
)


(27,637
)


(18,858
)


(14,644
)


(8,963
)Total stockholders equity (net capital deficiency)


57,242



66,803



72,639



(13,743
)


(8,471
)*  See Note 11 of the Consolidated Financial
Statements.




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Supplementary Data


Quarterly Consolidated Financial Information (unaudited)


(In thousands, except per share data)





The following table presents our operating results for each of the eight quarters in the two-year period ended December 31,
2001. The information for each of these quarters is unaudited but has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this report. In the opinion of management, all necessary adjustments
(consisting of normal recurring adjustments) have been included to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements of our company and the notes thereto appearing in this
report. The quarterly financial data presented below is restated, as described in Note 11 of the Consolidated Financial Statements included in Item 8. All figures below are in thousands, except per share data. These operating results are not
necessarily indicative of the results for any future periods.





2001

Q1


Q2


Q3


Q4RestatedRevenues

$
11,004


$
12,185


$
10,006


$
10,835Gross profit


9,016



10,586



8,538



9,355Net loss (*)


(4,686
)


(3,693
)


(1,625
)


(1,483
)Net loss per basic and diluted common share (*)

$
(.20
)

$
(.15
)

$
(.07
)

$
(.06
)2000

Q1


Q2


Q3


Q4RestatedRevenues

$
10,567


$
12,116


$
10,108


$
11,256Gross profit


9,543



10,999



8,928



9,639Net income (loss) (*)


(366
)


1,343



(7,883
)


(1,873
)Net income (loss) per basic common share (*)

$
(.02
)

$
.06


$
(.34
)

$
(.08
)Net income (loss) per diluted common share (*)

$
(.02
)

$
.05


$
(.34
)

$
(.08
)


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|* |  | See Note 11 of the Consolidated Financial Statements.
|- |  | -----------------------------------------------------



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ITEM 7.    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion of the financial condition and results of operations of Marimba should be read in conjunction with the Consolidated Financial Statements and Supplementary Data and the Notes thereto included in Item 8 of
this Annual Report on Form 10-K/A. Some of the data presented below is restated, as noted and as described in Note 11 of the Consolidated Financial Statements included in Item 8.





Overview





Marimba is a leading provider of systems
management software built for e-business. We develop, market and support end-to-end change and configuration management software solutions. Our Desktop/Mobile Management, Server Management and Embedded Management product families provide an
efficient and reliable way for enterprises to distribute, update and manage applications and related data to desktops, laptops, servers and devices. Our products help customers reduce their total cost of ownership and improve quality of service by
streamlining the distribution and management of applications and content.





In January 1997, we released
our first version of the Desktop/Mobile Management products and since that time have continued to develop and market that product line and enhance the core Desktop/Mobile Management infrastructure with additional functionality and complimentary
add-on products. In the first half of 2000, Marimba introduced a new product line called Server Management. The Server Management products are designed to address many of the server management challenges inherent in thin client and Web commerce
computing environments today. Additionally, Marimba offers Embedded Management products that allow device and software vendors to deliver software fixes, new features and services by embedding Marimba software management capabilities into their
devices or applications. During 2001, revenues from the Desktop/Mobile, Server and Embedded Management products lines accounted for 76%, 18% and 6% of total license revenues, respectively.





Revenues to date have been derived primarily from the license of our products and to a lesser extent 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 $39.1 million at December 31, 2001. We believe that our success depends on further increasing 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.





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 should not be relied upon as indications of future performance, growth or
financial results. Additionally, we do not believe that historical growth rates or profitability are necessarily sustainable, nor indicative of future growth or financial results.





Critical Accounting Policies and Estimates





General.    Discussion and analysis of Marimbas financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. On an on-going basis, we evaluate these estimates and judgments, including those related to revenue recognition, bad debts and litigation. Estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates under different assumptions or conditions.





We believe the following
critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.




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Revenue Recognition.    Our revenue recognition policy
is significant because our revenue is a key component of our results of operations. We follow detailed guidelines discussed below and in note 1 to the consolidated financial statements in measuring revenue; however, certain judgments affect the
application of our revenue policy. We are required to exercise judgment in evaluating the risk of concession when our payment terms are outside of our customary credit period of 90 days or less. Assessment of collectibility is particularly critical
in determining whether or not revenue should be recognized in the current difficult economic environment. We also record small provisions for estimated sales returns and warranty claims in the same period as the related revenues are recorded. These
estimates are based on historical sales returns and warranty claims, which have been relatively limited. If the historical data we use to calculate these estimates does not properly reflect future returns or warranty claims, revenue could be
overstated or cost of revenues could be understated.





Marimba derives its revenues primarily from two sources (i)
license revenues, which consist of software license fees and (ii) service revenues, which are comprised of fees for maintenance and support, consulting and training. Maintenance and support agreements provide technical support and the right to
unspecified upgrades on an if-and-when available basis. Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing
of our revenue for any period if our management made different judgments or utilized different estimates.





Marimba
applies the provisions of Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, as amended by Statement of Position 98-9 (SOP 98-9), Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions to all transactions involving the sale of software products.





In
December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Marimba applied the
provisions of SAB 101 to all revenue transactions for fiscal 2001 and 2000. SAB 101 has not had a material impact on our results of operations, financial position or cash flows.





In accordance with the provisions of Accounting Principles Board Opinion No. 29 (APB 29), Accounting for Nonmonetary Transactions, Marimba records
barter transactions at the fair value of the goods or services provided or received, whichever is more readily determinable in the circumstances. To date, revenues from barter transactions have been insignificant and represent less than 1% of net
revenues.





Marimba licenses software products to corporate customers, OEM partners and resellers on a perpetual
basis or a term basis. We recognize revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is
probable.





Marimba uses either a definitive customer purchase order or signed license agreement as evidence of an
arrangement. License revenues in arrangements with customers who are not the ultimate users, primarily resellers, are not recognized until the software is sold through to the end-user. Advance payments from resellers for guaranteed minimum
commitments are deferred until the software is sold through to the end-user or upon expiration of the specified commitment time period if the minimum commitments have not been met. Delivery generally occurs when license keys and passwords have been
made available to the customer through e-mail.





At the time of the transaction, Marimba assesses whether
the fee associated with revenue transactions is fixed and determinable and whether or not collection is probable. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction and our history with the
customer or with similar customers. If a significant portion of a fee is due after our normal payment terms, we generally account for the fee as not being fixed and determinable. In these cases, Marimba recognizes revenue as the fees become due.





Marimba assesses the probability of collection based on a number of factors, including past transaction history
with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable,
which is generally upon receipt of cash.





For arrangements with multiple obligations (for example, undelivered
maintenance and support), Marimba allocates revenue to each component of the arrangement using the residual value method based on vendor specific objective evidence of the fair value of the undelivered elements, which is specific to Marimba. This
means that we defer revenue from the arrangement fee equivalent to the fair value of the undelivered elements. Fair values for the ongoing maintenance and support obligations for our licenses are based upon separate sales of renewals to other
customers. Fair value of services, such as training or consulting, is based upon separate sales by us of these services to other customers. Most of our arrangements involve multiple obligations.





Marimbas arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the
earlier of receipt of a written customer acceptance or expiration of the acceptance period.




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Marimba recognizes revenues for maintenance and support ratably over the
maintenance term, which is generally one year. Consulting services are generally billed based on daily rates and training services are generally billed on per student or per class session basis. We generally recognize consulting and training
revenues as the services are performed.





Allowance for Doubtful Accounts.    The
allowance for doubtful accounts is established through a charge to the general and administrative expenses. This allowance is for estimated losses resulting from the inability of our customers to make required payments. It is a significant estimate
and is regularly evaluated by us for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in aggregate, and current economic conditions that
may affect a customers ability to pay or suggest that a particular market sector is more prone to liquidity issues. The use of different estimates or assumptions could produce different allowance balances. If the financial condition of our
customers were to deteriorate, subsequent to the date of our arrangements with them, this could result in an impairment of their ability to make payments and additional allowances would be required.





Litigation Contingencies.    We are a party to the two legal actions described in note 8 to the consolidated
financial statements. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. Marimba has not provided for reserves for potential losses in these actions due to
an adverse judgment or outcome, because such events have not been determined to be probable nor can the contingent losses be reasonably estimated at this time. The requirement to provide for future reserves, if any, may change due to new
developments in each action.





Results of Operations





The following table presents selected financial data for the periods indicated as a percentage of total revenues:





Year Ended December 31,2001


2000


1999Restated


RestatedConsolidated Statement of Operations Data:Revenues:License

63.1
%

71.1
%

75.2
%Service

36.9


28.9


24.8Total revenues

100.0


100.0


100.0Cost of revenues:License

1.4


1.5


1.3Service

13.4


9.7


9.7Total cost of revenues

14.8


11.2


11.0Gross margin

85.2


88.8


89.0Operating expenses:Research and development

23.9


25.2


27.0Sales and marketing

72.6


63.0


62.5General and administrative

18.0


28.5


16.1Restructuring costs

1.8





Amortization of deferred compensation (*)

0.8


1.9


4.5Total operating expenses (*)

117.1


118.6


110.1Loss from operations (*)

(31.9
)

(29.8
)

(21.1
)Interest income and other expenses, net

6.3


10.3


8.0Loss before income taxes (*)

(25.6
)

(19.5
)

(13.1
)Provision for income taxes

(0.5
)

(0.4
)

(0.3
)Net loss (*)

(26.1
)%

(19.9
)%

(13.4
)%


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|* |  | The financial statements for the fiscal years ended December 31, 2001 and December 31, 2000 are restated. See Note 11 of the Consolidated Financial Statements.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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Years Ended December 31, 2001, 2000 and 1999





Revenues





Total
revenues in 2001 were $44.0 million, comparable to revenues in 2000 of $44.0 million. Total revenues increased $12.6 million, or 40%, to $44.0 million in 2000 from $31.4 million in 1999.





License Revenues.To date, the majority of Marimbas license revenues have been derived from sales of our Desktop/Mobile management
products. For the year ended December 31, 2001, revenues from sales of our Desktop/Mobile, Server and Embedded Management products lines accounted for approximately 76%, 18% and 6% of total license revenues, respectively. For the year ended December
31, 2000, revenues from sales of our Desktop/Mobile and Server Management products represented 88% and 12% of license revenues. Prior to 2001, Marimba did not separately account for its Embedded Management products and sales of these products were
included with the Desktop/Mobile Management product line. License revenues decreased $3.5 million, or 11%, to $27.8 million in 2001 from $31.3 million in 2000. License revenues increased $7.7 million, or 33%, to $31.3 million in 2000 from $23.6
million in 1999.





The decrease in license revenues from 2000 to 2001 was due primarily to delays in anticipated
customer purchases and generally longer sales cycles caused by the general economic weakness in the Unites States and Europe. Also, Marimba experienced generally low productivity from its sales force and replaced many unproductive sales personnel.
We typically expect that a new sales representative will take six months or longer to achieve full productivity. License revenues increased from 1999 to 2000 due primarily to increased product licenses sold, reflecting higher customer demand for our
Desktop/Mobile Management products, the introduction of our Server Management products in 2000, additional sales to existing customers and overall growth of our sales organization.





Service Revenues.Service revenues include maintenance and support, consulting and training. Service revenues increased $3.5 million, or
28%, to $16.2 million in 2001 from $12.7 million in 2000. Service revenues in 2000 increased $4.9 million, or 64%, to 12.7 million from $7.8 million in 1999.





As a percentage of total revenues, service revenues were 37%, 29% and 25% of total revenues in 2001, 2000 and 1999, respectively. The increase in service revenues was due primarily to increased
revenues from maintenance and support contracts as Marimbas customer base has grown. Also, we increased our consulting revenues as customers elected to utilize our consulting organization to assist them with their implementation of our
products.





Costs of Revenues





Cost of License Revenues.    Cost of license revenues consists primarily of the cost of third-party software products that were either integrated into our products or resold
by us. Cost of license revenues was $595,000, $681,000 and $402,000 in 2001, 2000 and 1999, respectively. The higher cost of license revenues in 2000 was due primarily to the costs of a third-party product resold by us. We expect cost of license
revenues to remain a relatively small percentage of total revenues.





Cost of Service
Revenues.    Cost of service revenues includes:





| |  |  | salaries and related expenses of our customer service and training organizations;
| | - |  | ---------------------------------------------------------------------------------




| |  |  | salaries and related expenses of our consultants for billable consulting engagements;
| | - |  | -------------------------------------------------------------------------------------




| |  |  | cost of third parties contracted to provide consulting services to our customers; and
| | - |  | -------------------------------------------------------------------------------------




| |  |  | an allocation of our facilities and depreciation expenses.
| | - |  | ----------------------------------------------------------




Cost of service revenues was $5.9 million, $4.3 million and $3.0 million in 2001, 2000 and 1999, representing 37%, 33% and 39% of service revenue, respectively. The
year-to-year increases in absolute dollars of cost of service revenues were due primarily to growth in our customer service and training organizations, higher fees paid to a third party that provides after hours telephone support for our customers
and an increase in the costs of providing our consulting services, commensurate with the increase in consulting revenues.





Operating
Expenses





Research and Development.Research and development expenses, which are
expensed as incurred, consist primarily of:





| |  |  | salaries and related costs of our engineering organization;
| | - |  | -----------------------------------------------------------






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| |  |  | fees paid to third-party consultants, if any; and
| | - |  | -------------------------------------------------




| |  |  | an allocation of our facilities and depreciation expenses.
| | - |  | ----------------------------------------------------------




We believe that our success is dependent in large part on continued enhancement of our current products and the ability to develop new, technologically advanced products
that meet the sophisticated requirements of our customers. Research and development expenses were $10.5 million, $11.1 million and $8.5 million in 2001, 2000 and 1999, respectively. The decrease in research and development expenses from 2000 to 2001
was due primarily to our decision to focus on Marimbas core change and configuration management products and the resulting discontinuance of Marimba.net, a distribution hosting service and closure of our Houston, Texas development facility
that had previously been dedicated to performance management product development. The increase in research and development expenses from 1999 to 2000 was due primarily to an increase in engineering personnel and related costs. Over the long term, we
plan to increase our investment in research and development.





Sales and
Marketing.Sales and marketing expenses consist primarily of:





| |  |  | salaries and related costs of our sales and marketing organizations;
| | - |  | --------------------------------------------------------------------




| |  |  | sales commissions;
| | - |  | ------------------




| |  |  | costs of our marketing programs, including public relations, advertising, trade shows, collateral sales materials, and seminars;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------




| |  |  | rent and facilities costs associated with our regional and international sales offices; and
| | - |  | -------------------------------------------------------------------------------------------




| |  |  | an allocation of our facilities and depreciation expenses.
| | - |  | ----------------------------------------------------------




Sales and marketing expenses were $32.0 million, $27.8 million and $19.6 million in 2001, 2000 and 1999, respectively. From 2000 to 2001, sales and marketing expenses
increased due primarily to growth in the sales organization during the first half of 2001, expansion of Marimbas sales operation in the United Kingdom and telemarketing expenses. From 1999 to 2000, the increase in sales and marketing expenses
was due primarily to growth in our sales and marketing organizations, an increase in sales commissions as sales increased, an increase in the number of regional sales offices and expansion of our marketing programs. Over the long term, we expect to
continue to invest heavily in sales and marketing in order to grow revenues and expand our brand awareness.





General and Administrative.General and administrative expenses consist primarily of:





| |  |  | costs of our finance, human resources and legal services organizations;
| | - |  | -----------------------------------------------------------------------




| |  |  | insurance premiums and third-party legal and other professional services fees; and
| | - |  | ----------------------------------------------------------------------------------




| |  |  | an allocation of our facilities and depreciation expenses.
| | - |  | ----------------------------------------------------------




General and administrative expenses were $7.9 million, $12.6 million and $5.1 million in 2001, 2000 and 1999, respectively. General and administrative expenses were higher
in 2000 compared with 1999 and 2001 due primarily to the settlement of our patent disputes with Novadigm, Inc., and an increase in the bad debt provision of approximately $2.1 million. Both of these events occurred in 2000. Additionally, from 1999
through 2001 we have grown our administrative organizations in support of the overall company growth.





Restructuring.    In April 2001, Marimba announced a restructuring plan. The plan involved the elimination of approximately 20% of the workforce, or 60 employees and independent contractors. Marimba
recorded a charge of $789,000 in the second quarter of 2001 related to the restructuring plan, which consisted of personnel costs of $583,000, facilities and equipment impairments of $136,000 and other costs of $70,000.





Deferred Compensation.    We recorded deferred compensation of approximately $1.4
million in 1998, representing the difference between the exercise prices of options granted to acquire 940,500 shares of common stock during 1998 and the deemed fair value for financial reporting purposes of our common stock on the grant dates. In
addition, we granted options to purchase common stock in April 1999 for which we recorded additional deferred compensation of approximately $2.1 million. In 2000, we recorded deferred compensation of approximately $1.0 million (net of reduction of
$1.6 million due to forfeited stock options and repurchased shares), which represented the intrinsic value of certain stock awards. In 2001, we recorded deferred compensation of approximately $21,000 (net of reduction of $2.4 million due to
forfeited stock options and repurchased shares), which represented the intrinsic value of certain stock awards. Deferred compensation is being amortized over the vesting periods of the options and stock on a graded vesting method. We amortized
deferred compensation expense, net of gains resulting from the forfeiture of stock options and repurchase of shares due to employee departures, of $361,000, $809,000 and $1.4 million for fiscal years 2001, 2000 and 1999, respectively. This
compensation expense relates to options awarded to individuals in all operating expense categories, and with respect to 2000 and 2001 only, to restricted shares granted to certain executives. The amortization of deferred compensation is expected to
approximate $1.2 million in 2002 and $270,000 in 2003. We have restated our financial statements for 2001 and 2000 to adjust amortization of deferred compensation to reflect the figures set forth above. See Note 11 of the Consolidated Financial
Statements included in Item 8.




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In July 2001, Marimba granted an option to purchase 50,000 shares of common stock
at an exercise price of $2.45 per share to a non-employee in exchange for consulting services. The option was fully vested at the date of grant and is exercisable for ten years. We estimated the fair value of the option granted for services using
the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5%, an expected life of 10 years, dividend yield of zero and volatility of 140%. In connection with this option to purchase common stock, Marimba
recorded a non-cash charge to sales and marketing expense of $120,000 in 2001.





Interest Income and Other Expenses, Net





Interest income, net, consists primarily of interest earned on our cash, cash equivalents and investments
offset by other miscellaneous expenses. Interest income, net was $2.8 million, $4.5 million and $2.5 million in 2001, 2000 and 1999, respectively. The decrease in interest income, net, from 2000 to 2001 was due primarily to lower invested cash
balances and lower interest rates. The increase in interest income, net, from 1999 to 2000 was due primarily to increased invested cash balances from the sale of common stock in our initial public offering in April 1999.





Provision for Income Taxes





Marimbas provision for income taxes for the years ended December 31, 2001 and 2000, consists of state income and franchise taxes and foreign taxes. For the year ended December 31, 1999 our provision for income taxes is
comprised entirely of foreign taxes. No provision for Federal taxes has been recorded, because we have experienced operating losses from inception through 2001.





As of December 31, 2001, we had Federal net operating loss carryforwards of approximately $35.0 million. We also had a Federal research and development tax credit carryforward of approximately $1.0
million at that date. The net operating loss and credit carryforwards will expire at various dates beginning in 2011 through 2021 if not utilized.





Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the ownership change limitations contained in the Internal Revenue Code of 1986 and similar
state provisions. The annual limitation may result in the expiration of the net operating loss and credits before utilization.





Liquidity and Capital Resources





As of December 31, 2001, our principal sources of
liquidity included approximately $26.1 million of cash and cash equivalents and $16.2 and $18.2 million of short-term and long-term investments in marketable securities, respectively. In April 1999, we sold shares of our common stock in our initial
public offering, generating net proceeds of approximately $68.1 million after offering expenses. Net cash used in investing activities for the year ended December 31, 1999 reflects the investment of approximately $65.9 million of the net
proceeds from our initial public offering in marketable securities. Proceeds from other issuances of common stock of approximately $1.3 million, $1.9 million and $2.3 million for the years ended December 31, 2001, 2000 and 1999, respectively, are
comprised primarily of employee exercises of stock options. Net cash used in operating activities for the year ended December 31, 2001 is the result of the net loss for the year and a decrease in deferred revenue, partially offset by a decrease in
accounts receivable and adjustments for non-cash depreciation and amortization. Net cash used in operating activities for the year ended December 31, 2000 is primarily the result of the net loss for the year and an increase in accounts receivable,
partially offset by an increase in deferred revenue.





Marimbas contractual obligations consist of
noncancellable operating lease agreements. As of December 31, 2001, future minimum lease payments under noncancellable operating leases for the period 2002 through 2005 are expected to be approximately $6.5 million, as presented in the table below:





Operating Leases(in thousands)Year ending December 31:2002

$
1,8552003


1,9342004


1,9602005


728Total minimum lease payments

$
6,477




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We currently anticipate that our current cash, cash equivalents and investments
will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Thereafter, cash generated from operations, if any, may not be sufficient to satisfy our liquidity requirements. We
may therefore need to sell additional equity or raise funds by other means. 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 business and
operating results. If additional funds are raised through the issuance of equity securities, the percentage of ownership of our stockholders would be reduced. Furthermore, these equity securities might have rights, preferences or privileges senior
to our common stock.





Related Party Transactions





In July 2000, Marimba provided a loan facility of up to $1,000,000 to one of its executive officers to assist him in paying withholding taxes incurred upon the purchase of
restricted stock. The note bore interest at the rate of 6.6%, had an outstanding principal amount of $751,093 and became due and payable in full on October 9, 2001, which was three months from the executive officers employment termination date
with Marimba on July 9, 2001. No amounts were drawn in 2000. The outstanding principal amount due under the note was repaid by the executive officer on October 10, 2001.





In September 2001, Marimba executed a software license agreement in the amount of $443,000 with a customer, whose chief executive officer is a member of Marimbas
board of directors. As of December 31, 2001, there were no amounts due.





Recent Accounting Pronouncements





In May 2000, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-14 (EITF 00-14), Accounting for Certain
Sales Incentives, effective for periods beginning after December 15, 2001. EITF 00-14 addresses the recognition, measurement, and income statement classification for sales incentives that a vendor voluntarily offers to customers (without
charge), which the customer can use in, or exercise as a result of, a single exchange transaction. Sales incentives that fall within the scope of EITF 00-14 include offers that a customer can use to receive a reduction in the price of a product or
service at the point of sale. We expect to adopt EITF-00-14 during the first quarter of fiscal 2002, and we do not believe that it will have a material effect on our operating results or financial position.





In June 2001, the EITF issued EITF Issue No. 00-25 (EITF 00-25), Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendors Products, effective for periods beginning after December 15, 2001. EITF 00-25 addresses whether consideration from a vendor to a reseller is (a) an adjustment of the selling prices of the
vendors products and, therefore, should be deducted from revenue when recognized in the vendors statement of operations or (b) a cost incurred by the vendor for assets or services received from the reseller and, therefore, should be
included as a cost or expense when recognized in the vendors statement of operations. Upon application of EITF 00-25, financial statements for prior periods presented for comparative purposes should be reclassified to comply with the income
statement display requirements. We expect to adopt EITF-00-25 during the first quarter of fiscal 2002, and we do not believe that it will have a material effect on our operating results or financial position.





In September 2001, the EITF issued EITF Issue No. 01-09 (EITF 01-09), Accounting for Consideration Given by Vendor to a
Customer or a Reseller of the Vendors Products, which is a codification of EITF 00-14, EITF 00-25 and EITF 00-22, Accounting for Points and Certain Other Time-or Volume-Based Sales Incentive Offers and Offers for Free Products or
Services to be Delivered in the Future. Marimba is currently assessing the impact of the adoption of these issues on our financial statements.





In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (FAS 141). FAS 141 establishes
new standards for accounting and reporting business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. We
expect to adopt this statement during the first quarter of fiscal 2002, and we do not believe that FAS 141 will have a material effect on our operating results or financial positions.





In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets, which supersedes
Accounting Principles Board Opinion No. 17 (APB 17), Intangible Assets. FAS 142 establishes new standards for goodwill, including the elimination of goodwill amortization to be replaced with methods of periodically evaluating
goodwill for impairment. We expect to adopt this statement during the first quarter of fiscal 2002, and we do not believe that SFAS 142 will have a material effect on our operating results or financial position.





In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (FAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets,which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121 (FAS
121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 (APB 30), Reporting
the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. We plan to adopt FAS 144 as of January 1, 2002 and
expect that the adoption of the Statement will have an insignificant impact on our financial position or results of operations.




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In November 2001, the FASB issued a Staff Announcement, Topic D-103, which
concluded that the reimbursement of out-of-pocket expenses should be classified as revenue in the statement of operations for financial reporting periods beginning after December 15, 2001 and comparative financial statements for prior
periods should be reclassified to comply with the guidance in this Announcement. Marimba currently records reimbursement of out-of-pocket expenses in cost of services. Effective January 1, 2002, we will apply this Announcement. The
announcement will have no impact on gross profit or net loss, but will increase services revenue and cost of services revenue.





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. For more information regarding the forward-looking
statements contained in this report, see the introductory paragraph to Part I of this Form 10-K/A.





Our Limited Operating History
May Prevent Us From Achieving Success in Our Business





We were founded in February 1996 and have a limited
operating history that may prevent us from achieving success in our business. The revenues and income potential of our business and market are unproven. We will encounter challenges and difficulties frequently encountered by early-stage companies in
new and rapidly evolving markets. We may not successfully address any of these challenges and the failure to do so would seriously harm our business and operating results. In addition, because of our limited operating history, we have limited
insight into trends that may emerge and affect our business.





We Have Incurred Losses and May Incur Future Losses





Our failure to significantly increase our revenues would seriously harm our business and operating results. There is no
assurance that we will reach sustained profitability. As of December 31, 2001, we had an accumulated deficit of approximately $39.1 million. We expect over the long term to increase our research and development, sales and marketing and general and
administrative expenses. As a result, we will need to increase our quarterly revenues to offset these increasing expenses and return to profitability. We may not be able to sustain our historical revenue levels. In fact, we may not have any revenue
growth, and our revenues could decline.





Fluctuations in Quarterly Operating Results and Absence of Significant Backlog





Our quarterly operating results have varied significantly 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 are not meaningful and should not be relied upon as indicators of our future performance. In the future, our operating results may be below the
expectations of securities analysts and investors. Our failure to meet these expectations would likely harm the market price of our common stock. Operating results vary depending on a number of factors, many of which are outside our control. Our
operating results may also depend on general economic factors, including an economic slowdown or recession.





A
substantial portion of our revenues for most quarters has been booked in the last month of the quarter and the magnitude of quarterly fluctuations in operating results may not become evident until late in or even at the end of a particular quarter.
As a result, a delay in recognizing revenue, even from just one account, could have a significant negative impact on our operating results. In the past, a significant portion of our sales have been realized near the end of a quarter. A delay in an
anticipated sale past the end of a particular quarter could negatively impact our operating results.





We generally
expect that revenues in the first quarter of each year will not substantially increase over, and may be lower than, revenues in the fourth quarter of the preceding year due to the annual nature of companies purchasing and budgeting cycles and
the year-to-date structure of our sales incentive program.





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 because only a small portion of
our expenses vary with our revenues. We have historically operated with little product backlog, because our products are generally delivered as orders are received. As a result, revenue in any quarter will depend on the volume and timing, and the
ability to fill, orders received in that quarter.




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We Expect Significant Increases in Our Operating Expenses





Despite recent cost cutting measures implemented by Marimba, we intend over the long term to substantially increase our operating expenses
as we:





| |  |  | Increase our sales and marketing activities, including expanding our direct sales force;
| | - |  | ----------------------------------------------------------------------------------------




| |  |  | Increase our research and development activities;
| | - |  | -------------------------------------------------




| |  |  | Expand our customer support and professional services organizations; and
| | - |  | ------------------------------------------------------------------------




| |  |  | Expand our distribution channels.
| | - |  | ---------------------------------




With these additional expenses, we must significantly increase our revenues in order to achieve and sustain profitability. These expenses will be incurred before we generate any revenues associated
with this increased spending. If we do not significantly increase revenues from these efforts, our business and operating results would be adversely affected.





Our Success Depends on our Desktop/Mobile Management Product Family





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
would seriously harm our business and operating results. We cannot predict the success of Desktop/Mobile Management products. We periodically update our Desktop/Mobile Management products to make improvements and provide additional enhancements. New
versions of this product line may not provide the benefits we expect and could fail to meet customers requirements or achieve widespread market acceptance.





Our strategy requires our Desktop/Mobile Management products to be highly scalable  in other words, able to rapidly increase deployment size from a limited number of end-users to a very large
number of end-users. If we are unable to achieve this level of scalability, the attractiveness of our products and services would be diminished.





We Need to Grow Our Server Management and Embedded Management Product Revenues and Develop New Products and Services





During 2001, revenues from our Server Management and Embedded Management product lines accounted for 18% and 6% of total license revenues, respectively. There can be no assurance that the revenues from
each of these product lines will grow, in absolute amount or as a percentage of total license revenues, or that our Server Management products and Embedded Management products will meet customer expectations or gain widespread market acceptance. To
provide comprehensive systems management solutions, we will need to develop and introduce new products and services which offer functionality 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 systems management solution. In addition, in the past we have experienced delays in new product releases, and we may experience similar delays in the future. If we fail to release new product on a timely basis,
our business and operating results could be seriously harmed.





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. 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.




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Because the total amount of maintenance and support fees we receive in any period
depends in large part on the size and number of licenses that we have previously sold, any downturn in our software license revenues would 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 services revenues could be significantly adversely impacted. If support and
maintenance revenues were to decline, or not grow as rapidly as expected, Marimba would need to increase its license revenues and other service revenues in order to make up for the decline in support and maintenance revenues.





Implementation of Our Products by Large Customers May Be Complex and Customers Could Become Dissatisfied if Implementation of Our Products 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, time consuming and expensive 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.





We Must 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, including our president and chief executive officer, Richard Wyckoff, our chief financial officer, Mark Garrett, and
our vice president of worldwide sales, Matt Thompson. We have in the past lost senior management personnel. Several members of our senior management are relatively new to Marimba, including Messrs. Wyckoff, Garrett and Thompson, 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 is bound by an employment agreement. If we lose additional key
employees and are unable to replace them with qualified individuals, our business and operating results could be seriously harmed. In addition, our future success will depend largely on our ability to continue attracting and retaining highly skilled
personnel. Like other companies based primarily in the software industry, we face intense competition for qualified personnel.





We
Have a Long Sales Cycle that Depends upon Factors Outside Our Control





A customers decision to license
our products typically involves a significant commitment of resources and is influenced by the customers budget cycles. In addition, selling our products requires us to educate potential customers on our products use and benefits. As a
result, our products 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 us or our competitors.





We Are Exposed to General Economic Conditions and Reductions in Corporate IT Spending, and the Current Economic Downturn May Continue to Adversely Impact Our
Business





Our business is subject to the effects of general economic conditions and, in particular,
market conditions in the industries that we serve. We believe that our operating results are being adversely impacted by recent unfavorable general economic conditions and reductions in corporate IT spending. Finally, since many of our customers may
be suffering adverse effects of the general economic slowdown, we may find that collecting accounts receivable from existing or new customers will take longer than we expect or that some accounts receivable will become uncollectable. If these
economic conditions do not improve, or if we experience a worsening in general economic conditions or corporate IT spending, our business and operating results could continue to be adversely impacted.





Our Markets Are Highly Competitive





Our markets are highly competitive, and we expect this competition to persist and intensify in the future. 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:




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




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




| |  |  | Desktop software management products.
| | - |  | -------------------------------------




In addition, we compete with various methods of software distribution (including thin client systems and web browsers) and with application server vendors and others that have introduced software
distribution capabilities into their products.





Potential competitors may bundle their products or incorporate
additional components into existing products in a manner that discourages users from purchasing our products. Furthermore, new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Our competitors may be
able to respond more quickly to new or emerging technologies and changes in customer requirements than we can.





Most 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. These companies 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.





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. Such litigation 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 Are Involved in Patent Infringement Litigation and May Be Found to Infringe Proprietary Rights of Others





We are a defendant in the patent infringement litigation described in Part II, Item 1Legal Proceedings of this report. We intend to defend this litigation
vigorously. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation, particularly in cases such as this where sophisticated factual issues must be assessed and complex technical
issues must be decided. Our defense of this litigation, regardless of the merits of the complaint, has been, and will likely continue to be, time-consuming, costly and a diversion for Marimbas technical and management personnel. Any
unfavorable outcome of this litigation could have an adverse impact on our business, financial condition and results of operations.





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 sell 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 could incur substantial costs to defend any intellectual property litigation (including the one described above), and intellectual property 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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.





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





In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its securities. We are a party to the securities class action litigation described in Part II, Item 1Legal Proceedings of this report. The defense of this
litigation may increase our expenses and divert our managements attention and resources, and an adverse outcome in this litigation could seriously harm our business and results of operations. In addition, we may in the future be the target of
other securities class action or similar litigation.





We Need to Develop Third-Party Distribution Relationships





We have a limited number of distribution relationships and we may not be able to increase our number of distribution
relationships or maintain our existing relationships. Our current agreements with our distribution partners do not prevent these companies from selling products of other companies, including products that may compete with our products, and do not
generally require these companies to purchase minimum quantities of our products. 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. As a result, while the loss of, or significant reduction in, sales volume to any of our current or future distribution partners could seriously harm our revenues and
operating results, a significant increase in sales through these channels could also negatively impact our gross margins.





We
Need to Develop and Expand Our Sales and Marketing Capabilities





We need to expand our direct sales and
marketing operations in order to increase market awareness of our products, market our products to a greater number of enterprises and generate increased revenues. Competition for qualified sales personnel is intense and we may not be able to hire
enough qualified sales personnel in the future. 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, Marimbas license revenues have often resulted from contracts closed by just a few sales representatives. If
Marimba were to lose qualified and productive sales personnel, our revenues would be adversely impacted. Furthermore, the cost of hiring and training replacement sales personnel could be significant. In addition, we have limited experience marketing
our products broadly to a large number of potential customers, both in the United States and elsewhere.





We Need to Expand Our
Professional Services





We may not be able to attract, train or retain the number of highly qualified services
personnel that our business needs. We believe that growth in our product sales depends on our ability to provide our customers with professional services and to educate third-party resellers and consultants on how to provide similar services. Over
the long term, we plan to increase the number of our services personnel to meet these needs. However, competition for qualified services personnel is intense.





Over the long term, we expect our total service revenues to increase as we continue to provide support, consulting and training services that complement our products and as our installed customer base
grows. This could negatively impact our gross margin because margins on revenues derived from services are generally lower than gross margins on revenues derived from the license of our products.





Expanding Internationally Is Expensive, We May Receive No Benefit from Our Expansion and Our International Operations Are Subject to Governmental Regulation





We plan to increase our international sales force and operations, and expanding internationally is expensive. However, we may not be
successful in increasing our international sales force or sales revenue. In addition, our international business activities are subject to a variety of risks, including the adoption of or changes in laws, currency fluctuations, actions by third
parties and political and economic conditions that could restrict or eliminate our ability to do business in foreign jurisdictions. To date, we have not adopted a hedging program to protect us from risks associated with foreign currency
fluctuations.




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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.





We Must Manage Our Growth and Expansion





Our historical growth has placed, and any further growth is likely to continue to place, a significant strain on our resources. Any failure to manage growth
effectively could seriously harm our business and operating results. To be successful, we will need to implement additional management information systems, improve our operating, administrative, financial and accounting systems and controls, train
new employees and maintain close coordination among our executive, engineering, finance, legal, marketing, sales and operations organizations. In addition, our growth has resulted, and any future growth will result, in increased responsibilities for
management personnel.





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 harmed 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.





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,
Inc. were to make significant changes to the Java language, if significant changes were to be made to Java virtual machine implementations of Sun Microsystems, Inc. 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.





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 us or
our customers. Defects or errors in current or future products could result in lost revenues or a delay in market acceptance, which would seriously harm our business and operating results.





Since many of our customers use our products for business-critical applications, errors, defects or other performance problems could result in financial or other damage 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 brought against us, even if not successful, would likely be time consuming and
costly to defend and could adversely affect our marketing efforts.





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 highly volatile. The market
price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating 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. These types of
broad market fluctuations may adversely affect the market price of our common stock.




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Our Future Capital Needs Are Uncertain





We expect that our current cash, cash equivalents and investments will be sufficient to meet our working capital and capital expenditure needs for at least twelve months.
After that, we may need to raise additional funds, and additional financing may not be available on favorable terms, if at all. This could seriously harm our business and operating results. Furthermore, if we issue additional equity securities,
stockholders may experience dilution, and the new equity securities could have rights senior to those of existing holders of our common stock. If we cannot raise funds, if needed, on acceptable terms, we may not be able to develop or enhance our
products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements.





We Have
Experienced Recent Credit-Related Issues with Certain of Our Customers and We May Not Achieve Anticipated Revenue if We Need to Defer a Significant Amount of Revenue





We have experienced recent credit-related issues with certain of our existing and proposed customers, primarily due to the economic slowdown in the United States. Certain
of these customers are in the process of obtaining funding, and in certain cases, we have deferred a portion or all of the revenues from these customers until they have achieved adequate levels of financing and are able to pay us. 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.





We Face Challenges Stemming from Our Emerging Markets





The market for certain of our products has only recently begun to develop, is rapidly evolving and will likely have an increasing number of competitors. We cannot be certain that a viable market for
these products will emerge or be sustainable. If this market fails to develop, or develops more slowly than expected, our business and operating results would be seriously harmed.





Furthermore, in order to be successful in this emerging market, we must be able to differentiate Marimba from our competitors through our product and service offerings and
brand name recognition. We may not be successful in differentiating Marimba or achieving widespread market acceptance of our products and services. In addition, enterprises that have already invested substantial resources in other methods of
deploying and managing their applications, content and/or services may be reluctant or slow to adopt a new approach that may replace, limit or compete with their existing systems.





We Must Respond to Rapid Technological Change and Evolving Industry Standards





The markets for our systems 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 Face Risks Associated with Potential Acquisitions





We may make acquisitions in the future. Acquisitions of companies, products or technologies entail numerous risks, including an inability to successfully assimilate
acquired operations and products, diversion of managements attention, loss of key employees of acquired companies and substantial transaction costs. Some of the products acquired may require significant additional development before they can
be marketed and may not generate revenue at anticipated levels. Moreover, future acquisitions by us may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or
other intangible assets that could result in significant amortization expense. Any of these problems or factors could seriously harm our business, financial condition and operating results.




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##### Table of Contents




ITEM 8.    
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





MARIMBA, INC.





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Report of Ernst & Young LLP, Independent Auditors

20Consolidated Balance Sheets

21Consolidated Statements of Operations

22Consolidated Statements of Stockholders Equity (Net Capital Deficiency)

23Consolidated Statements of Cash Flows

24Notes to Consolidated Financial Statements

25




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##### Table of Contents




REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS





The Board of Directors and Stockholders


Marimba, Inc.





We have audited the accompanying consolidated balance sheets of Marimba, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders equity (net capital deficiency) and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audits.





We
conducted our audits in accordance with auditing standards generally accepted in the United States. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marimba, Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.





As discussed in Note 11, the financial statements for the years ended December 31, 2001 and 2000 have been restated.





San Francisco, California January 10, 2002,
except for Note 11, as to which the date is November 8, 2002

/s/    ERNST & YOUNG LLP




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##### Table of Contents




MARIMBA, INC.


CONSOLIDATED BALANCE SHEETS


(in thousands, except par value data)





December 31,2001


2000RestatedASSETSCurrent assets:Cash and cash equivalents

$
26,141


$
33,122Short-term investments


16,249



31,407Accounts receivable, net of allowances of $2,358 and $2,223 at December 31, 2001 and 2000


7,791



12,500Prepaid expenses and other current assets


1,164



1,599Total current assets


51,345



78,628Property and equipment, net


3,900



4,274Long-term investments


18,246



4,146Other assets


360



360$
73,851


$
87,408LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities

$
2,378


$
2,881Accrued compensation


3,408



4,055Deferred revenue


10,558



13,516Total current liabilities


16,344



20,452Long-term liabilities


265



153Commitments and contingenciesPreferred stock; $.0001 par value, 10,000 shares authorized, no shares designated, issued and outstanding






Stockholders equity:Common stock; $.0001 par value, 80,000 shares authorized, 24,142 and 23,585 shares issued and outstanding at December
31, 2001 and 2000, respectively


2



2Additional paid-in capital (*)


97,765



96,329Deferred compensation


(1,542
)


(1,882
)Accumulated other comprehensive income (loss)


141



(9
)Accumulated deficit (*)


(39,124
)


(27,637
)Stockholders equity


57,242



66,803$
73,851


$
87,408


---

|* |  | See Note 11.
|- |  | ------------




See accompanying notes.




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##### Table of Contents




MARIMBA, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share amounts)





Year Ended December 31,2001


2000


1999Restated


RestatedRevenues:License

$
27,801


$
31,329


$
23,637Service


16,229



12,718



7,776Total revenues


44,030



44,047



31,413Cost of revenues:License


595



681



402Service


5,940



4,256



3,036Total cost of revenues


6,535



4,937



3,438Gross profit


37,495



39,110



27,975Operating expenses:Research and development


10,508



11,114



8,497Sales and marketing


31,965



27,758



19,625General and administrative


7,934



12,570



5,066Restructuring costs


789







Amortization of deferred compensation (*)


361



809



1,410Total operating expenses (*)


51,557



52,251



34,598Loss from operations (*)


(14,062
)


(13,141
)


(6,623
)Interest income


2,817



4,562



2,536Interest and other expenses


(43
)


(21
)


(30
)Loss before income taxes (*)


(11,288
)


(8,600
)


(4,117
)Provision for income taxes


199



179



97Net loss (*)

$
(11,487
)

$
(8,779
)

$
(4,214
)Basic and diluted net loss per share (*)

$
(.48
)

$
(.38
)

$
(.22
)Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share


23,943



23,200



19,029


---

|* |  | See Note 11.
|- |  | ------------




See accompanying notes.







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##### Table of Contents




MARIMBA, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (NET CAPITAL DEFICIENCY)


(in thousands)





Common Stock

Additional Paid-in Capital


Note Receivable From Officer


Deferred Compensation


Accumulated Other Comprehensive Income
(Loss)


Accumulated Deficit


Stockholders Equity (Net Capital Deficiency)


Comprehensive Income (Loss)Shares


AmountRestated











RestatedBalances at January 1, 1999

13,053


$
1

$
2,182


$
(160
)

$
(1,116
)

$
(6
)

$
(14,644
)

$
(13,743
)Sale of common stock in initial public offering, net

3,736






68,075



















68,075Conversion of Series A and Series B redeemable preferred stock to common stock

5,753



1


18,952



















18,953Issuance of common stock upon exercise of stock options and warrant

632






1,561



















1,561Issuance of common stock under employee stock purchase plan

42






719



















719Repurchases of common stock

(70
)





(27
)


















(27
)Translation adjustment




















(16
)






(16
)

$
(16
)Repayment of note receivable from an officer












160















160Unrealized loss on investments




















(239
)






(239
)


(239
)Deferred compensation








1,974







(1,974
)










Amortization of deferred compensation
















1,410











1,410Net loss
























(4,214
)


(4,214
)


(4,214
)Balances at December 31, 1999

23,146



2


93,436







(1,680
)


(261
)


(18,858
)


72,639


$
(4,469
)Issuance of common stock upon exercise of stock options

459






1,099



















1,099Issuance of common stock under employee stock purchase plan

89






924



















924Repurchases of common stock

(109
)





(141
)


















(141
)Translation adjustment




















(20
)






(20
)

$
(20
)Unrealized gain on investments




















272







272



272Deferred compensation, net of cancellation adjustment








1,011







(1,011
)










Amortization of deferred compensation (*)
















809











809Net loss (*)
























(8,779
)


(8,779
)


(8,779
)Balances at December 31, 2000 (*)

23,585



2


96,329







(1,882
)


(9
)


(27,637
)


66,803


$
(8,527
)Issuance of common stock upon exercise of stock options

323






594



















594Issuance of common stock under employee stock purchase plan

338






715



















715Issuance of stock option for services








120



















120Repurchases of common stock

(104
)





(14
)


















(14
)Deferred compensation, net of cancellation adjustment








21







(21
)










Translation adjustment




















(9
)






(9
)

$
(9
)Unrealized gain on investments




















159







159



159Amortization of deferred compensation (*)
















361











361Net loss
























(11,487
)


(11,487
)


(11,487
)Balances at December 31, 2001 (*)

24,142


$
2

$
97,765


$



$
(1,542
)

$
141


$
(39,124
)

$
57,242


$
(11,337
)


---

|* |  | See Note 11.
|- |  | ------------



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##### Table of Contents




MARIMBA, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)





Year Ended December 31,2001


2000


1999Restated


RestatedOperating activities:Net loss (*)

$
(11,487
)

$
(8,779
)

$
(4,214
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation


2,096



1,599



1,233Amortization of deferred compensation (*)


361



809



1,410Issuance of stock option for services


120







Loss on disposal of property and equipment


64



49



Effect of exchange rate


(9
)


(20
)


(16
)Changes in operating assets and liabilities:Accounts receivable, net


856



(5,101
)


(4,814
)Prepaid expenses and other current assets


435



(514
)


322Other assets






(324
)


262Accounts payable and accrued liabilities


(503
)


(262
)


1,747Accrued compensation


(647
)


776



1,575Deferred revenue


(2,958
)


2,197



5,800Other liabilities


112



105



13Net cash provided by (used in) operating activities


(11,560
)


(9,465
)


3,318Investing activities:Capital expenditures, net


(1,786
)


(2,966
)


(1,441
)Purchases of investments


(63,820
)


(31,592
)


(65,863
)Proceeds from matured investments


65,037



53,060



13,000Net cash provided by (used in) investing activities


(569
)


18,502



(54,304
)Financing activities:Proceeds from issuance of common stock, net of repurchases


1,295



1,883



2,253Proceeds from sale of common stock in initial public offering, net










68,075Repayment of note receivable from officer










160Proceeds from transfer of financial assets


3,853







Principal payments under capital lease obligations






(60
)


(939
)Net cash provided by financing activities


5,148



1,823



69,549Net increase (decrease) in cash and cash equivalents


(6,981
)


10,859



18,563Cash and cash equivalents at beginning of year


33,122



22,263



3,700Cash and cash equivalents at end of year

$
26,141


$
33,122


$
22,263Supplemental disclosure of cash flow information:Interest paid

$
4


$
1


$
30Income taxes paid

$
199


$
179


$
97Supplemental disclosure of non-cash investing and financing activities:Conversion of redeemable preferred stock to common stock

$



$



$
18,953Deferred compensation, net of cancellation adjustment (*)

$
21


$
1,011


$
1,974


---

|* |  | See Note 11.
|- |  | ------------

See accompanying notes.




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##### Table of Contents




MARIMBA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    Summary of Significant
Accounting Policies





Basis of Presentation





Marimba was incorporated in Delaware on February 21, 1996. Marimba develops, markets and supports end-to-end change and configuration management software solutions.
Marimbas Desktop/Mobile Management, Server Management and Embedded Management product families provide an efficient and reliable way for enterprises to distribute, update and manage applications and related data to desktops, laptops, servers
and devices. Marimbas products help customers reduce their total cost of ownership and improve quality of service by streamlining the distribution and management of software applications and content. Marimba markets its products worldwide
through a combination of a direct sales force, resellers and OEM partners.





The consolidated financial statements
include the accounts of Marimba and its wholly-owned subsidiary in the United Kingdom. Intercompany accounts and transactions have been eliminated in consolidation.





Marimba has incurred operating losses to date and had an accumulated deficit of $39.1 million at December 31, 2001. Marimbas activities have been primarily financed
through its initial public offering of common stock and earlier private placements of equity securities. If Marimba is ultimately unable to achieve profitability and positive cash flows from operations, it may need to raise additional capital
through the issuance of debt or equity securities. Such financing may not be available on terms satisfactory to Marimba, if at all.





Use of Estimates





The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an on-going basis, we evaluate these estimates and judgments, including
those related to revenue recognition, bad debts and litigation. Actual results could differ materially from those estimates.





Revenue
Recognition





Marimba derives its revenues primarily from two sources (i) license revenues, which consist of
software license fees and (ii) service revenues, which are comprised of fees for maintenance and support, consulting and training. Maintenance and support agreements provide technical support and the right to unspecified upgrades on an
if-and-when available basis. Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any
period if our management made different judgments or utilized different estimates.





Marimba applies the provisions
of Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, as amended by Statement of Position 98-9 (SOP 98-9), Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions to all transactions involving the sale of software products.





In December 1999, the Securities
and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Marimba applied the provisions of SAB 101 to all
revenue transactions for fiscal 2001 and 2000. SAB 101 has not had a material impact on our results of operations, financial position or cash flows.





In accordance with the provisions of Accounting Principles Board Opinion No. 29 (APB 29), Accounting for Nonmonetary Transactions, Marimba records barter transactions at the
fair value of the goods or services provided or received, whichever is more readily determinable in the circumstances. To date, revenues from barter transactions have been insignificant and represent less than 1% of net revenues.





Marimba licenses software products to corporate customers, OEM partners and resellers on a perpetual basis or a term basis. We
recognize revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed or determinable and collection of the resulting receivable is probable.




25




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##### Table of Contents




Marimba uses either a definitive customer purchase order or signed license
agreement as evidence of an arrangement. License revenues in arrangements with customers who are not the ultimate users, primarily resellers, are not recognized until the software is sold through to the end-user. Advance payments from resellers for
guaranteed minimum commitments are deferred until the software is sold through to the end-user or upon expiration of the specified commitment time period if the minimum commitments have not been met. Delivery generally occurs when license keys and
passwords have been made available to the customer through e-mail.





At the time of the transaction, Marimba
assesses whether the fee associated with revenue transactions is fixed or determinable and whether or not collection is probable. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and our
history with the customer or with similar customers. If a significant portion of a fee is due after our normal payment terms, we generally account for the fee as not being fixed or determinable. In these cases, Marimba recognizes revenue as the fees
become due.





Marimba assesses the probability of collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection
becomes probable, which is generally upon receipt of cash.





For arrangements with multiple obligations (for
example, undelivered maintenance and support), Marimba allocates revenue to each component of the arrangement using the residual value method based on vendor specific objective evidence of the fair value of the undelivered elements, which is
specific to Marimba. This means that Marimba defers revenue from the arrangement fee equivalent to the fair value of the undelivered elements. Fair values for the ongoing maintenance and support obligations for our licenses are based upon separate
sales of renewals to other customers. Fair value of services, such as training or consulting, is based upon separate sales by us of these services to other customers. Most of our arrangements involve multiple obligations.





Marimbas arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision,
acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.





Marimba recognizes revenues for maintenance and support ratably over the maintenance term, which is generally one year. Consulting services are generally billed based on daily rates and training services are generally billed on per
student or per class session basis. We generally recognize consulting and training revenues as the services are performed.





Research
and Development





Research and development expenditures are generally charged to operations as incurred.
Statement of Financial Accounting Standards No. 86 (FAS 86), Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requires the capitalization of certain software development costs subsequent
to the establishment of technological feasibility, which, for Marimba, is established upon completion of a working model. To date, costs incurred by Marimba between completion of the working model and the point at which the product is ready for
general release have been insignificant and charged to expense as incurred.





Advertising





Marimba expenses advertising costs as incurred. Advertising expense was $819,000, $1.2 million and $562,000 for the years ended December
31, 2001, 2000 and 1999, respectively.





Cash, Cash Equivalents and Investments





Cash equivalents consist of financial instruments, which are readily convertible to cash and have original maturities of three months or
less at the time of acquisition. Marimbas cash and cash equivalents as of December 31, 2001 and 2000 consist primarily of commercial paper, corporate and municipal bonds, and demand deposits and money market funds held by large financial
institutions in the United States. The carrying value of cash and cash equivalents approximates fair value at December 31, 2001 and 2000.





Marimba classifies, at the date of acquisition, its marketable securities as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115 (FAS 115), Accounting
for Certain Investments in Debt and Equity Securities. Available-for-sale securities are reported at fair market value with the related unrealized gains and losses included in stockholders equity. Realized gains and losses and declines
in value of securities judged to be other than temporary are included in interest income. Interest and dividends on all securities are included in interest income. Investments with remaining maturities of less than one year are considered short-term
investments. Investments with remaining maturities longer than one year are considered long-term investments. All investments classified as long-term mature during 2003.




26




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##### Table of Contents




Available-for-sale investments are summarized as follows:





Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses


Fair ValueDecember 31, 2001:

(in thousands)Corporate notes

$
22,540

$
182

$
(15
)

$
22,707Market auction rate preferred stock


1,150









1,150Debt securities from U.S. Government and government agencies


10,613


25






10,638Total investments

$
34,303

$
207

$
(15
)

$
34,495Short-term investments

$
16,204

$
46

$
(1
)

$
16,249Long-term investments


18,099


161


(14
)


18,246Total investments

$
34,303

$
207

$
(15
)

$
34,495December 31, 2000:Corporate notes

$
26,355

$
20

$
(10
)

$
26,365Debt securities from U.S. Government and government agencies


9,165


32


(9
)


9,188Total investments

$
35,520

$
52

$
(19
)

$
35,553Short-term investments

$
31,420

$
6

$
(19
)

$
31,407Long-term investments


4,100


46






4,146Total investments

$
35,520

$
52

$
(19
)

$
35,553





The cost of securities sold is based on the specific identification
method.





Property and Equipment





Marimba records property and equipment at cost and calculates depreciation using the straight-line method over the estimated useful lives of the assets, generally three to five years. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the respective assets or the term of the lease.





Income
taxes





Marimba accounts for income taxes using the asset and liability method in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. Under the asset and liability method, a current tax asset or liability is recognized for the estimated taxes payable or refundable on tax returns
for the current year. A deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Marimba has recorded a full valuation allowance as of December 31, 2001, because we
believe it is more likely than not that our deferred tax assets will not be realized in the foreseeable future.





Accounting for
Stock-Based Compensation





Marimba has elected to follow Accounting Principles Board Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options because, as discussed in Note 6, the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the
exercise price of Marimbas employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. See the pro forma disclosures of applying FAS 123 included in Note 6.





Stock options issued to non-employees are accounted for in accordance with FAS 123 and Emerging Issues
Task Force Issue No. 96-18 (EITF 96-18), Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in conjunction With Selling, Goods or Services.




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Concentrations of Credit Risk and Other Risks





Financial instruments that subject Marimba to credit risk consist primarily of uninsured cash, cash equivalents and short-term and
long-term investment balances held at commercial banks and institutions primarily in the United States and trade receivables from Marimbas customers. Marimba sells to customers in many different industries. Marimba performs ongoing credit
evaluations of customers, but does not generally require collateral. We grant credit terms to most customers ranging from 30 to 90 days, however in some instances Marimba may provide longer payment terms. During the years ended December 31, 2001,
2000 and 1999, Marimba added approximately $171,000, $2.1 million and $36,000, respectively, to its bad debt reserves. Total write-offs of uncollectible accounts were $326,000, $0 and $2,000 in those periods. During fiscal 2000, Marimba established
a sales return allowance reserve. During the years ended December 31, 2001 and 2000, $290,000 and $237,000, respectively, was added to this reserve.





For the years ended December 31, 2001, 2000 and 1999, no single customer represented more than 10% of total revenues. At December 31, 2001, four customers represented 18%, 13%, 13% and 13% of accounts
receivable and at December 31, 2000, two customers represented 40% and 14% of accounts receivable.





Financing





In June 2001, Marimba entered into a $5 million receivables purchase facility with a bank, pursuant to which Marimba may
transfer qualifying accounts receivables to the bank on a non-recourse basis. The purchase facility with the bank expires in June 2002. Transfers under this facility are recorded as sales and accounted for in accordance with Statement of Financial
Accounting Standards No. 140 (FAS 140), Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. During the second quarter of 2001, Marimba transferred to the bank accounts receivable
totaling approximately $3.9 million, which approximated fair value. The transfer of accounts receivable for cash were reported in the consolidated statement of cash flows as a financing activity. There were no transfers of accounts receivable during
the third or fourth quarters of 2001. During the fourth quarter of 2001, the amount outstanding under the facility was repaid in full.





Segment Information





Marimba operates in one operating segment, the development and
marketing of systems management software and has operations primarily in the United States. We also operate in the following geographies: the United States and Europe. For the years ended December 31, 2001, 2000 and 1999, sales in Europe were
approximately 6%, 3% and 7% of total revenue, respectively. For the years ended December 31, 2001, 2000 and 1999, export sales to customers outside of the United States were $3.4 million, $2.1 million and $2.5 million, respectively. These export
sales were primarily made to customers located in Western Europe and Asia.





Net Loss Per Share





Basic and diluted net loss per common share are presented in conformity with Statement of Financial Accounting Standards No. 128
(FAS 128), Earnings Per Share, for all periods presented. In accordance with FAS 128, basic and diluted net loss per share have been computed by dividing the net loss by weighted-average shares of common stock outstanding
during the periods, less weighted average shares subject to repurchase.




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The following table presents the calculation of basic and diluted net loss per
share:





Year Ended December 31,2001


2000


1999(in thousands, except per share data)Restated


RestatedNet loss (*)

$
(11,487
)

$
(8,779
)

$
(4,214
)Basic and diluted:Weighted-average shares of common stock outstanding


24,012



23,391



19,855Less weighted-average shares subject to repurchase


(69
)


(191
)


(826
)Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share


23,943



23,200



19,029Basic and diluted net loss per share (*)

$
(.48
)

$
(.38
)

$
(.22
)


---

|* |  | See Note 11.
|- |  | ------------




Marimba has excluded all outstanding stock options from the calculation of diluted net loss per share because all such securities are antidilutive for all periods presented. Weighted-average options outstanding to purchase 6,220,000,
4,714,000, and 2,861,000 shares of common stock for the years ended December 31, 2001, 2000 and 1999, respectively, were not included in the computation of diluted net loss per share because the effect would be antidilutive. Such securities,
had they been dilutive, would have been included in the computation of diluted net loss per share using the treasury stock method.





Accumulated Other Comprehensive Income (Loss)





As of January 1, 1998, we adopted Statement
of Financial Accounting Standards No. 130 (FAS 130), Reporting Comprehensive Income. FAS 130 established rules for the reporting and display of comprehensive income and its components. Comprehensive income is defined as the
change in equity such as foreign currency translation adjustment and unrealized gains and losses that have historically been excluded from net income and reflected instead in equity.





As of December 31, the components of accumulated other comprehensive income (loss) reflected in the Statement of Stockholders Equity (Net Capital Deficiency) were as
follows:





2001


2000


1999(in thousands)Unrealized gain (loss) on available-for-sale securities

$
192


$
33


$
(239
)Foreign currency translation adjustment


(51
)


(42
)


(22
)Accumulated other comprehensive income (loss)

$
141


$
(9
)

$
(261
)





Recent Accounting Pronouncements





In May 2000, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-14 (EITF 00-14), Accounting for Certain
Sales Incentives, effective for periods beginning after December 15, 2001. EITF 00-14 addresses the recognition, measurement, and income statement classification for sales incentives that a vendor voluntarily offers to customers (without
charge), which the customer can use in, or exercise as a result of, a single exchange transaction. Sales incentives that fall within the scope of EITF 00-14 include offers that a customer can use to receive a reduction in the price of a product or
service at the point of sale. We expect to adopt EITF 00-14 during the first quarter of fiscal 2002, and we do not believe that it will have a material effect on our operating results or financial positions.





In June 2001, the EITF issued EITF Issue No. 00-25 (EITF 00-25), Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendors Products, effective for periods beginning after December 15, 2001. EITF 00-25 addresses whether consideration from a vendor to a reseller is (a) an adjustment of the
selling prices of the vendors products and, therefore, should be deducted from revenue when recognized in the vendors statement of operations or (b) a cost incurred by the vendor for assets or services received from the reseller and,
therefore, should be included as a cost or expense when recognized in the vendors statement of operations. Upon application of EITF 00-25, financial statements for prior periods presented for comparative purposes should be reclassified to
comply with the income statement display requirements. We expect to adopt EITF 00-25 during the first quarter of fiscal 2002, and we do not believe that it will have a material effect on our operating results or financial positions.




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##### Table of Contents




In September 2001, the EITF issued EITF Issue No. 01-09 (EITF 01-09),
Accounting for Consideration Given by Vendor to a Customer or a Reseller of the Vendors Products, which is a codification of EITF 00-14, EITF 00-25 and EITF 00-22, Accounting for Points and Certain Other Time-or Volume-Based
Sales Incentive Offers and Offers for Free Products or Services to be Delivered in the Future. Marimba is currently assessing the impact of the adoption of these issues on our financial statements.





In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141,
Business Combinations (FAS 141). FAS 141 establishes new standards for accounting and reporting business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. We expect to adopt this statement during the first quarter of fiscal 2002, and we do not believe that FAS 141 will have a material effect on our operating results or financial
positions.





In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (FAS
142), Goodwill and Other Intangible Assets, which supersedes Accounting Principles Board Opinion No. 17 (APB 17), Intangible Assets. FAS 142 establishes new standards for goodwill, including the elimination
of goodwill amortization to be replaced with methods of periodically evaluating goodwill for impairment. We expect to adopt this statement during the first quarter of fiscal 2002, and we do not believe that SFAS 142 will have a material effect on
our operating results or financial position.





In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (FAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets,which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes
Statement of Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30 (APB 30), Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application
encouraged. We plan to adopt FAS 144 as of January 1, 2002 and expect that the adoption of the Statement will have an insignificant impact on our financial position or results of operations.





In November 2001, the FASB issued a Staff Announcement, Topic D-103, which concluded that the reimbursement of out-of-pocket expenses should be classified
as revenue in the statement of operations for financial reporting periods beginning after December 15, 2001 and comparative financial statements for prior periods should be reclassified to comply with the guidance in this Announcement. Marimba
currently records reimbursement of out-of-pocket expenses in cost of services. Effective January 1, 2002, we will apply this Announcement. The Announcement will have no impact on gross profit or net loss, but will increase services
revenue and cost of services revenue.





2.    Property and Equipment





Property and equipment consist of the following:





December 31,2001


2000(in thousands)Furniture and equipment

$
1,585


$
746Computer equipment


5,819



5,152Purchased software


1,321



1,353Leasehold improvements


1,141



1,0619,866



8,312Accumulated depreciation


(5,966
)


(4,038
)Property and equipment, net

$
3,900


$
4,274





3.    Commitments





Marimbas contractual obligations consist of noncancellable operating lease agreements. As of December 31, 2001, future minimum lease
payments under noncancelable operating leases are as follows:




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##### Table of Contents




Operating Leases(in thousands)Year ending December 31:2002

$
1,8552003


1,9342004


1,9602005


728Total minimum lease payments

$
6,477





Marimbas headquarters facility lease expires in April 2005.
Rent expense under operating leases totaled approximately, $3.1 million, $2.4 million and $1.8 million for the years ended December 31, 2001, 2000 and 1999, respectively.





4.    Deferred Compensation





Marimba
recorded deferred compensation of approximately $1.4 million in 1998, representing the difference between the exercise prices of options granted to acquire 940,500 shares of common stock during 1998 and the deemed fair value for financial reporting
purposes of our common stock on the grant dates. In addition, Marimba granted options to purchase common stock in April 1999 for which Marimba recorded additional deferred compensation of approximately $2.1 million. In 2000, Marimba recorded
deferred compensation of approximately $1.0 million (net of reduction of $1.6 million due to forfeited stock options and repurchased shares), which represented the intrinsic value of certain stock awards. In 2001, Marimba recorded deferred
compensation of approximately $21,000 (net of reduction of $2.4 million due to forfeited stock options and repurchased shares), which represented the intrinsic value of certain stock awards. Deferred compensation is being amortized over the vesting
periods of the options and stock on a graded vesting method. Marimba amortized deferred compensation expense, net of gains resulting from the forfeiture of stock options and repurchase of shares due to employee departures, of $361,000, $809,000 and
$1.4 million for fiscal years 2001, 2000 and 1999, respectively. This compensation expense relates to options awarded to individuals in all operating expense categories, and with respect to 2000 and 2001 only, to restricted shares granted to certain
executives. The amortization of deferred compensation, assuming no further reductions due to cancelled shares, is expected to be approximately $1.4 million in 2002 and $270,000 in 2003. Marimba has restated its financial statements for 2001 and 2000
to adjust amortization of deferred compensation to reflect the figures set forth above. See Note 11.





In July
2001, Marimba granted an option to purchase 50,000 shares of common stock at an exercise price of $2.45 per share to a non-employee in exchange for consulting services. The option was fully vested at the date of grant and is exercisable for ten
years. We estimated the fair value of the option granted for services using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5%, a contractual life of 10 years, dividend yield of zero and volatility
of 140%. In connection with this option to purchase common stock, Marimba recorded a non-cash charge to sales and marketing expense of $120,000 in 2001.





5.    Stockholders Equity





In 1999, Marimba sold 3,736,000 shares
of common stock in an underwritten public offering for net proceeds of approximately $68.1 million, after offering expenses. Simultaneously with the closing of the public offering, all 5,753,566 shares of Marimbas preferred stock were
converted to common stock on a one-for-one basis. Additionally, a warrant to purchase 16,865 shares of Series A convertible preferred stock was converted to a warrant to purchase the same number of shares of common stock. In December 1999, the
warrant was exercised.





As of December 31, 2001, our authorized capital stock consisted of 80,000,000 shares of
common stock and 10,000,000 shares of undesignated preferred stock. The following is a summary description of our capital stock:





Common Stock





The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Holders of common stock do not have cumulative voting rights, and, therefore, holders of the remaining shares voting for the election of directors can elect all of the directors. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of funds legally available. In the event of the liquidation,
dissolution or winding up of Marimba, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock
has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable.




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##### Table of Contents




Marimba has reserved shares of common stock for future issuance as follows:





December 31, 2001(in thousands)Exercise of options

10,530Issuance of common stock under the 1999 ESPP

494Total

11,024





Preferred Stock





Marimbas Board of Directors has the authority to issue the preferred stock in one or more series and to fix the rights, preferences, privileges and related
restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of the series, without
further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and may adversely affect the voting and other
rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others.





Dividend Policy





Marimba did not declare nor pay any cash dividends on our capital stock during the fiscal years ended December 31, 2001, 2000 and 1999 and do not expect to do so in the foreseeable future. Marimba anticipates that all future
earnings, if any, generated from operations will be retained by us to develop and expand our business. Any future determination with respect to the payment of dividends will be at the discretion of our Board of Directors and will depend upon, among
other things, our operating results, financial condition and capital requirements, the terms of then-existing indebtedness, general business conditions and such other factors as the Board of Directors deems relevant.





6.    Stock Option and Other Employee Benefit Plans





1996 Stock Option Plan





In November 1996, the Board of
Directors adopted the 1996 Stock Plan (the 1996 Plan) for issuance of common stock to eligible participants. A total of 6,474,603 shares of common stock were reserved for issuance to eligible participants under the 1996 Plan.
Effective in April 1999 (concurrently with Marimbas initial public offering), Marimba ceased granting awards under the 1996 Plan. Incentive stock options and nonstatutory stock options could be granted under the 1996 Plan at prices not less
than 100% and 85% of the fair value on the date of grant. Options granted under the 1996 Plan expire after 10 years. Options under the plan are immediately exercisable; however, shares issued are subject to Marimbas right to repurchase such
shares at the original issuance price, which right lapses in a series of installments measured from the vesting commencement date of the option. As of December 31, 2001, 20,100 shares were subject to repurchase. Options generally vest and the
repurchase rights lapse ratably over a period of three or four years from the date of grant.





1999 Omnibus Equity Incentive Plan





In March 1999, stockholders approved the adoption of Marimbas 1999 Omnibus Equity Incentive Plan (the
1999 Omnibus Plan), and a total of 1,250,000 shares of common stock were originally reserved for issuance to eligible participants under the 1999 Omnibus Plan. As of January 1 st of each plan year, annual increases to the share reserve are equal to the lesser of 1,250,000 shares or 4% of the outstanding common stock of
Marimba on such date. Effective in September 2001, the stockholders approved an amendment to the 1999 Omnibus Plan which increased the number of shares reserved for issuance under the 1999 Omnibus Plan by the number of shares that are available
for issuance under the Companys 1996 Stock Plan, up to a maximum of 2,103,973 shares. A total of 2,175,810 shares of common stock were reserved for issuance under the 1999 Omnibus Plan as of December 31, 2001, and an additional 965,658 shares
of common stock were added to the reserve on January 1, 2002. The types of awards that may be made under the 1999 Omnibus Plan to eligible participants are options to purchase shares of common stock, stock appreciation rights, restricted shares and
stock units. The exercise price for incentive stock options may not be less than 100% of the fair market value of Marimbas common stock on the date of grant (and 85% for nonstatutory options). In the event of a change in control of Marimba, an
option or award under the 1999 Omnibus Plan will become fully exercisable and fully vested if the option or award is not assumed by the surviving corporation or the surviving corporation does not substitute comparable awards for the awards granted
under the 1999 Omnibus Plan.




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##### Table of Contents




2000 Supplemental Stock Plan





In March 2000, the Board of Directors adopted the 2000 Supplemental Stock Plan (the 2000 Plan). A total of 3,500,000 shares of common stock have been reserved
for issuance to eligible participants under the 2000 Plan, and officers and directors of Marimba are not eligible to participate in the 2000 Plan. The types of awards that may be made under the 2000 Plan are nonstatutory options to purchase shares
of common stock and restricted shares. The exercise price for nonstatutory options may not be less than 85% of the fair market value of Marimbas common stock on the date of grant. In the event of a change in control of Marimba, an option or
award under the 2000 Plan will become fully exercisable and fully vested if the option or award is not assumed by the surviving corporation or the surviving corporation does not substitute comparable awards for the awards granted under the 2000
Plan.





In 2001, Marimba issued 900,000 restricted shares under the 1999 Omnibus Plan (and repurchased 75,000 of
such shares) and issued 100,000 restricted shares under the 2000 Plan.





1999 Non-Employee Directors Option Plan





In March 1999, stockholders approved the adoption of Marimbas Non-Employee Directors Option Plan (the Directors
Plan), and a total of 150,000 shares of common stock were originally reserved for issuance under the Directors Plan. As of January 1st of each plan year, the number of shares reserved for issuance is increased automatically to restore the
total number of shares available under the Directors Plan to 150,000 shares. An additional 85,000 and 37,500 shares of common stock were added to the reserve on January 1, 2002 and 2001, respectively. Under the Directors Plan, each non-employee
director who became a member of the Board of Directors before 1999 received a fully-vested option to purchase 7,500 shares of the Companys common stock on the effective date of the Companys initial public offering; the exercise price per
share of these options was the initial price offered to the public in the Companys initial public offering. Between the Companys IPO and September 5, 2001, each non-employee director who first became a member of the Board of Directors
after the date of the Companys initial public offering received a fully-vested option to purchase 15,000 shares of the Companys common stock on the date such individual joined the Board, and at each annual meeting of stockholders of the
Company, each individual who was a non-employee director after each such annual meeting during the period received an additional fully vested option to purchase 7,500 shares of common stock. Pursuant to an amendment to the Directors Plan approved by
the stockholders in September 2001: (i) each non-employee director who first commences service on or after September 6, 2001 (the date of the Companys 2001 annual stockholder meeting) will be automatically granted an option to purchase
30,000 shares upon becoming a director; (ii) each incumbent non-employee director will be automatically granted an option to purchase 10,000 shares at the date of each annual stockholders meeting beginning with the meeting in 2001 if the director is
serving on the Board of Directors at the time of such meeting (except that any non-employee director who was first appointed to the Board of Directors between July 19, 2001 and September 5, 2001 was granted, on the date of the 2001 annual
stockholders meeting, an option to purchase 15,000 shares); and (iii) each incumbent non-employee director who is a member of a committee of the Board will automatically be granted an option to purchase 2,500 shares for each committee on which the
director is serving. Each of the options granted under the Directors Plan on or after September 6, 2001 will be subject to vesting restrictions. Each director who receives an initial option grant under the Directors Plan will first be eligible to
receive an annual option grant in the calendar year that is two years after the calendar year in which the director received the initial option grant. Unless otherwise specified above, the exercise price for each option grant will be equal to the
fair market value per share of common stock on the option grant date.





Stock Option Exchange





During the period from April 27 to July 23, 2001, Marimba offered a voluntary stock option exchange program to its employees, and a total
of 1,369,500 shares of the Marimbas common stock were accepted for exchange under the program. Members of our Board of Directors and our executive officers, however, were not eligible to participate in the program. Under the program, Marimba
employees were given the opportunity, if they so chose, to cancel outstanding stock options previously granted to them at an exercise price of at least $7.50 per share, in exchange for new options to be granted no earlier than six months and one day
after July 23, 2001; provided, however, that options granted on or after January 23, 2001 (even if they had an exercise price under $7.50 per share) had also to be exchanged if the option holder chose to exchange one or more options granted prior to
January 23, 2001 at an exercise price of at least $7.50 per share. The number of shares subject to the new options were determined by applying an exchange ratio in the range of 1:1 to 1:2 (i.e., one new option share for every two canceled option
shares) based on the exercise price of the canceled option. On January 25, 2002, new options to purchase a total 829,452 shares of Marimbas common stock were granted under the 2000 Plan in exchanged for the canceled options accepted for
exchange under the program. The exercise price of these new options is $3.10 per share, the closing price of Marimbas common stock on the Nasdaq National Market on the date of grant. The exchange program was designed to comply with Financial
Accounting Standards Board Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation, and is expected not to result in any additional compensation charges or variable plan
accounting.




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##### Table of Contents




Non-Plan Grant





In March 2001, the Board of Directors approved a 400,000 share option grant to an employee outside of any of Marimbas stock option plans. The option will become
exercisable in a series of forty-eight (48) successive equal monthly installments upon completion of each month of continuous service by the employee with the Company from February 5, 2001. The options have a maximum term of ten years measured from
the date of grant and are exercisable at $4.3125 per share, which is equal to the market price of Marimbas shares on the date of grant.





A summary of Marimbas stock option activity for all of its option plans and other option grants is as follows:





Options OutstandingShares Available for Grant


Number of Shares


Weighted- Average Exercise PriceBalance at January 1, 1999

1,229,773


2,192,568


$
3.16Authorized

1,400,000Granted

(2,252,750
)

2,252,750



20.59Exercised




(615,171
)


2.49Repurchased

70,309






Canceled

367,352


(367,352
)


10.75Balance at December 31, 1999

814,684


3,462,795



13.84Authorized

5,440,810Granted

(5,979,392
)

5,979,392



17.41Exercised




(458,964
)


2.40Repurchased

108,546






Canceled

2,383,870


(2,383,870
)


19.00Balance at December 31, 2000

2,768,518


6,599,353



16.01Authorized

1,380,879Granted

(4,614,250
)

4,614,250



2.83Exercised




(322,574
)


1.84Repurchased

103,693






Canceled

4,599,805


(4,599,805
)


17.42Balance at December 31, 2001

4,238,645


6,291,224


$
5.77




34




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##### Table of Contents




The following table details outstanding and exercisable options as of December
31, 2001:





Outstanding

ExercisableRange of Exercise
Price

Number of Shares

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

Number of Shares

Weighted- Average Exercise Price$.0001$2.00

1,140,911

9.45

$
.21

36,177

$
1.362.45      3.50

1,977,046

9.38


2.56

205,125


2.924.31      5.25

2,120,917

8.99


4.80

690,776


4.957.63    10.00

327,500

8.82


7.82

39,187


9.1113.00    18.06

359,600

8.25


15.34

204,976


15.5220.00    29.00

92,250

7.66


22.19

58,477


21.4531.38    46.00

273,000

8.11


41.42

126,007


41.11Total

6,291,224

9.09

$
5.77

1,360,725

$
10.32





As of December 31, 2001 and 2000, 758,353 and 217,048 options were
vested and exercisable with weighted average exercise prices of $18.16 and $42.53 per share, respectively. No options were vested and exercisable at December 31, 1999.





1999 Employee Stock Purchase Plan





In March 1999,
stockholders approved the adoption of Marimbas 1999 employee stock purchase plan (the 1999 Purchase Plan), and a total of 500,000 shares of common stock was originally reserved for issuance under the Directors Plan. As of January
1st of each plan year, annual increases to the share reserve are to equal the lesser of 500,000 shares or 2% of the outstanding common stock of Marimba on such date. A total of 493,712 shares of common stock were reserved for issuance under the 1999
Purchase Plan as of December 31, 2001, and an additional 482,829 shares of common stock were added to the reserve on January 1, 2002. The 1999 Purchase Plan permits eligible employees to acquire shares of Marimbas common stock through
periodic payroll deductions of up to 10% of base cash compensation. No more than 1,500 shares may be purchased by each employee on any purchase date. Each offering period will have a maximum duration of 24 months. The price at which the common stock
may be purchased is 85% of the lesser of the fair market value of Marimbas common stock on the first day of the applicable offering period or on the last day of the respective purchase period. The initial offering period commenced on April 30,
1999. A total of 338,076 shares at an average price of $2.12, 88,811 shares at a price of $10.41 and 42,306 shares at a price of $17.00 were issued under the 1999 Purchase Plan for the years ended December 31, 2001, 2000 and 1999, respectively.





Pro Forma Disclosures of the Effect of Stock-Based Compensation





We utilize the intrinsic value-based method to account for all of our stock-based benefit plans. Pro forma information regarding net loss and net loss per share is required
by FAS 123, and has been determined as if Marimba had accounted for its employee stock-based benefit plans under the fair value method of that statement.





The fair value of each option granted through December 31, 2001 was estimated on the date of grant using the minimum value (before Marimba went public) or the Black-Scholes method. The Black-Scholes
option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of highly subjective assumptions including the
expected stock price volatility. Because Marimbas stock-based awards have characteristics significantly different from those in traded options, and because changes in the subjective input assumptions can materially affect the fair value
estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock based awards. The fair value of Marimbas stock-based awards was estimated using the following
assumptions:





Year Ended December 31,2001

2000

1999Risk-free interest rate

4%

5%

6%Expected life

3 years

3 years

3 yearsVolatility

126%

140%

101%Dividend yield










35




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##### Table of Contents




The weighted average fair value of options granted was $3.36 in 2001, $17.85 in
2000 and $20.59 in 1999.





The fair value of Marimbas ESPP purchases was estimated using the following
assumptions:





Year Ended December 31,2001

2000

1999Risk-free interest rate

4%

5%

6%Expected life

2 years

2 years

2 yearsVolatility

126%

140%

101%Dividend yield











The weighted-average fair market value of shares granted under the
1999 Employee Stock Purchase Plan were $2.49, $12.24 and $13.68 for the years ended December 31, 2001, 2000 and 1999, respectively.





For purposes of pro forma disclosures, the estimated fair value at grant date for awards under all stock-based benefit plans is amortized to pro forma expense over the options vesting period using the graded vesting method.
Pro forma information is as follows:





Year Ended December 31,2001


2000


1999Restated


Restated(in thousands, except per share data)Net loss:As reported (*)

$
(11,487
)

$
(8,779
)

$
(4,214
)Pro forma

$
(13,450
)

$
(36,007
)

$
(10,532
)Basic and diluted net loss per share:As reported (*)

$
(.48
)

$
(.38
)

$
(.22
)Pro forma

$
(.56
)

$
(1.55
)

$
(.55
)


---

|* |  | See Note 11.
|- |  | ------------




The effects of applying FAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net loss for future years.





7.    Income Taxes





Marimbas
provision for income taxes for the years ended December 31, 2001 and 2000, consists of state income and franchise taxes and foreign taxes. For the year ended December 31, 1999 the provision for income taxes is comprised entirely of foreign taxes.





Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Marimbas deferred tax assets are as follows:





December 31,2001


2000(in thousands)Deferred tax assets:Net operating loss carryforwards

$
12,700


$
7,900Research credit carryforwards


1,500



1,300Deferred revenue


1,300



1,800Capitalized research and development costs


800



Other


2,900



3,600Total deferred tax assets


19,200



14,600Valuation allowance


(19,200
)


(14,600
)Net deferred tax assets

$



$






Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $4.6 million and $6.3 million during 2001 and 2000,
respectively.




36




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##### Table of Contents




As of December 31, 2000, Marimba had net operating loss carryforwards for federal
income tax purposes of approximately $35.0 million, which expire in the years 2011 through 2021 and federal research and development tax credits of approximately $1.0 million, which expire in the years 2011 through 2021.





Utilization of Marimbas net operating loss may be subject to substantial annual limitations due to the ownership change
limitations provided by Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss before utilization.





8.    Legal Matters





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. The complaints allege, among other things, that the underwriters of
our initial public offering violated the securities laws by failing to disclose certain alleged compensation arrangements (such as undisclosed commissions or stock stabilization practices) in the offerings registration statement. Marimba and
certain of its officers and directors are named in the complaints pursuant to Section 11 of the Securities Act of 1933, and one of such complaints includes a claim against the Company and such officers and directors under Section 10(b) of the
Securities Exchange Act of 1934. Similar complaints have been filed against over 300 other issuers that have had initial public offerings since 1998 and all such actions have been included in a single coordinated proceeding. Marimba intends to
defend these actions vigorously. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation. Any unfavorable outcome of this litigation could have an adverse impact on our business,
liquidity, financial condition and results of operations.





Beck Systems, Inc. vs. Marimba, Inc.





On July 6, 2001, Beck Systems, Inc. filed a complaint against Marimba, Inc. and two of its customers in the United States District Court
for the Northern District of Illinois (Beck Systems, Inc. v. Marimba, Inc. et al., Civil Action No. 01 C 5207), alleging infringement of two patents held by Beck Systems. Beck Systems alleges that Marimbas infringement relates to the
manufacture and marketing of Marimbas desktop/mobile management and server management products. On August 29, 2001, Marimba filed its answer to Beck Systems complaint, denying any liability to Beck Systems, asserting various affirmative
defenses, and seeking the courts determination that the patents in suit are not infringed, are invalid, and/or are unenforceable. Marimba further requested the court for an award of attorneys fees, costs and expenses. The parties are
currently engaged in discovery for this suit, and a trial date has not been set. Marimba intends to defend this suit vigorously. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the
litigation, particularly in cases such as this where sophisticated factual issues must be assessed and complex technical issues must be decided. Any unfavorable outcome of this litigation could have an adverse impact on our business, liquidity,
financial condition and results of operations.





9.    Related Party Transactions





In July 2000, Marimba provided a loan facility of up to $1,000,000 to one of its executive officers to assist him in paying withholding
taxes incurred upon the purchase of restricted stock. The note bore interest at the rate of 6.6%, had an outstanding principal amount of $751,093 and became due and payable in full on October 9, 2001, which was three months from the executive
officers employment termination date with Marimba on July 9, 2001. No amounts were drawn in 2000. The outstanding principal amount due under the note was repaid by the executive officer on October 10, 2001.





In September 2001, Marimba executed a software license agreement in the amount of $443,000 with a customer, whose chief executive officer
is a member of Marimbas board of directors. As of December 31, 2001, there were no amounts due.




37




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##### Table of Contents




10.    Restructuring





In April 2001, Marimba announced a restructuring plan. The plan involved the elimination across all company departments of approximately 20% of the workforce, or 60
employees and independent contractors. Marimba recorded a charge of $789,000 in the second quarter of 2001 related to the restructuring plan, which consisted of personnel costs of $583,000, facilities and equipment costs of $136,000 and other costs
of $70,000. The remaining accrual was $123,000 at December 31, 2001, and is expected to be paid during 2002.





11.    Restatement of Financial Statements





Marimba restated its
audited financial statements as of and for the year ended December 31, 2001 and as of and for the year ended December 31, 2000, as well as its unaudited financial statements for the eight quarters ended December 31, 2001. The restatements reduce
previously reported amortization of deferred compensation by $1,865,000 for the year ended December 31, 2001 and $893,000 for the year ended December 31, 2000.





Marimba is restating these financial statements because it did not reverse amortization of deferred compensation upon the repurchase of unvested shares from certain executives who departed the company,
and upon the forfeiture of certain unvested stock options held by employees who departed the company. Marimba had recorded deferred compensation with respect to the unvested shares because the shares were sold at a price per share less than the
deemed fair market value of the shares for financial reporting purposes as of the date of issuance, and with respect to the stock options at issue because they were granted to employees at an exercise price per share that was less than the deemed
fair market value of the underlying shares. The deferred compensation recorded with respect to these shares and stock options has been amortized over the respective vesting periods of the securities under the graded vesting method.





The effect on net loss and net loss per share of this restatement on previously reported consolidated financial statements for
the years ended December 31, 2001 and 2000 is as follows:





Year Ended December 31,
2001


Year Ended December 31,
2000As Reported


As Restated


As Reported


As RestatedNet loss

$
(13,352
)

$
(11,487
)

$
(9,672
)

$
(8,779
)Basic and diluted net loss per share


(0.56
)


(0.48
)


(0.42
)


(0.38
)




38




---

##### Table of Contents




Fiscal Year 2001 and Related Quarterly Periods
(unaudited)





The following tables summarize the effects of the restatement on the Consolidated Statement of
Operations for the four quarters and year ended December 31, 2001 (in thousands, except per share data):





Qtr. Ended March 31,
2001


Qtr. Ended June 30,
2001


Qtr. Ended Sept. 30,
2001


Qtr. Ended Dec. 31,
2001


Year Ended Dec. 31, 2001(Restated)


(Restated)


(Restated)


(Restated)


(Restated)Consolidated Statement of OperationsRevenues:License

$
6,983


$
8,281


$
5,880


$
6,657


$
27,801Service


4,021



3,904



4,126



4,178



16,229Total revenues


11,004



12,185



10,006



10,835



44,030Cost of revenues:License


123



137



148



187



595Service


1,865



1,462



1,320



1,293



5,940Total cost of revenues


1,988



1,599



1,468



1,480



6,535Gross profit


9,016



10,586



8,538



9,355



37,495Operating expenses:Research and development


3,255



2,711



2,514



2,028



10,508Sales and marketing


8,869



9,059



7,074



6,963



31,965General and administrative


2,126



1,781



2,218



1,809



7,934Amortization of deferred compensation


463



503



(1,076
)


471



361Total operating expenses


14,713



14,843



10,730



11,271



51,557Loss from operations


(5,697
)


(4,257
)


(2,192
)


(1,916
)


(14,062
)Interest income and other expenses, net


1,031



651



597



495



2,774Loss before income taxes


(4,666
)


(3,606
)


(1,595
)


(1,421
)


(11,288
)Provision for income taxes


20



87



30



62



199Net loss

$
(4,686
)

$
(3,693
)

$
(1,625
)

$
(1,483
)

$
(11,487
)Basic and diluted net loss per share

$
(.20
)

$
(.15
)

$
(.07
)

$
(.06
)

$
(.48
)Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share


23,584



23,858



23,965



24,069



23,943Change to Statement of OperationsAmortization of deferred compensation (As Reported)

$
592


$
527


$
572


$
535


$
2,226Amortization of deferred compensation (Restated)


463



503



(1,076
)


471



361Change to amortization of deferred compensation

$
(129
)

$
(24
)

$
(1,648
)

$
(64
)

$
(1,865
)





The following tables summarize the effects of the restatement on
the Condensed Consolidated Balance Sheet as of the end of each of the four quarters in the year ended as of December 31, 2001 (in thousands, except per share data):





As of March 31, 2001


As of June 30, 2001


As of Sept. 30, 2001


As of Dec. 31, 2001(Restated)


(Restated)


(Restated)


(Restated)Condensed Consolidated Balance SheetTotal Assets

$
80,221


$
76,909


$
73,845


$
73,851Total Liabilities:

$
16,991


$
16,397


$
15,770


$
16,609Stockholders EquityCommon stock; $.0001 par value, 80,000 shares authorized, 24,142 and 23,585 shares issued and outstanding at December
31, 2001 and 2000, respectively


2



2



2



2Additional paid-in capital


96,754



97,192



97,586



97,765Deferred compensation


(1,290
)


(728
)


(2,076
)


(1,542
)Accumulated other comprehensive income (loss)


87



62



204



141Accumulated deficit


(32,323
)


(36,016
)


(37,641
)


(39,124
)Total stockholders equity


63,230



60,512



58,075



57,242Total Liabilities and Stockholders Equity

$
80,221


$
76,909


$
73,845


$
73,851Change to Balance SheetChange to additional paid-in capital

$
(1,023
)

$
(1,046
)

$
(2,695
)

$
(2,758
)Change to accumulated deficit


1,023



1,046



2,695



2,758




39




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##### Table of Contents




Fiscal Year 2000 and Related Quarterly Periods
(unaudited)





The following tables summarize the effects of the restatement on the Consolidated Statement of
Operations for the four quarters and year ended December 31, 2000 (in thousands, except per share data):





Qtr. Ended March 31, 2000


Qtr. Ended June 30, 2000


Qtr. Ended Sept. 30, 2000


Qtr. Ended Dec. 31, 2000


Year Ended Dec. 31, 2000(Restated)


(Restated)


(Restated)


(Restated)


(Restated)Consolidated Statement of OperationsRevenues:License

$
8,061


$
9,163


$
6,560


$
7,545


$
31,329Service


2,506



2,953



3,548



3,711



12,718Total revenues


10,567



12,116



10,108



11,256



44,047Cost of revenues:License


132



195



116



238



681Service


892



922



1,064



1,379



4,256Total cost of revenues


1,024



1,117



1,180



1,617



4,937Gross profit


9,543



10,999



8,928



9,639



39,110Operating expenses:Research and development


2,542



2,476



2,856



3,240



11,114Sales and marketing


6,914



6,710



6,987



7,147



27,758General and administrative


1,346



1,475



7,691



2,058



12,570Amortization of deferred compensation


43



114



482



169



809Total operating expenses


10,845



10,775



18,016



12,614



52,251Income (loss) from operations


(1,302
)


224



(9,088
)


(2,975
)


(13,141
)Interest income and other expenses, net


1,055



1,150



1,205



1,132



4,541Income (loss) before income taxes


(247
)


1,374



(7,883
)


(1,843
)


(8,600
)Provision for income taxes


119



31







30



179Net income (loss)

$
(366
)

$
1,343


$
(7,883
)

$
(1,873
)

$
(8,779
)Basic net income (loss) per share

$
(.02
)

$
.06


$
(.34
)

$
(.08
)

$
(.38
)Diluted net income (loss) per share

$
(.02
)

$
.05


$
(.34
)

$
(.08
)

$
(.38
)Weighted-average shares of common stock outstanding used in computing basic net income (loss) per share


22,996



23,149



23,266



23,391



23,200Weighted-average shares of common stock outstanding used in computing diluted net income (loss) per share


22,996



24,739



23,266



23,391



23,200Change to Statement of OperationsAmortization of deferred compensation (As Reported)

$
336


$
205


$
585


$
574


$
1,701Amortization of deferred compensation (Restated)


43



114



482



169



809Change to amortization of deferred compensation

$
(293
)

$
(91
)

$
(103
)

$
(405
)

$
(893
)





The following tables summarize the effects of the restatement on
the Condensed Consolidated Balance Sheet as of the end of each of the four quarters in the year ended as of December 31, 2000 (in thousands, except per share data):





As of March 31, 2000


As of June 30, 2000


As of Sept. 30, 2000


As of Dec. 31, 2000(Restated)


(Restated)


(Restated)


(Restated)Condensed Consolidated Balance SheetTotal Assets

$
91,608


$
95,626


$
91,298


$
87,408Total Liabilities:

$
18,856


$
20,611


$
23,205


$
20,605Stockholders EquityCommon stock; $.0001 par value, 80,000 shares authorized, 24,142 and 23,585 shares issued and outstanding at December
31, 2001 and 2000, respectively


2



2



2



2Additional paid-in capital


93,353



94,013



94,262



96,329Deferred compensation


(1,088
)


(883
)


(298
)


(1,882
)Accumulated other comprehensive income (loss)


(291
)


(236
)


(109
)


(9
)Accumulated deficit


(19,224
)


(17,881
)


(25,764
)


(27,637
)Total stockholders equity


72,752



75,015



68,093



66,803Total Liabilities and Stockholders Equity

$
91,608


$
95,626


$
91,298


$
87,408Change to Balance SheetChange to additional paid-in capital

$
(292
)

$
(384
)

$
(488
)

$
(893
)Change to accumulated deficit


292



384



488



893





For the three, six and nine months ended September 30, 2001,
amortization of deferred compensation was $463,000, $966,000 and ($110,000), respectively, as compared to $43,000, $157,000 and $639,000 for the corresponding periods in 2000 and $178,000, $629,000 and $1.0 million for the corresponding periods in
1999.




40




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##### Table of Contents




PART IV.





ITEM 14.    
EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8-K





(a)    (1)    Financial Statements





See
the Consolidated Financial Statements and Supplementary Data beginning on page 19 of this Form 10-K/A.





(2)    Financial Statement Schedules





No schedules have been filed because the
information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.





(3)    Exhibits required by Item 601 of Regulation S-K.





See Exhibit Index of this Form 10-K/A for the exhibits filed as part of or incorporated by reference into this Form 10-K/A.





(b)    Reports on Form 8-K





During the quarter ended December 31, 2001, the Company did not file any reports on Form 8-K.





(c)    See Exhibit Index of this Form 10-K for the exhibits filed as part of or incorporated by reference into this Form 10-K/A.




41




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##### Table of Contents




SIGNATURES





Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused Amendment No. 1 to this report to be signed on its behalf by the undersigned, thereunto duly authorized.





MARIMBA, INC.Date: November 12, 2002

By:

/s/    Andrew ChmyzAndrew ChmyzActing Vice President, Finance andChief Financial Officer





CERTIFICATIONS





I, Richard C. Wyckoff, certify that:





|1. |  | I have reviewed this annual report on Form 10-K/A of Marimba, Inc.;
|-- |  | -------------------------------------------------------------------




|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 12, 2002

By:

/s/    Richard C. WyckoffRichard C. WyckoffPresident and Chief Executive Officer(Principal Executive Officer)








I, Andrew Chmyz, certify that:





|1. |  | I have reviewed this annual report on Form 10-K/A of Marimba, Inc.;
|-- |  | -------------------------------------------------------------------




|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Date: November 12, 2002

By:

/s/    Andrew ChmyzAndrew ChmyzActing Vice President, Finance and Chief Financial Officer(Principal Financial and Accounting Officer)




42




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##### Table of Contents




EXHIBIT INDEX





Exhibit No.


Description3.1


Third Amended and Restated Certificate of Incorporation of the Registrantincorporated herein by reference to
Exhibit 3.3 to the Companys Registration Statement on Form S-1 (File No. 333-72353).3.2


Amended and Restated Bylaws of the Registrantincorporated herein by reference to Exhibit 3.2 to the
Companys Form 10-K for the fiscal year ended December 31, 2000, filed with the Commission on March 28, 2001.4.1


Reference is made to Exhibits 3.1 and 3.2.4.2


Form of Registrants Common Stock certificateincorporated herein by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-1 (File No. 333-72353).10.1


Form of Indemnification Agreement entered into by the Registrant with each of its directors and executive
officersincorporated herein by reference to Exhibit 10.1 to the Companys Registration Statement on Form S-1 (File No. 333-72353).10.2


1999 Omnibus Equity Incentive Plan and forms of agreements thereunder, as amended to dateincorporated herein by
reference to Exhibit 10.1 to the Companys Form 10-Q for the quarterly period ended September 30, 2001 filed with the Commission on November 1, 2001.10.3


1999 Employee Stock Purchase Plan, as amended to dateincorporated herein by reference to Exhibit 10.3 to the
Companys Form 10-K for the fiscal year ended December 31, 2000, filed with the Commission on March 28, 2001.10.4
**

International Employee Stock Purchase Plan, as amended to date.10.5


1999 Non-Employee Directors Option Plan, as amended to dateincorporated herein by reference to Exhibit 10.2 to
the Companys Form 10-Q for the quarterly period ended September 30, 2001 filed with the Commission on November 1, 2001.10.6


Lease between ilicon, Inc. and Registrant dated February 27, 2000incorporated herein by reference to Exhibit
10.17 to the Companys Form 10-K for the fiscal year ended December 31, 1999 file with the Commission on March 27, 2000.10.7


Non-Recourse Receivables Purchase Agreement between Silicon Valley Bank and the Company dated as of June 25,
2001incorporated herein by reference to Exhibit 10.1 to the Companys Form 10-Q for the quarterly period ended June 30, 2001 filed with the Commission on August 6, 2001.21.1
**

List of Subsidiaries of the Registrant.23.1
*

Consent of Ernst & Young LLP, Independent Auditors.99.1
*

Certification of Chief Executive Officer and President.99.2
*

Certification of Acting Vice President, Finance and Chief Financial Officer.


---

|* |  | Filed with this Form 10-K/A.
|- |  | ----------------------------




|** |  | Filed with the Form 10-K on March 28, 2002.
|-- |  | -------------------------------------------