SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                ----------------

                                    FORM 10-K
                                ----------------

  |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                   For the Fiscal Year Ended December 31, 2000

     |_| 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
              (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, 2001 was approximately
$59  million.  As  of  February  28,  2001,  there  were  23,836,733  shares  of
Registrant's common stock, $.0001 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's  definitive proxy statement (the "Proxy  Statement") to
be  mailed  to  stockholders  in  connection  with its 2001  annual  meeting  of
stockholders  scheduled to be held on June 7, 2001 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.


<PAGE>


<TABLE>

                                                 MARIMBA, INC.

                                               Table of Contents
<CAPTION>

PART I
<S>        <C>                                                                                              <C>
Item 1.    Business.......................................................................................   1

Item 2.    Properties.....................................................................................   7

Item 3.    Legal Proceedings..............................................................................   7

Item 4.    Submission of Matters to a Vote of Security Holders............................................   7

PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters..........................   8

Item 6.    Selected Consolidated Financial Data...........................................................   9

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..........  11

Item 7a.   Qualitative and Quantitative Disclosures about Market Risk.....................................  22

Item 8.    Consolidated Financial Statements and Supplementary Data.......................................  23

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures..........  39

PART III

Item 10.   Directors and Executive Officers of the Registrant.............................................  40

Item 11.   Executive Compensation.........................................................................  40

Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................  40

Item 13.   Certain Relationships and Related Transactions.................................................  40

PART IV

Item 14.   Exhibits, Financial Statement Schedule and Reports on Form 8-K.................................  40

Signatures ...............................................................................................  41
</TABLE>


<PAGE>
                                     PART I

     This report  contains  forward-looking  statements  that involve  risks and
uncertainties.  The  statements  contained  in this  report  that are not purely
historical are  forward-looking  statements within the meaning of Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  21E of the  Securities
Exchange Act of 1934, as amended. 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.   These
forward-looking statements might include, without limitation, 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.  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 2001 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.


ITEM 1.  BUSINESS

    Marimba,  Inc. was  incorporated  in Delaware in February  1996. We develop,
market  and  support  systems  management  software  built for  e-business.  Our
solutions  enable  companies to expand their market reach,  streamline  business
processes and strengthen  relationships  with customers,  business  partners and
employees.  Our Castanet and Timbale product  families  provide an efficient and
reliable way for enterprises to distribute,  update and manage  applications and
related  data to  desktops,  servers  and  devices.  We believe  that,  by using
Castanet,  companies  are able to  reduce  software  management  costs,  deliver
greater   functionality  to  users  and  provide  a  robust  infrastructure  for
mission-critical  applications.  Timbale addresses the problems  associated with
the management of distributed  servers.  Our global customer base spans multiple
industry segments including financial services, insurance, retail, manufacturing
and  telecommunications.  Customers include various industry leaders,  including
Bear Stearns,  Charles Schwab, The Home Depot,  Intuit, ADP, Seagate Technology,
Winstar  and  Cisco  Systems.   We  market  our  products  worldwide  through  a
combination of a direct sales force, resellers and distributors.

    See "Management  Discussion and Analysis of Financial  Condition and Results
of Operations"  and our  "Consolidated  Financial  Statements and  Supplementary
Data,"  appearing on pages 10 and 22,  respectively,  for  additional  financial
information regarding our business.

Marimba Products

Castanet Product Family

    The Castanet  product  family  provides a robust  framework  to  distribute,
update and manage  applications  and related  content over corporate  intranets,
extranets  and the  Internet  to  multiple  endpoints.  Designed  upon an  open,
extensible  architecture,  our  Castanet  products  automatically  recover  from
transmission  errors,  provide a variety of security  features,  reduce  network
connection  time,  allow  personalization  and are  rapidly  scalable to a large
number of users in  geographically  dispersed  locations.  The Castanet  product
family  is  modular,  allowing  organizations  to  add  functionality  as  their
e-business  management  requirements  expand.  The  Castanet  product  family is
summarized below:

    Castanet   Infrastructure  Suite.  The  Infrastructure  Suite  provides  the
foundation  upon which all other Castanet  product suites are built. It provides
the components necessary to distribute,  manage and maintain applications across
intranets, extranets and the Internet.

    Castanet  Production  Suite.  The  Production  Suite provides the ability to
package and publish custom or  off-the-shelf  applications,  files and documents
for distribution by the Castanet Infrastructure Suite.

    Castanet  Management  Suite.  The Management  Suite  provides  comprehensive
solutions for the  management,  deployment and  maintenance  of  enterprise-wide
Castanet  installations and permits centralized  monitoring and control of local
and remote Castanet servers and clients.  Optional  extensions to the Management
Suite also provide extensive client customization and branding capabilities.


                                       1
<PAGE>
    Castanet  Inventory  Suite.  The Inventory  Suite  simplifies the discovery,
tracking and management of the desktop,  server and portable computing resources
within  the  enterprise.   By  providing  database   integration  and  reporting
capabilities,  the suite is designed to allow  administrators  to generate up to
date  information on machines within their domains of control,  even if they are
only connected intermittently to a network.

    Castanet  Subscription  Suite. The Subscription Suite is designed to provide
technology  managers  with the ability to use existing  profile  information  to
define, distribute and enforce a centralized subscription policy that determines
which applications should be made available,  installed or deleted from a user's
machine.

    We generally license the Castanet  Infrastructure  and Inventory Suites on a
per user  basis  with the  total  fee  determined,  in part,  by the  number  of
end-users  who can obtain  updates using  Castanet.  The license terms also vary
depending on the number of applications to be deployed with Castanet and whether
the computer receiving updates is a server or client computer. Separate licenses
are  available  for the right to  customize  the user  interface  of the  client
component of Castanet and to distribute  the client and/or server  components of
the  system to  customers,  partners  or others  outside of the  customer's  own
organization.  The Castanet  Production,  Management and Subscription Suites are
generally  licensed  on a per user  basis,  based on the  number  of  individual
systems administrators who will use the components of the suites.

Timbale Product Family

     The Timbale product family  includes two products  designed to address many
of the server  management  challenges  inherent in thin-client  and Web commerce
computing  environments  today. Such challenges include  reliability for maximum
uptime,   efficient   content   replication   for  large   quantities  of  data,
pre-deployment  control, error detection and rollback capability,  and automated
scripting for deployments to large numbers of servers.

     Timbale  for  Server  Management.  Timbale  for Server  Management  manages
rapidly  changing  content  from  multiple   contributors  across  heterogeneous
distributed server farms. This product was released for sale in March 2000.

     Timbale  for  Windows  Terminal  Services.  Timbale  for  Windows  Terminal
Services  distributes,  manages and updates  applications,  printer drivers, and
operating system fixes in a mixed windows terminal  services  environment.  This
product was released for sale in June 2000.

     We generally  license the Timbale  products on a per server  endpoint basis
with the total fee determined,  in part, by the number of servers who can obtain
updates using Timbale.

Architecture

    The  Castanet  infrastructure  is designed to  distribute  software and data
efficiently   over   networks   based   upon   TCP/IP   (Transmission    Control
Protocol/Internet  Protocol),  the basic communication protocol of the Internet.
Castanet packages an application as a channel and publishes the application to a
transmitter,  which then distributes the channel and subsequent updates across a
network to tuners on client computers.

    Channel.   A  channel  is  the  application  and/or  related  data  that  is
distributed  using  Castanet.   For  example,  a  channel  could  consist  of  a
stock-trading  application  written  in  Java or a  shrink-wrapped  application,
including  Microsoft Word and related documents.  Each channel has an associated
list of properties  that  describes its features,  including  application  type,
author,   copyright  notice,   update  schedule  and  entry  point.   Castanet's
application packager prepares the channel for distribution and inserts a channel
adapter that installs and launches the application in a platform and application
specific manner. The application  packager is designed to accommodate a range of
application types,  including Java applets, Java Beans, Visual Basic, C, C++ and
shrink-wrapped applications. Using OSD (Open Software Description), a format for
describing  the way software  programs  relate to one another,  the  application
packager creates a description of the installation process which is based on XML
(eXtensible Markup Language), a format commonly used on the Internet to describe
data and  documents.  Using  this  technology,  both  shrink-wrapped  and custom
applications can be installed, updated and repaired without requiring changes to
the  original  application  and  without  relying  on the  original  application
installer.  After the  application is packaged as a channel,  it is published to
the transmitter for distribution over the network.

    Transmitter.  The  transmitter  is the  server  component  of  Castanet.  It
distributes  channels and subsequent  updates to the tuner, the Castanet client.
The tuner and  transmitter  communicate  using the  Castanet  protocol  which is
designed to minimize  bandwidth  requirements  for updates over HTTP (Hyper-Text
Transfer  Protocol),  the protocol  used to distribute  web pages.  The Castanet
protocol uses compression technology that compresses data and applications,  and
differential  updating  which  identifies  changes in code and updates  only the
changed portion. All updates are transactional,  interruptible and atomic, which
means that  channels on the tuner are always in a  functional  state even if the
most recent update failed or was interrupted. In addition, interrupted downloads
can be restarted  automatically at the point of interruption.  Castanet provides
functionality  to  identify  and verify  each  channel  resource  and  installed
applications.   Additional   transmitter   features   include   synchronization,
replication,  personalization,  client feedback, bandwidth management and policy
administration.  Transmitter mirrors provide


                                       2
<PAGE>
synchronization  of server content.  Mirroring provides the ability to replicate
Transmitter  content so that an external load balancer can be used to distribute
service   requests   to  multiple   Transmitters.   Castanet   implements   user
authentication  and access control using  passwords or client-side  certificates
and by leveraging  directory  services,  including LDAP  (Lightweight  Directory
Access Protocol), or Microsoft's Active Directory.

    Tuner. The tuner is the client  component of Castanet.  The tuner subscribes
to channels  located on the  transmitter  and  downloads,  installs and receives
updates of each channel.  Once received from a transmitter,  channels are stored
locally  on  the  tuner,  making  the  downloaded  channel  resources  instantly
accessible regardless of whether the user is connected to the network. The tuner
is  typically  configured  to run in the  background  and  can  manage  multiple
channels simultaneously without end-user interaction, updating them as necessary
to present the user with the most recent version. In addition,  the tuner's user
interface can be  customized to include the brand,  logo and other look and feel
elements  desired by the customer.  The tuner  provides a  comprehensive  set of
features for modem support, bandwidth management, security controls, certificate
management,  update  scheduling  and  support  for  corporate  network  security
mechanisms.

    Using the  Castanet  protocol,  tuners can be  redirected  automatically  to
additional  transmitters,  serving as repeaters,  in order to reduce the load on
the main transmitter and to make more efficient use of available  bandwidth.  By
adding repeaters, it is possible to provide faster download times and to service
thousands  of  simultaneous  downloads.  Repeaters  can  be  added  and  removed
dynamically without disrupting the overall service, allowing for a high level of
scalability,  improved service quality and availability. In addition, the use of
a caching proxy server,  which stores frequently accessed files on a local disk,
can improve the  efficiency  of downloads  through  corporate  network  security
barriers in an intranet or network into the enterprise.

    In addition to the basic Castanet components, a variety of Castanet features
are available for reporting  downloads,  staging updates,  application  signing,
resource planning,  certificate  management,  license installation,  transmitter
administration,  tuner  administration and deploying tuner updates. All of these
features are  distributed  as Castanet  channels,  and  together  with the basic
infrastructure   components,   provide  all  the  necessary   functionality   to
distribute,  manage and maintain  mission  critical  applications  and services.
Where appropriate,  we provide programming  interfaces and software  development
kits for  customized  extensions,  allowing  customers  to tailor  the  Castanet
solution to their  specific  needs,  or to embed the  Castanet  technology  into
existing applications.

Technology

    We believe that our  investment  in  engineering  has resulted in technology
that  provides us with a strategic  advantage.  Castanet has been built from the
ground up to  provide a robust  Internet-based  solution.  Castanet  provides  a
lightweight, cross-platform and easy-to-deploy solution that helps solve complex
application  deployment  and  management  problems  which  we  believe  are  not
addressed  adequately  by existing  client-server  distribution  and  management
tools.

    Castanet  makes  extensive use of a broad range of  technologies,  including
Java, TCP/IP,  HTTP, LDAP, XML, SSL (Secure Socket Layer), a protocol for secure
transmissions over the Internet, and various digital security  technologies.  In
addition,  we have worked with partners to submit several standards proposals to
the World Wide Web Consortium,  including the OSD format jointly  developed with
Microsoft and the DRP protocol (HTTP Distribution and Replication  Protocol),  a
protocol which efficiently  distributes data on the Internet,  jointly developed
with Netscape, Sun Microsystems, Novell, Inc. and Excite@Home.

    The Castanet  protocol is designed to  distribute  applications  and data to
multiple intermittently  connected endpoints. The protocol is layered on HTTP so
that it can be used from within most secure corporate  intranets and networks by
tunneling  through an HTTP  proxy  server.  When the user is on line,  the tuner
initiates  update  requests  either when requested by the user or  automatically
using a predefined  update  schedule.  When an update  request is received,  the
transmitter quickly determines which files in the channel have changed, and if a
change has occurred,  Castanet determines exactly which bytes within those files
have changed.  The tuner then downloads the resulting  changes,  and compression
algorithms  are  used  to  further  reduce  the  total  download  overhead.  The
efficiency of the Castanet  protocol  makes it possible to  distribute  frequent
updates  to  large  applications  and  application  files  with  relatively  low
bandwidth   utilization.   The  protocol   also   provides   features  for  user
authentication,  personalization of content, the distribution of events and data
from the tuner to the transmitter  and the automatic  redirection of requests to
repeaters.

    Our OSD-based  software  installation  technology  provides a cross-platform
framework for installing,  updating,  and verifying applications in an operating
system specific manner. Applications are delivered with an OSD file that defines
the platforms on which the software runs, as well as the libraries and resources
it requires.  In addition,  the OSD file contains platform  specific  extensions
that define the exact installation  requirements.  For example, on the Microsoft
Windows  platform,  the  OSD  file  describes  exactly  which  files  need to be
installed,  which  libraries that contain  application  code need to be updated,
which  registry  entries  need to be set and  which  system  scripts  need to be
updated. Once an application is installed,  the OSD file can be used to upgrade,
verify and uninstall  the  application.  OSD files are  generated  automatically
using  an  installation  capture  technology,  which  eliminates  the use of the
original application  installer.  Information  technology managers can customize
the OSD  script  to  control  the  level of user  involvement  in the  resulting
installation.


                                       3

<PAGE>
    We have invested  significant  resources in developing  Castanet's  security
implementation.   Castanet's   security  features  currently  include  end  user
authentication,  digital certificates to verify application authenticity and SSL
communications  to  help  protect  the  integrity  and  confidentiality  of data
transmitted via Castanet.  We offer a standard 56-bit encryption  implementation
for international use and a 128-bit  encryption  implementation for domestic use
only. Our security  implementation  represents a combination of software written
by us and security code licensed to us by various vendors,  including encryption
modules licensed from RSA Data Security and an SSL implementation from Netscape.
To further  enhance the breadth of our security  offerings,  we also  licensed a
Java-based  security  implementation.  We also have an arrangement with VeriSign
for the provision of digital  certificates  specifically for Castanet  products.
See "Other Factors Affecting Operating Results,  Liquidity and Capital Resources
-- We Rely on Third-Party Software and Applications."

    Most  of  our  products  are  implemented  using  Sun   Microsystems'   Java
programming  language.  As a result,  we believe that our products are portable,
easy to internationalize, easily reconfigured and efficient. The use of Java has
proven  to  be  an  advantage  in   developing   portable   components   without
significantly increasing the engineering overhead as additional platform support
is  required.  We believe that our use of and  expertise  in Java  provides us a
competitive advantage. See "Other Factors Affecting Operating Results, Liquidity
and Capital Resources -- We Rely on Third-Party Software and Applications."

Sales, Marketing and Distribution

    We market our products  worldwide  through a  combination  of a direct sales
force,  resellers and  distributors.  Our worldwide direct sales,  marketing and
business development  organizations  consisted of 132 individuals as of December
31, 2000, 51 of whom were located at our Mountain View, California headquarters,
73 in regional  offices  located in  California,  Georgia,  Illinois,  Michigan,
Minnesota, New York, Texas and Washington, D.C., and 8 in our European office in
the United Kingdom.

    Our sales,  marketing  and  distribution  approaches  are  designed  to help
customers  understand both the business and technical  benefits of the products.
We have built an experienced  consulting services organization to facilitate the
successful  deployment  of our  products.  We intend to  expand  our  consulting
services  organization and direct sales force and to establish  additional sales
offices  domestically  and  internationally.  Competition for sales personnel is
intense,  and we may not be able to  attract,  assimilate  or retain  additional
qualified  personnel  in the  future.  See "Other  Factors  Affecting  Operating
Results,  Liquidity  and Capital  Resources -- We Need to Develop and Expand Our
Sales, Marketing and Distribution Capabilities."

    We conduct a variety of marketing  programs  worldwide to educate our target
market,  create awareness and generate leads for our products.  To achieve these
goals, we have engaged in marketing activities including  telemarketing,  direct
mailings, print and online advertising campaigns and trade shows. These programs
are targeted at key information technology executives as well as vice presidents
of marketing and general  managers of business  units.  In addition,  we conduct
comprehensive   public   relations   programs  that  include   establishing  and
maintaining  relationships  with key trade  press,  business  press and industry
analysts as well as an active executive speakers' bureau. We have also initiated
a customer  advisory council which provides a communication  channel for regular
feedback from key  customers to facilitate  the design of products that meet the
expanding requirements of our target market.

    Markets  outside the United States are currently  served by our direct sales
office in the United Kingdom, as well as independent  distributors and resellers
covering  countries in Europe and Asia. Our  distributors  purchase our Castanet
products at discounts from end-user list prices.  Sales under the agreements are
denominated in U.S.  dollars.  For the years ended  December 31, 2000,  1999 and
1998, export sales to customers outside of the United States were  approximately
5%, 8% and 8% of total  revenue.  Foreign sales are subject to risks,  including
exchange  rate  fluctuations,  internal  monetary  conditions,  tariffs,  import
licenses,  trade  policies  and  domestic  and  foreign tax  policies.  For more
information  on risks related to foreign  sales,  see "Other  Factors  Affecting
Operating Results,  Liquidity and Capital Resources -- Expanding Internationally
Is Expensive, We May Receive No Benefit from Our Expansion and Our International
Operations are Subject to Governmental Regulation."

    We may not be able to enter into agreements or establish  relationships with
desired distribution partners on a timely basis, or at all, and our distribution
partners may not devote  adequate  resources to selling our  products.  For more
information on risks related to third-party  distribution  channels,  see "Other
Factors Affecting Operating Results,  Liquidity and Capital Resources -- We Need
to Develop and Expand Our Sales, Marketing and Distribution Capabilities."

Customer Support and Training

    Our customer support and training organization  consisted of 25 employees as
of December  31,  2000.  We offer a variety of annual  support  and  maintenance
programs for our products, as well as support services designed to meet specific
needs.

    Customers  that  license  our  products  typically  engage our  professional
services  organization  to assist with  support,  training  and  consulting.  We
believe that growth in our product sales depends upon our ability to provide our
customers  with  these  services  and  to  educate  third-party   resellers  and
consultants on how to provide similar services. As a result, we plan to increase
the number of our service  personnel  to meet


                                       4

<PAGE>
these needs.  See "Other  Factors  Affecting  Operating  Results,  Liquidity and
Capital Resources -- We Need to Expand Our Professional Services."

Research and Development

    As of December 31, 2000, our  engineering  organization  was comprised of 73
employees responsible for product development, quality assurance, documentation,
localization and porting.  Our product development  organization is divided into
five groups: core development,  Applications development,  Castanet development,
Windows  Terminal  Service ("WTS")  development and server to server  management
development.

    o   The core  development  group is focused  on  enhancing  the  robustness,
        reliability,  performance and flexibility of our core  functionality and
        expanding  the  ability of Castanet to operate  with  leading  operating
        systems.

    o   The  applications   development  group  addresses  specific   enterprise
        problems  that can also  directly  benefit and leverage our product line
        such  as  document  management  to end  users  and  bi-directional  data
        management between remote offices and stores.

    o   The Castanet development group is focused on developing enterprise-level
        products that address application and content  distribution,  deployment
        and management.

    o   The WTS  development  group is focused on  increasing  solutions for WTS
        server management.  In addition,  this group is focusing on ways to save
        WTS administrators time on server configuration management.

    o   The  server  to  server  management  development  group  is  focused  on
        developing  products  that  provide  centralized  control  of  efficient
        content  replication  across the  intranet,  extranet  and  Internet for
        server-based computing environments.

    These  five  development  groups are  supported  by the  quality  assurance,
documentation,  localization  and porting  groups.  The quality  assurance group
implements a process  designed to identify  software  defects through the entire
development  cycle.  The  documentation  group  is  responsible  for  end  user,
administrator  and developer  documentation  for our products.  The localization
group is responsible for internationalizing our products while in development as
well as performing the language-specific  localization after the English version
is produced. The porting group is responsible for any changes to the source code
required  to  allow a  product  to run on  platforms  other  than  the two  core
development platforms of Sun Microsystems Solaris and Microsoft Windows.

    We  believe  that  our  software  development  team  and  core  technologies
represent a significant  competitive  advantage.  The software  development team
includes a number of key members from the  engineering  team that  developed the
Java programming language and Java virtual machines at Sun Microsystems.

    A technically  skilled,  quality oriented and highly productive  development
organization will be a key component of the success of new product offerings. We
must  continue to attract and retain highly  qualified  employees to further our
research and development  efforts.  Our business and operating  results could be
seriously  harmed if we are not able to hire and retain the  required  number of
individuals.

    Research and  development  expenses were $11.1 million in 2000, $8.5 million
in  1999  and  $5.8  million  in  1998.  To  date,  substantially  all  software
development costs have been expensed as incurred and developed by our employees.
We believe that significant investments in research and development are required
to remain competitive.  As a consequence,  we intend to continue to increase the
absolute amount of our research and development  expenditures in the future. For
more  information on our research and development  expenses,  see  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

    We cannot be sure that  existing  and  future  development  efforts  will be
completed  within our anticipated  schedules or that they will have the features
to make them successful. Future delays or problems in the development of product
enhancements  or new products  could  seriously  harm our business and operating
results.  Furthermore,  despite our testing and testing by our customers, errors
might be found in our products, which we are unable to successfully correct in a
timely and  cost-effective  manner.  If we are not able to develop new products,
enhancements   to  existing   products  or  correct   errors  on  a  timely  and
cost-effective  basis,  or if these new products or enhancements do not have the
features  necessary to make them successful,  our business and operating results
will be seriously harmed. Furthermore, we currently license externally developed
technology and will continue to evaluate externally  developed  technologies for
integration into our product lines. Our business and operating  results would be
harmed if we are not able to continue  licensing  such third  party  products on
commercially  reasonable terms. See "Other Factors Affecting  Operating Results,
Liquidity and Capital  Resources -- Our Success Depends on Our Castanet  Product
Family and New Product Development," "-- Software Defects in Castanet Would Harm
Our Business" and "-- We Must Respond to Rapid Technological Change and Evolving
Industry Standards."


                                       5
<PAGE>
Competition

    The market for our products is intensely  competitive and rapidly  evolving.
We expect competition to continue to increase both from existing competitors and
new market  entrants.  We believe  that our  ability to compete  depends on many
factors both within and beyond our control, including:

    o   the ease of use,  performance,  features,  price and  reliability of our
        solutions as compared to those of our competitors;

    o   the timing and market  acceptance of new solutions and  enhancements  to
        existing solutions developed by us and our competitors;

    o   the quality of our customer service; and

    o   the effectiveness of our sales and marketing efforts.

    We  encounter  competition  from a number of  different  sources,  including
sellers of enterprise-wide management systems, which include electronic software
distribution,  including  Tivoli  and  Computer  Associates;  companies  such as
Novadigm, and XcelleNet,  which market products that support the distribution of
software   applications;   and  desktop  software  management  suites,  such  as
Microsoft's SMS and Intel's LanDesk.

    In  addition,  we compete with various  methods of  application  and content
distribution and management,  including thin client systems and the web browser,
and with application server vendors and others,  which have introduced  software
distribution capabilities into their products.

    Some of our competitors  have longer operating  histories and  significantly
greater financial,  technical, marketing and other resources than we do. Many of
these companies have broader relationships with existing and potential customers
that could be leveraged, to effectively compete against us. These companies also
have more established customer support and professional  services  organizations
than we do. In addition,  these companies may adopt aggressive pricing policies.
As a result,  we may not be able to  maintain  a  competitive  position  against
current or future competitors.

    As new participants  enter the market,  we will face increased  competition.
Potential  competitors  may bundle  their  products  or  incorporate  additional
components  into  existing  products  in a manner  that  discourages  users from
purchasing  our products.  Furthermore,  it is possible that 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.

Proprietary Rights and Licensing

    Our success and ability to compete are  dependent  on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of  patent,   trademark,   trade  secret,  and  copyright  law  and  contractual
restrictions to protect the proprietary aspects of our technology.  We presently
have one U.S.  patent and six U.S.  patent  applications  pending,  and  several
trademark  registrations  and applications in the United States and some foreign
countries.  Our  patent  and  trademark  applications  might  not  result in the
issuance of any additional valid patents or trademarks.

    We seek to protect our source code for our software, documentation and other
written materials under trade secret and copyright laws. We license our software
under license agreements, which impose restrictions on the licensee's ability to
utilize the software.  Finally,  we seek to avoid disclosure of our intellectual
property by requiring  employees and consultants  with access to our proprietary
information  to execute  confidentiality  agreements  with us and by restricting
access to our source  code.  Despite  our  efforts to  protect  our  proprietary
rights,  unauthorized  parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary.  In addition,  we sell
our  products  internationally.  The laws of many  countries  do not protect our
proprietary rights to as great an extent as do the laws of the United States.

    Litigation  may be  necessary  in the  future 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,  could seriously harm our business
and  operating  results and there can be no  assurance  that the outcome of this
litigation will be favorable to us.

    Our  success and  ability to compete  are also  dependent  on our ability to
operate without  infringing upon the proprietary  rights of others. 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.


                                       6
<PAGE>
Employees

    At December  31,  2000,  we had a total of 262  employees,  254 of whom were
based in the United  States and 8 of whom were based in the United  Kingdom.  Of
the total,  73 were in  research  and  development,  132 were  engaged in sales,
marketing  and business  development,  25 were  engaged in customer  support and
training,  and 32 were in administration and finance.  None of our employees are
subject to a collective bargaining agreement,  and we believe that our relations
with our employees are good.

ITEM 2.  PROPERTIES

    Our principal administrative, sales, marketing, and research and development
facility occupies  approximately 47,500 square feet in Mountain View, California
under a lease  which  expires  in April  2005.  We also lease  regional  offices
located in California,  Georgia, Illinois, Michigan,  Minnesota, New York, Texas
and Washington,  D.C. and a European  office in the United  Kingdom.  We believe
that our  existing  facilities  are  adequate  for our  current  needs  and that
suitable  additional  or  alternative  space will be  available in the future on
commercially reasonable terms as needed.

ITEM 3.  LEGAL PROCEEDINGS

    On March 3, 1997,  Novadigm,  Inc. filed a complaint  against us in the U.S.
District Court for the Northern District of California alleging  infringement of
a patent held by Novadigm (U.S. Patent No. 5,581,764, the "Novadigm Patent"). On
July 30, 1999,  Marimba filed a complaint  against Novadigm in the U.S. District
Court for the Northern District of California alleging  infringement by Novadigm
of a patent  held by us (U.S.  Patent  No.  5,919,247,  the  "Marimba  Patent").
Effective November 10, 2000, Marimba and Novadigm executed an agreement settling
both actions. Pursuant to the agreement, the parties have dismissed both actions
without  prejudice.  Under the agreement,  the other terms of the settlement are
confidential.

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

    There were no matters  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 31, 2000.


                                       7
<PAGE>


                                     PART II

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

Price Range of Common Stock

    Our common stock is traded  publicly on The Nasdaq National Market under the
symbol  "MRBA." The  following  table sets forth for the periods  indicated  the
highest and lowest sales prices of the common stock during each quarter since we
went public at $20.00 per share on April 30, 1999:

                                                 High                    Low
                                             ------------           ------------
Fiscal 2000:
     Fourth Quarter                             $12.69                  $3.13
     Third Quarter                              $27.00                 $11.88
     Second Quarter                             $43.50                 $11.50
     First Quarter                              $68.88                 $37.50

Fiscal 1999:
     Fourth Quarter                             $48.13                 $24.31
     Third Quarter                              $51.94                 $21.44
     Second Quarter                             $74.38                 $30.25
     First Quarter                                   -                      -

    On February  28, 2001,  the closing  price of our common stock on The Nasdaq
National  Market  was $5.41 per  share.  As of  February  28,  2001,  there were
approximately  266 holders of record (not  including  beneficial  holders of our
common stock held in street name) of our common stock.

Dividend Policy

    We did not declare nor pay any cash  dividends  on our capital  stock during
the fiscal years ended December 31, 2000, 1999 and 1998, and do not expect to do
so in the foreseeable  future.  We anticipate that all future earnings,  if any,
generated  from  operations  will be  retained  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.


                                       8

<PAGE>



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
     The following is a summary of our selected  consolidated  financial data as
of and for the five years ended  December 31, 2000.  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.
<CAPTION>

                                                                                                                  Period from
                                                                                                               February 21, 1996
                                                                                                                (Inception) to
                                                             Year Ended December 31,                              December 31,
                                                        2000        1999            1998             1997            1996
                                                     --------     --------        --------         --------         --------
                                                                           (in thousands, except per share data)
Consolidated Statements of Operations Data:
<S>                                                   <C>         <C>             <C>              <C>              <C>
Revenues:
     License...................................       $31,329     $ 23,637        $ 13,901         $  5,011         $     --
     Service...................................        12,718        7,776           3,184              552               --
                                                     --------     --------        --------         --------         --------
         Total revenues........................        44,047       31,413          17,085            5,563               --

Cost of revenues:
     License...................................           681          402              75               13               --
     Service...................................         4,256        3,036           1,964              621               --
                                                     --------     --------        --------         --------         --------
         Total cost of revenues................         4,937        3,438           2,039              634               --
                                                     --------     --------        --------         --------         --------
Gross profit...................................        39,110       27,975          15,046            4,929               --

Operating expenses:
     Research and development..................        11,114        8,497           5,773            2,410              515
     Sales and marketing.......................        27,758       19,625          12,371            8,054              473
     General and administrative................        12,570        5,066           2,779            2,367              322
     Amortization of deferred compensation.....         1,702        1,410             251               --               --
                                                     --------     --------        --------         --------         --------
         Total operating expenses..............        53,144       34,598          21,174           12,831            1,310
                                                     --------     --------        --------         --------         --------
Loss from operations...........................       (14,034)      (6,623)         (6,128)          (7,902)          (1,310)
Interest income, net...........................         4,541        2,506             488              338               65
                                                     --------     --------        --------         --------         --------
Loss before income taxes.......................        (9,493)      (4,117)         (5,640)          (7,564)          (1,245)
Provision for income taxes.....................           179           97              41              154               --
                                                     --------     --------        --------         --------         --------

Net loss.......................................      $ (9,672)    $ (4,214)       $ (5,681)        $ (7,718)        $ (1,245)
                                                     ========     ========        ========         ========         ========

Basic and diluted net loss per share...........      $   (.42)    $   (.22)       $   (.59)        $  (1.57)        $   (.81)
                                                     ========     ========        ========         ========         ========
Weighted-average shares of common stock
     outstanding used in computing basic and
     diluted net loss per share................        23,200       19,029           9,606            4,912            1,528
                                                     ========     ========        ========         ========         ========


                                                                                December 31,
                                                        2000        1999            1998             1997             1996
                                                     --------     --------        --------         --------         --------
                                                                               (in thousands)
Consolidated Balance Sheet Data:

Cash, cash equivalents and short-term
      investments..............................      $ 65,628     $ 65,023        $  7,825         $ 14,402         $  2,811
Working capital................................        59,275       55,707           2,912            8,036            2,464
Total assets...................................        87,408       90,487          14,862           21,898            3,156
Long-term obligations..........................           153           48             747              211               --
Redeemable convertible preferred stock.........            --           --          18,953           18,953            3,963
Accumulated deficit............................       (28,530)     (18,858)        (14,644)          (8,963)          (1,245)
Total stockholders' equity (net capital
       deficiency).............................        66,803       72,639         (13,743)          (8,471)          (1,235)
</TABLE>


                                       9

<PAGE>
<TABLE>
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, 2000. 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.  These operating  results are not necessarily  indicative of the results
for any future periods.
<CAPTION>

2000                                               Q1               Q2                Q3              Q4
                                            ----------     ------------        ----------     -----------
<S>                                           <C>              <C>               <C>             <C>
Revenues ...............................      $10,567         $ 12,116          $ 10,108        $ 11,256
Gross profit ...........................        9,544           10,999             8,928           9,639
Net income (loss) ......................         (659)           1,252            (7,986)         (2,279)
Net income (loss) per basic and diluted
    common share .......................      $  (.03)        $    .05          $   (.34)       $   (.10)

1999                                               Q1               Q2                Q3              Q4
                                            ----------     ------------        ----------     -----------

Revenues ...............................      $ 6,131         $  6,887          $  8,329        $ 10,066
Gross profit ...........................        5,467            6,036             7,530           8,942
Net income (loss) ......................       (1,620)          (1,511)             (580)           (503)
Net income (loss) per basic and diluted
    common share .......................      $  (.13)        $   (.08)         $   (.03)       $   (.02)
</TABLE>


                                       10

<PAGE>
ITEM  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    The following  discussion and analysis  should be read in  conjunction  with
"Selected Consolidated Financial Data" and our Consolidated Financial Statements
and Notes  thereto  included  elsewhere  in this  report.  This report  contains
forward-looking  statements  that involve  risks and  uncertainties.  Our actual
results may differ materially from the results discussed in such forward-looking
statements.  For a more complete  understanding  of our financial  condition and
results of operations,  and some of the risks that could affect future  results,
see "Other Factors Affecting Operating Results, Liquidity and Capital Resources"
which begins on page 14 and the risks  discussed in our most recent filings with
the Securities and Exchange Commission.

Overview

    Marimba is a leading  provider  of  systems  management  software  built for
e-business.  Our  products  enable  companies  to  expand  their  market  reach,
streamline  business  processes and  strengthen  relationships  with  customers,
business partners and employees.

    In January  1997,  we released our first  version of Castanet and since that
time have continued to develop and market the Castanet  product line and enhance
the core Castanet infrastructure with additional Castanet products. In the first
half of 2000,  Marimba  released  two  products  in a new  product  line  called
Timbale.  The  Timbale  products  are  designed  to  address  many of the server
management  challenges  inherent  in  thin-client  and  Web  commerce  computing
environments  today. The first Timbale product,  Timbale for Server  Management,
was released for sale in March 2000.  The second  Timbale  product,  Timbale for
Windows  Terminal  Services,  was released  for sale in June 2000.  During 2000,
revenues from the Timbale products  accounted for 12% of total license revenues.
There can be no assurance that revenues from the Timbale  product line will grow
in the  future  or  that  the  Timbale  products  will  gain  widespread  market
acceptance.

    Revenues  to date  have  been  derived  primarily  from the  license  of our
Castanet  and  Timbale  products  and to a lesser  extent from  maintenance  and
support,  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 is customarily
billed by us 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.

    License revenues are comprised of perpetual or multiyear  license fees which
are primarily derived from contracts with corporate customers and resellers.  We
recognize  license revenues after execution of a license agreement or receipt of
a definitive  purchase order and delivery of the product to end-user  customers,
provided that there are no uncertainties  surrounding  product  acceptance,  the
license fees are fixed or determinable,  collectibility is probable, and we have
no remaining  obligations with regard to installation or  implementation  of the
software.  Revenues on  arrangements  with  customers  who are not the  ultimate
users,  primarily  resellers,  are not  recognized  until the  software  is sold
through  to the end  user.  If the fee due from  the  customer  is not  fixed or
determinable,  revenues are recognized as payments become due from the customer.
If collectibility is not considered  probable,  revenues are recognized when the
fee is collected.  Advanced  payments are recorded as deferred revenue until the
products are delivered,  services are provided or obligations  are met.  Service
revenues are comprised of revenues from maintenance  agreements,  consulting and
training  fees.  Revenues  from  maintenance  agreements  are  recognized  on  a
straight-line  basis over the life of the related agreement,  which is typically
one year. We recognize  service  revenues  from training and  consulting as such
services are delivered.

    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  $28.5  million at December 31, 2000.  We believe that our success
depends  on further  increasing  our  customer  base and on growth in our market
overall.  Accordingly,  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.


                                       11
<PAGE>


<TABLE>
Results of Operations

    The  following  table  presents  selected  financial  data  for the  periods
indicated as a percentage of total revenues.
<CAPTION>

                                                           Year Ended December 31,
                                                      2000           1999        1998
                                                    --------       --------    --------
  Consolidated Statement of Operations Data:
<S>                                                      <C>          <C>         <C>
  Revenues:
       License.................................          71.1%        75.2%       81.4%
       Service.................................          28.9         24.8        18.6
                                                    ---------     --------    --------
           Total revenues......................         100.0        100.0       100.0

  Cost of revenues:
       License.................................           1.5          1.3         0.4
       Service.................................           9.7          9.7        11.5
                                                    ---------     --------    --------
           Total cost of revenues..............          11.2         11.0        11.9
                                                    ---------     --------    --------
  Gross margin.................................          88.8         89.0        88.1

  Operating expenses:
       Research and development................          25.2         27.0        33.8
       Sales and marketing.....................          63.0         62.5        72.4
       General and administrative..............          28.5         16.1        16.3
       Amortization of deferred compensation...           3.9          4.5         1.5
                                                    ---------     --------    --------
           Total operating expenses............         120.6        110.1       124.0
                                                    ---------     --------    --------
  Loss from operations.........................         (31.8)       (21.1)      (35.9)
  Interest income, net.........................          10.3          8.0         2.8
                                                    ---------     --------    --------
  Loss before income taxes.....................         (21.5)       (13.1)      (33.1)
  Provision for income taxes...................          (0.4)        (0.3)       (0.2)
                                                    ---------     --------    --------
  Net loss.....................................         (21.9)%      (13.4)%     (33.3)%
                                                    =========     ========    ========
</TABLE>

Years Ended December 31, 2000, 1999 and 1998

Revenues

    Total revenues  increased $12.6 million,  or 40%, from $31.4 million in 1999
to $44.0 million in 2000.  Total  revenues in 1999 increased  $14.3 million,  or
84%, from $17.1 million in 1998.

    License   Revenues.   Prior  to  the  release  of  our   Timbale   products,
substantially  all license  revenues  were  derived  from sales of our  Castanet
products.  For the year ended  December  31,  2000,  revenues  from sales of our
Timbale  products  accounted for  approximately  12% of total license  revenues.
License revenues  increased $7.7 million,  or 33%, from $23.6 million in 1999 to
$31.3 million in 2000. License revenues in 1999 increased $9.7 million,  or 70%,
from $13.9 million in 1998.

    We attribute the year-to-year increases in license revenues to:

    o   increased  product licenses sold,  reflecting higher customer demand for
        our  Castanet  products  and in 2000,  the  introduction  of our Timbale
        products;

    o   additional sales to existing customers; and

    o   growth of our sales organization.

    Service  Revenues.   Service  revenues  include   maintenance  and  support,
consulting and training.  Service revenues increased $4.9 million,  or 64%, from
$7.8  million  in 1999 to  $12.7  million  in  2000.  Service  revenues  in 1999
increased $4.6 million, or 144%, from $3.2 million in 1998.

    As a percentage of total revenues, service revenues were 29%, 25% and 19% of
total  revenues in 2000,  1999 and 1998,  respectively.  The increase in service
revenues was due  primarily  to increased  revenues  from  customer  maintenance
contracts.  Also,  we increased  our  consulting  service  revenues as customers
elected to utilize our consulting  organization.  During 2001, we expect service
revenues to increase


                                       12
<PAGE>
in absolute amount and as a percentage of total revenues.  An increased shift in
our  revenue  mix toward  services  will  negatively  impact our gross  margins,
because  service  revenues  have higher costs and  therefore  lower margins than
license revenues.

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  $681,000,  $402,000 and
$75,000 in 2000,  1999 and 1998,  respectively.  The increases from 1999 to 2000
and 1998 to 1999 were due  primarily  to the  increased  costs of a  third-party
product resold by us. We expect cost of license revenues to increase in absolute
dollar amount during 2001, but to remain a relatively  small percentage of total
revenues.

    Cost of Service Revenues. Cost of service revenues includes:

    o   salaries and related expenses of our customer support organization;

    o   salaries and related expenses of our consultants for billable consulting
        engagements;

    o   cost of third parties contracted to provide  consulting  services to our
        customers; and

    o   an allocation of our facilities and depreciation expenses.

    Cost of service revenues was $4.3 million,  $3.0 million and $2.0 million in
2000,  1999  and  1998,  representing  33%,  39%  and  62% 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  support  organization and
an increase in  consulting  costs  commensurate  with the increase in consulting
revenues.  Our customer  support  organization  had 12 employees at December 31,
1998, 19 employees at December 31, 1999 and grew to 25 employees at December 31,
2000.  We expect our cost of service  revenues  to  increase  as we  continue to
expand our customer support and consulting organizations. Since service revenues
provide  lower  gross  margins  than  license  revenues,   this  expansion  will
negatively impact our gross margins if our license revenues do not significantly
increase.

Operating Expenses

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

    o   salaries and related costs of our engineering organization;

    o   fees paid to third-party consultants; and

    o   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.  Accordingly,  we have  increased our investment in research and
development  in each of the periods since  inception.  Research and  development
expenses  were $11.1  million,  $8.5 million and $5.8 million in 2000,  1999 and
1998, respectively.  The increases in research and development expenses were due
primarily to increases in  engineering  personnel and related  costs.  We expect
research and development expenses to increase in absolute dollar amount in 2001.

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

    o   salaries and related costs of our sales and marketing organizations;

    o   sales commissions;

    o   costs  of  our   marketing   programs,   including   public   relations,
        advertising,  trade  shows,  collateral  sales  materials,  our customer
        advisory council and seminars;

    o   rent and facilities costs associated with our regional and international
        sales offices; and

    o   an allocation of our facilities and depreciation expenses.


                                       13
<PAGE>
    Sales and  marketing  expenses were $27.8  million,  $19.6 million and $12.4
million  in 2000,  1999 and  1998,  respectively.  The  increases  in sales  and
marketing  expenses  are due  primarily  to growth  in our  sales and  marketing
organizations,  an increase in sales  commissions  as sales have  increased,  an
increase in the number of regional  sales offices and expansion of our marketing
programs.  We  increased  the number of sales and  marketing  personnel  from 65
employees  at December  31,  1998,  to 90 employees at December 31, 1999 and 132
employees  at December  31, 2000.  Marimba  also  increased  the number of sales
offices from seven at December 31, 1998,  to eight at December 31, 1999 and nine
at December  31,  2000.  We expect to  continue  to invest  heavily in sales and
marketing  in  order  to  grow   revenues   and  expand  our  brand   awareness.
Consequently,  we expect to increase  the  absolute  dollar  amount of sales and
marketing expenses in 2001.

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

    o   costs of our finance, human resources and legal services organizations;

    o   third-party legal and other professional services fees; and

    o   an allocation of our facilities and depreciation expenses.

    General and  administrative  expenses were $12.6  million,  $5.1 million and
$2.8 million in 2000, 1999 and 1998,  respectively.  The primary reasons for the
increase in 2000 were the settlement of our patent disputes with Novadigm, Inc.,
an increase in the bad debt provision of  approximately  $2.1 million and growth
of our  administrative  organization  in  support  of  our  overall  growth.  We
increased our general and administrative personnel from 21 at December 31, 1998,
to 26 at December 31, 1999 and 32 at December 31, 2000.

    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
$2.0 million.  In 2000, we recorded deferred  compensation of approximately $1.9
million, net of reduction of $703,000 due to cancelled 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 of $1.7 million, $1.4 million
and  $251,000  for  fiscal  years  2000,  1999,  and  1998,  respectively.  This
compensation  expense relates to options awarded to individuals in all operating
expense categories. The amortization of deferred compensation, net of reductions
of $703,000 in 2000 due to cancelled  shares,  will  approximate $1.6 million in
2001 and $301,000 in 2002.

Interest Income, Net

    Interest  income,  net,  consists  primarily of interest earned on our cash,
cash equivalents and investments offset by interest expenses associated with our
capital leases and equipment  advances.  Interest income,  net was $4.5 million,
$2.5 million and $488,000 in 2000, 1999 and 1998, respectively. The increases in
interest income,  net, relate primarily to increased invested cash balances from
the sale of common stock in our initial public offering in April 1999.

Provision for Income Taxes

    Our  provision  for  income  taxes for the year  ended  December  31,  2000,
consists of state income and franchise  taxes and foreign  taxes.  For the years
ended  December 31, 1999 and 1998,  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 2000.

    As of December 31, 2000, we had Federal net operating loss  carryforwards of
approximately  $20.0 million. We also had a Federal research and development tax
credit  carryforward of  approximately  $900,000 at that date. The net operating
loss and credit  carryforwards  will expire at various  dates  beginning in 2010
through 2020 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,  2000,  our  principal  sources of  liquidity  included
approximately  $33.1  million  of cash and cash  equivalents  and $31.4 and $4.2
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 provided by investing activities for the year ended
December 31, 2000 reflects primarily the sale of investment  instruments,  while
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

                                       14
<PAGE>
from our initial public offering in marketable  securities.  Proceeds from other
issuances of common stock of approximately $1.9 million and $2.3 million for the
years ended  December  31,  2000 and 1999 are  comprised  primarily  of employee
exercises of stock options.  Net cash used in operating  activities for the year
ended  December  31,  2000 is the  result  of the net  loss  for the year and an
increase in  accounts  receivable,  partially  offset by an increase in deferred
revenue.  Net cash provided by operating  activities for the year ended December
31, 1999  primarily  reflects an increase in deferred  revenue offset by our net
loss and an increase in accounts receivable.

    Marimba leases its office facilities under various noncancellable  operating
lease  agreements.  As of December 31, 2001, future minimum lease payments under
noncancellable  operating  leases  for the  period  2001  through  2005  will be
approximately $8.6 million.

    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.

Recent Accounting Pronouncements

    In June 1998, the Financial  Accounting  Standards Board issued FAS No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" ("FAS 133"). FAS
133, as amended,  establishes  methods of accounting  for  derivative  financial
instruments and hedging activities related to those instruments as well as other
hedging  activities.  We adopted FAS 133 effective  January 1, 2001.  Because we
currently hold no derivative  financial  instruments and do not currently engage
in hedging  activities,  we do not  believe  that the  adoption  of FAS 133,  as
amended,  will have a significant impact on our financial condition,  results of
operations or cash flows.

    In December  1999,  the  Securities  and  Exchange  Commission  issued Staff
Accounting  Bulletin No. 101 ("SAB 101").  This summarizes  certain areas of the
Staff's views in applying  generally accepted  accounting  principles to revenue
recognition  in  financial  statements.  We  believe  that our  current  revenue
recognition policies comply with SAB 101.

    In  March  2000,   the   Financial   Accounting   Standards   Board   issued
Interpretation  No. 44,  Accounting  for Certain  Transactions  Involving  Stock
Compensation - an  interpretation of APB No. 25 ("FIN 44"). FIN 44 clarifies the
application  of APB 25 and,  among other issues  clarifies  the  following:  the
definition  of an employee  for  purposes of applying  APB 25; the  criteria for
determining whether a plan qualifies as a non-compensatory  plan; the accounting
consequence of various  modifications to the terms of the previously fixed stock
options or awards;  and the  accounting  for an exchange  of stock  compensation
awards in a business combination.  FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific  events that occurred after either December
15, 1998 or January 12, 2000.  The  application of FIN 44 has not had a material
impact on our financial position or results of operations.

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 on page 1 above.

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.  Except for the second quarter of 2000, we have
experienced  operating  losses in each quarter since our inception.  There is no
assurance that we will reach sustained  profitability.  As of December 31, 2000,
we had an  accumulated  deficit of  approximately  $28.5  million.  We expect to
significantly  increase our research and  development,  sales and  marketing and
general and administrative  expenses. As a result, we will


                                       15
<PAGE>
need to significantly increase our quarterly revenues to offset these increasing
expenses and return to  profitability.  We may not be able to sustain our recent
revenue  growth  rates.  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
seriously  harm the market  price of our common  stock.  Operating  results vary
depending on a number of factors, many of which are outside our control.

    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. In addition,  we anticipate that the size of customer orders
may increase as we focus on larger business  accounts.  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 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.

We Expect Significant Increases in Our Operating Expenses

    We intend to substantially increase our operating expenses as we:

    o   Increase our sales and  marketing  activities,  including  expanding our
        direct sales force;

    o   Increase our research and development activities;

    o   Expand our customer support and professional services organizations; and

    o   Expand our distribution channels.

    With these additional expenses, we must significantly  increase our revenues
in order to achieve  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 Castanet Product Family

    We expect to  continue  to derive  substantial  revenues  from our  Castanet
product  line and  related  services.  A decline in the price of Castanet or our
inability to increase  sales of Castanet  would  seriously harm our business and
operating results.  We cannot predict Castanet's success. We periodically update
Castanet to make improvements and provide additional enhancements.  New versions
of  Castanet  may not  provide  the  benefits  we expect  and could fail to meet
customers'  requirements or achieve widespread market  acceptance.  Furthermore,
new  products  such as our  Timbale  product  line could  fail to meet  customer
expectations or achieve widespread market acceptance.

    Our strategy requires Castanet 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.


                                       16
<PAGE>
We Need to Grow Our Timbale  Product  Revenues  and Develop  and  Introduce  New
Products and Services

    During 2000,  revenues  from our Timbale  product line  accounted for 12% of
total  license  revenues.  There can be no assurance  that the revenues from our
Timbale  product line will grow, in absolute  amount or as a percentage of total
license revenues,  or that our Timbale products will meet customer  expectations
or gain  widespread  market  acceptance.  To  provide  comprehensive  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 Internet  infrastructure  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 deploy new  product  releases 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  of our new products  and may not  ultimately  license  these
products.

    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. In addition, if customers elect not to renew
their  maintenance  agreements,  our  service  revenues  could be  significantly
adversely affected.

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 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,  John Olsen,  our  Chairman  and Chief
Strategy Officer, Kim Polese, and our Chief Technology Officer, Arthur van Hoff.
We have in the past lost senior  management  personnel.  Several  members of our
senior management are relatively new to Marimba,  and our success will depend in
part on the successful assimilation and performance of these individuals.

    We may not be successful in attracting qualified senior management personnel
or be able to attract,  assimilate and retain other key personnel in the future.
None of our senior  management  or other key personnel 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 San Francisco Bay Area, we face intense
competition for qualified personnel.


                                       17
<PAGE>
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 their 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.

Our Markets Are Highly Competitive

    Our markets are new, rapidly evolving and 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:

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

    o   Companies that market products that support the distribution of software
        applications and content; and

    o   Desktop software management suites.

    In addition, we compete with various methods of application distribution and
management,  including  thin  client  systems  and the  web  browser,  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.

    Some 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 May Be Found to Infringe Proprietary Rights of Others

    Other  companies,  including our  competitors,  may obtain  patents or other
proprietary rights that would prevent, or limit or interfere with our ability to
make, use or sell our products.  As a result, we may be found to infringe on 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
litigation,  and  intellectual  property  litigation could force us to do one or
more of the following:


                                       18
<PAGE>
    o   Cease  selling,   incorporating  or  using  products  or  services  that
        incorporate the challenged intellectual property;

    o   Obtain a license from the holder of the infringed  intellectual property
        right; and

    o   Redesign products or services.

    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 Depend upon Third-Party  Distribution  Relationships  and Need to Develop New
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.  For  example,  Netscape,  a  former  reseller  of  our
products,  accounted for a significant amount of our revenues in 1998, but is no
longer  a  reseller  of  our  products.  In  addition,  our  original  equipment
manufacturer  arrangement  with Tivoli has recently  accounted  for a decreasing
percentage of our revenues.  During fiscal 2000 and 1999,  Tivoli  accounted for
less than 10% of our  revenues,  as  compared  to 18% of our  revenues in fiscal
1998.

    Our  current  agreements  with our channel  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, Marketing and Distribution Capabilities

    We need to expand our  marketing  and direct  sales  operations  in order to
increase  market  awareness  of our  products,  market our products to a greater
number of enterprises and generate increased revenues.  We have historically not
been able to hire employees as quickly as planned.  In  particular,  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.  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.  As a result, we plan to increase the number of
our services personnel to meet these needs.  However,  competition for qualified
services personnel is intense.

    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.  However,
we may not be successful in increasing our international sales. 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.


                                       19
<PAGE>
    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  security  and  encryption  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 made available by Sun  Microsystems,  Inc. in order to operate.  Sun may
not  continue  to  make  these  implementations  of the  Java  virtual  machines
available at commercially  reasonable terms or at all. Furthermore,  if Sun were
to make  significant  changes to the Java  language or its Java virtual  machine
implementations,  or 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 machine 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. For example,  we could be subject to claims for losses by customers that
we are unable to identify and notify and, as a result, do not install our update
that avoids the digital  certificate  problem. 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.

Volatility of Stock Price

    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,  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


                                       20

<PAGE>
fluctuations  may adversely  affect the market price of our common stock. In the
past,  following  periods  of  volatility  in the  market  price of a  company's
securities,  securities class action litigation has often been initiated against
such a company.  Such  litigation  against  Marimba could result in  substantial
costs and a diversion of our attention  and  resources  and  seriously  harm our
business and operating results.

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 Face Challenges Stemming from Our Emerging Markets

    The market for 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 our products will emerge or be sustainable.  If
our 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.  Furthermore,  enterprises  that have  already  invested
substantial   resources  in  other  methods  of  deploying  and  managing  their
applications  and services may be reluctant or slow to adopt a new approach that
may replace, limit or compete with their existing systems.

We Depend on Continued Use of the Internet and Growth of Electronic Business

    Rapid growth in the use of and  interest in the  Internet has occurred  only
recently.  As a  result,  acceptance  and use may not  continue  to  develop  at
historical rates, and a sufficiently  broad base of consumers may not adopt, and
continue to use, the Internet and other online services as a medium of commerce.
Demand and market acceptance for recently  introduced services and products over
the  Internet  are subject to a high level of  uncertainty,  and there exist few
proven services and products.

    In  addition,  the  Internet  may not be accepted as a long-term  commercial
marketplace  for  a  number  of  reasons,   including   potentially   inadequate
development of the necessary network  infrastructure  or delayed  development of
enabling technologies and performance improvements.  Our success will depend, in
large part,  upon third  parties  maintaining  the  Internet  infrastructure  to
provide a reliable  network  backbone with the necessary  speed,  data capacity,
security and hardware necessary for reliable Internet access and services.

We Must Respond to Rapid Technological Change and Evolving Industry Standards

    The markets for our Internet infrastructure  management solutions are marked
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.


                                       21
<PAGE>
ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

    Our interest  income is  sensitive  to changes in the general  level of U.S.
interest  rates,  particularly  since the  majority  of our  investments  are in
short-term instruments.

    Our  investment  policy  requires  us to invest  funds in excess of  current
operating requirements in:

    o   obligations of the U.S. government and its agencies;

    o   investment grade state and local government obligations;

    o   securities of U.S.  corporations rated A1 or AA by Standard and Poors or
        the Moody's equivalent; and

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

    The following table presents the amounts of cash equivalents and investments
that are subject to market risk and the weighted average interest rates, by year
of expected maturity,  for our investment  portfolio as of December 31, 2000 and
1999.  This table does not include money market  funds,  because those funds are
not subject to market risk.

                                                            Maturing during
                                                          2001          2002
                                                        --------     --------
                                                           (in thousands)
  December 31, 2000:

  Cash equivalents.............................     $   29,300       $     --
        Weighted average interest rate.........           6.46%            --
  Investments..................................     $   31,407       $  4,146
        Weighted average interest rate.........           6.50%          6.90%
  Total........................................     $   60,707       $  4,146
        Weighted average interest rate.........           6.48%          6.90%


                                                            Maturing during
                                                          2000          2001
                                                        --------     --------
                                                           (in thousands)
  December 31, 1999:

  Cash equivalents.............................     $    1,991       $     --
        Weighted average interest rate.........           6.26%            --
  Investments..................................     $   42,760       $ 13,989
        Weighted average interest rate.........           5.60%          6.06%
  Total........................................     $   44,751       $ 13,989
        Weighted average interest rate.........           5.64%          6.06%



Exchange Rate Sensitivity

    We develop products in the United States, and sell our products and services
primarily in North America,  Europe and Asia. As a result, our financial results
could be  affected by various  factors,  including  changes in foreign  currency
exchange rates or weak economic  conditions in foreign markets. As all sales are
currently made in U.S.  dollars,  a  strengthening  of the dollar could make our
products less  competitive  in foreign  markets.  To date,  however,  because we
operate  primarily  in the  United  States  and all  sales  have been made in US
dollars,   we  have  had  no  material   exposures  to  foreign   currency  rate
fluctuations.   Accordingly,  we  have  no  basis  to  quantify  the  risk  from
hypothetical changes in foreign currency exchange rates.



                                       22
<PAGE>
ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                  MARIMBA, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 Report of Ernst & Young LLP, Independent Auditors..........................  24
 Consolidated Balance Sheets................................................  25
 Consolidated Statements of Operations and Comprehensive Loss...............  26
 Consolidated Statements of Stockholders' Equity (Net
   Capital Deficiency)......................................................  27
 Consolidated Statements of Cash Flows......................................  28
 Notes to Consolidated Financial Statements.................................  29


                                       23


<PAGE>
                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, 2000 and 1999, and the related  consolidated  statements
of  operations  and  comprehensive  loss,   stockholders'  equity  (net  capital
deficiency),  and cash  flows for each of the three  years in the  period  ended
December 31, 2000.  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, 2000 and 1999,  and the  consolidated  results of its operations
and its cash flows for each of the three years in the period ended  December 31,
2000, in conformity with accounting  principles generally accepted in the United
States.




Palo Alto, California                                     /s/  ERNST & YOUNG LLP
January 12, 2001


                                       24
<PAGE>
<TABLE>

                            MARIMBA, INC.
                     CONSOLIDATED BALANCE SHEETS
                (in thousands, except par value data)
<CAPTION>

                                                                                       December 31,
                                                                                   2000        1999
                                                                                  ------      ------
 ASSETS
<S>                                                                            <C>           <C>
Current assets:
     Cash and cash equivalents............................................     $   33,122    $  22,263
     Short-term investments...............................................         31,407       42,760
     Accounts receivable, net of allowances of $2,315 and $104                     12,500        7,399
          at December 31, 2000 and 1999...................................
     Prepaid expenses and other current assets............................          1,599        1,085
                                                                               ----------   ----------
          Total current assets............................................         78,628       73,507
Property and equipment, net...............................................          4,274        2,955
Long-term investments.....................................................          4,146       13,989
Other assets..............................................................            360           36
                                                                                ----------   ----------
                                                                               $   87,408    $  90,487
                                                                                ==========   ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities.............................     $    2,881    $   3,143
     Accrued compensation.................................................          4,055        3,279
     Current portion of capital lease obligations and                                  --           59
          equipment advances..............................................
     Deferred revenue.....................................................         13,516       11,319
                                                                                ----------   ----------
          Total current liabilities.......................................         20,452       17,800
Long-term portion of capital lease obligations, advances and
     other long-term liabilities..........................................            153           48

Commitments and contingencies

Preferred 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,  23,585
          and 23,146 shares issued and outstanding at
          December 31, 2000 and 1999......................................              2            2
     Additional paid-in capital...........................................         97,222       93,436
     Deferred compensation................................................         (1,882)      (1,680)
     Cumulative translation adjustment....................................            (42)         (22)
     Unrealized gain (loss) on investments................................             33         (239)
     Accumulated deficit..................................................        (28,530)     (18,858)
                                                                                ----------   ----------
          Stockholders' equity............................................         66,803       72,639
                                                                                ----------   ----------
                                                                               $   87,408    $  90,487
                                                                                ==========   ==========
<FN>
                           See accompanying notes.
</FN>
</TABLE>


                                       25

<PAGE>



<TABLE>
                                  MARIMBA, INC.
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                    (in thousands, except per share amounts)
<CAPTION>

                                                                            Year Ended December 31,
                                                                         2000        1999          1998
                                                                     --------      --------      --------
<S>                                                                 <C>           <C>            <C>
Revenues:
      License..................................................     $  31,329     $  23,637      $ 13,901
      Service..................................................        12,718         7,776         3,184
                                                                     --------      --------      --------
          Total revenues.......................................        44,047        31,413        17,085
Cost of revenues:
      License..................................................           681           402            75
      Service..................................................         4,256         3,036         1,964
                                                                     --------      --------      --------
          Total cost of revenues...............................         4,937         3,438         2,039
                                                                     --------      --------      --------
Gross profit...................................................        39,110        27,975        15,046

Operating expenses:
      Research and development.................................        11,114         8,497         5,773
      Sales and marketing......................................        27,758        19,625        12,371
      General and administrative...............................        12,570         5,066         2,779
      Amortization of deferred compensation....................         1,702         1,410           251
                                                                     --------      --------      --------
          Total operating expenses.............................        53,144        34,598        21,174
                                                                     --------      --------      --------
Loss from operations...........................................       (14,034)       (6,623)       (6,128)
Interest income................................................         4,562         2,536           518
Interest expense...............................................           (21)          (30)          (30)
                                                                     --------      --------      --------
Loss before income taxes.......................................        (9,493)       (4,117)       (5,640)
Provision for income taxes.....................................           179            97            41
                                                                     --------      --------      --------
Net loss.......................................................      $ (9,672)     $ (4,214)     $ (5,681)
                                                                     =========     =========     ========

Other comprehensive loss:
     Translation adjustment....................................           (20)          (16)           (6)
     Unrealized gain (loss) on investments.....................           272          (239)           --
                                                                     --------      --------      --------
Comprehensive loss.............................................      $ (9,420)     $ (4,469)     $ (5,687)
                                                                     =========     =========     ========

Basic and diluted net loss per share...........................      $   (.42)     $   (.22)     $   (.59)
                                                                     =========     =========     ========
Weighted-average shares of common stock outstanding used in
      computing basic and diluted net loss per share...........        23,200        19,029         9,606
                                                                     =========     =========     ========
<FN>
                             See accompanying notes.
</FN>
</TABLE>


                                       26


<PAGE>


<TABLE>
                                                            MARIMBA, INC.
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
                                                           (in thousands)
<CAPTION>

                                                             Stockholders' Equity (Net Capital Deficiency)
                                   -------------------------------------------------------------------------------------------------

                                                                Note                             Unrealized            Stockholders'
                                     Common Stock  Additional Receivable              Cumulative     Gain                  Equity
                                   ---------------  Paid-in     From     Deferred    Translation (loss) on  Accumulated (Net Capital
                                   Shares   Amount  Capital    Officer  Compensation  Adjustment Investments  Deficit    Deficiency)
                                   ------   ------  -------    -------  ------------  ---------- -----------  --------   -----------


<S>                                <C>       <C>     <C>         <C>      <C>           <C>        <C>          <C>        <C>
Balances at January 1, 1998 ...... 13,067    $   1   $    641    $ (150)  $    --       $    --    $     --     $(8,963)   $ (8,471)

Issuance of common stock upon
     exercise of stock options ...    239       --        230        --        --            --          --          --         230
Repurchases of common stock ......   (253)      --        (56)       --        --            --          --          --         (56)
Translation adjustment ...........     --       --         --        --        --            (6)         --          --          (6)
Interest on note receivable from .     --       --         --       (10)       --            --          --          --         (10)
     an officer
Deferred compensation ............     --       --      1,367        --    (1,367)           --          --          --          --
Amortization of deferred .........     --       --         --        --       251            --          --          --         251
     compensation
Net loss .........................     --       --         --        --        --            --          --      (5,681)     (5,681)
                                   ------    ------   --------   ------   --------      --------    --------    --------    --------
Balances at December 31, 1998 .... 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        --        --            --          --          --      68,075
Conversion of Series A and Series
     B redeemable preferred stock
     to common stock .............  5,753        1     18,952        --        --            --          --          --      18,953
Issuance of common stock upon ....     --
     exercise of stock options and    632       --      1,561        --        --            --          --          --       1,561
     warrant
Issuance of common stock under ...     --
     employee stock purchase plan      42       --        719        --        --            --          --          --         719
Repurchases of common stock ......    (70)      --        (27)       --        --            --          --          --         (27)
Translation adjustment ...........     --       --         --        --        --           (16)         --          --         (16)
Repayment of note receivable from
     an officer ..................     --       --         --       160        --            --          --          --         160
Unrealized loss on investments ...     --       --         --        --        --            --        (239)         --        (239)
Deferred compensation ............     --       --      1,974        --    (1,974)           --          --          --          --
Amortization of deferred .........     --       --         --        --     1,410            --          --          --       1,410
     compensation
Net loss .........................     --       --         --        --        --            --          --      (4,214)     (4,214)
                                   ------    ------   --------   ------  ---------      --------    --------    --------    --------
Balances at December 31, 1999 .... 23,146        2     93,436        --    (1,680)          (22)       (239)    (18,858)     72,639

Issuance of common stock upon
     exercise of stock options ...    459       --      1,099        --        --            --          --          --       1,099
Issuance of common stock under ...     --
     employee stock purchase plan      89       --        924        --        --            --          --          --         924
Repurchases of common stock ......   (109)      --       (140)       --        --            --          --          --        (140)
Translation adjustment ...........     --       --         --        --        --           (20)         --          --         (20)
Unrealized loss on investments ...     --       --         --        --        --            --         272          --         272
Deferred compensation ............     --       --      1,903        --    (1,903)           --          --          --          --
Amortization of deferred .........     --       --         --        --     1,701            --          --          --       1,701
     compensation
Net loss .........................     --       --         --        --        --            --          --      (9,672)     (9,672)
                                   ------    ------  --------    ------  ---------      --------    -------    --------    --------
Balances at December 31, 2000 .... 23,585    $   2   $ 97,222    $   --  $ (1,882)      $   (42)    $    33    $(28,530)   $ 66,803
                                   ======    ======  ========    ======  =========      ========    =======    ========    ========
<FN>
                                                       See accompanying notes.
</FN>
</TABLE>


                                                                 27


<PAGE>




<TABLE>
                                            MARIMBA, INC.
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (in thousands)
<CAPTION>

                                                                     Year Ended December 31,
                                                                  2000           1999        1998
                                                               ---------      ---------   ---------
<S>                                                            <C>            <C>         <C>
Operating activities:
Net loss.....................................................  $ (9,672)      $ (4,214)   $ (5,681)
     Adjustments  to  reconcile  net loss to net  cash
         provided  by  (used  in) operating activities:
         Depreciation and amortization.......................     1,599          1,233         934
         Amortization of deferred compensation...............     1,701          1,410         251
         Other...............................................        29            (16)        (16)
         Changes in operating assets and liabilities:
              Accounts receivable, net.......................    (5,101)        (4,814)      2,006
              Unbilled receivables...........................        --          1,036      (1,036)
              Prepaid expenses and other current assets......      (514)          (714)       (123)
              Other assets...................................      (324)           262         (42)
              Accounts payable and accrued liabilities.......      (262)         1,747        (544)
              Accrued compensation...........................       776          1,575         169
              Deferred revenue...............................     2,197          5,800      (2,078)
              Other liabilities..............................       105             13           2
                                                               ---------      ---------   ---------
Net cash provided by (used in) operating activities..........    (9,466)         3,318      (6,158)
                                                               ---------      ---------   ---------
Investing activities:
     Capital expenditures, net...............................    (2,966)        (1,441)     (1,280)
     Purchases of investments................................   (31,592)       (65,863)     (7,125)
     Proceeds from matured investments.......................    53,060         13,000       3,000
                                                               ---------      ---------   ---------
Net cash provided by (used in) investing activities..........    18,502        (54,304)     (5,405)
                                                               ---------      ---------   ---------
Financing activities:
     Proceeds from issuance of common stock, net of
         repurchases.........................................     1,883          2,253         174
     Proceeds from sale of common stock in initial public
         offering, net.......................................        --         68,075          --
     Repayment of note receivable from officer...............        --            160          --
     Proceeds from sale and lease back and equipment
         advances............................................        --             --         811
     Principal payments under capital lease obligations......       (60)          (939)       (124)
                                                               ---------      ---------   ---------
Net cash provided by financing activities....................     1,823         69,549         861
                                                               ---------      ---------   ---------

Net increase (decrease) in cash and cash equivalents.........    10,859         18,563     (10,702)
Cash and cash equivalents at beginning of period.............    22,263          3,700      14,402
                                                               ---------      ---------   ---------
Cash and cash equivalents at end of period...................  $ 33,122       $ 22,263    $  3,700
                                                               =========      =========   =========
Supplemental disclosure of cash flow information:
     Interest paid...........................................  $      1       $     30    $     30
                                                               =========      =========   =========
     Income taxes paid.......................................  $    179       $     97    $     41
                                                               =========      =========   =========
Supplemental disclosure of non-cash investing and
     financing activities:
     Conversion of redeemable preferred stock to common
         stock...............................................  $     --       $ 18,953    $     --
                                                               =========      =========   =========
     Deferred stock compensation.............................    $1,903       $  1,974    $  1,367
                                                               =========      =========   =========
</TABLE>

                                       See accompanying notes.


                                                 28


<PAGE>
                                  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  systems  management  software  built for  e-business.  Our
solutions  enable  companies to expand their market reach,  streamline  business
processes and strengthen  relationships  with customers,  business  partners and
employees.  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 $28.5 million at December 31, 2000.  Marimba's activities have been primarily
financed through its initial public offering of common stock and earlier private
placements of equity  securities.  Marimba 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. Actual results could differ materially from those estimates.

Revenue Recognition

    License revenues are comprised of perpetual or multiyear  license fees which
are primarily  derived from contracts  with  corporate  customers and resellers.
Such revenues are recognized  after execution of a license  agreement or receipt
of a  definitive  purchase  order,  and  delivery  of the  product  to  end-user
customers,   provided  that  there  are  no  uncertainties  surrounding  product
acceptance,  the  license  fees are  fixed or  determinable,  collectibility  is
probable and Marimba has no remaining obligations with regard to installation or
implementation  of the software.  Revenue on arrangements with customers who are
not the ultimate users (primarily resellers) is not recognized until the product
is  delivered  to the end user.  Marimba  recognizes  revenue  upon  delivery to
customers who bundle  Marimba's  products in their own product  offerings and do
not  have  a  right  of  return.  Historically,   Marimba  has  not  experienced
significant  returns or exchanges of its products from direct sales.  If the fee
due from the customer is not fixed or  determinable,  revenue is  recognized  as
payments  become due from the  customer.  If  collectibility  is not  considered
probable, revenue is recognized when the fee is collected.  Advance payments are
recorded as deferred  revenue  until the  products  are  shipped,  services  are
provided,  or obligations are met. Marimba's products do not require significant
customization.

    Revenue recognized from multiple-element software arrangements are allocated
to each element of the arrangement based on the fair value of the elements, such
as software  products,  maintenance  and support and  consulting  services.  The
determination of fair value is based on objective evidence, which is specific to
Marimba.

    Service  revenues  are  comprised of revenue  from  maintenance  agreements,
consulting and training fees. Software maintenance  agreements provide technical
support and the right to unspecified upgrades on an if-and-when available basis.

    Service revenues from training and consulting are recognized as the services
are performed. Revenue from maintenance agreements is deferred and recognized on
a straight-line basis over the life of the related agreement, which is typically
one year.

Research and Development

    Research and development expenditures are generally charged to operations as
incurred.  Statement of Financial  Accounting  Standards No. 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.  Costs  incurred  by


                                       29
<PAGE>
Marimba  between  completion  of the  working  model  and the point at which the
product is ready for general  release have been  insignificant.  Therefore,  all
research and development  costs through  December 31, 2000 have been expensed as
incurred.

Advertising

    Marimba expenses advertising costs as incurred. Advertising expense was $1.2
million,  $562,000 and $51,000 for the years ended  December 31, 2000,  1999 and
1998.

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, 2000
and 1999 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, 2000 and 1999.

    Marimba classifies,  at the date of acquisition,  its marketable  securities
into  available-for-sale  categories  in accordance  with the  provisions of the
Financial   Accounting  Standards  Board's  Statement  of  Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities." Currently, Marimba classifies its securities as available-for-sale,
which 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 maturities between three and twelve months are
considered short-term investments.


<TABLE>
    Available-for-sale investments are summarized as follows:
<CAPTION>


                                                                    Gross         Gross
                                                    Amortized    Unrealized     Unrealized
                                                       Cost         Gains         Losses      Fair Value
                                                   -----------   -----------   ------------  -----------
                                                                    (in thousands)
<S>                                                <C>             <C>           <C>          <C>
December 31, 2000:
    Corporate notes..........................      $    26,355     $      20     $      (10)  $    26,365
    Debt securities from U.S. Government and
         government agencies.................            9,155            42            (9)         9,188
                                                   -----------   -----------    ------------  -----------
         Total investments...................      $    35,510   $        62    $       (19)  $    35,553
                                                   ===========   ===========    ============  ===========

    Short-term investments...................      $    31,410   $        16     $      (19)  $    31,407
    Long-term investments....................            4,100            46            --          4,146
                                                   -----------   -----------    -----------   -----------
         Total investments...................      $    35,510   $        62     $      (19)  $    35,553
                                                   ===========   ===========    ===========   ===========

December 31, 1999:
    Corporate notes..........................      $    38,935     $      --     $     (163)  $    38,772
    Debt securities from U.S. Government and
        government agencies..................           14,079            --            (69)       14,010
    Market auction rate preferred stock......            1,909            --             --         1,909
    Certificates of deposits.................            2,065            --             (7)        2,058
                                                   -----------   -----------     -----------  -----------
         Total investments...................      $    56,988   $        --     $     (239)  $    56,749
                                                   ===========   ===========     ===========  ===========

    Short-term investments...................      $    42,891   $        --     $     (131)  $    42,760
    Long-term investments....................           14,097            --           (108)       13,989
                                                   -----------   -----------     -----------  -----------
         Total investments...................      $    56,988   $        --     $     (239)  $    56,749
                                                   ===========   ===========     ===========  ===========
</TABLE>


                                                    30


<PAGE>
     The  amortized  cost  and  estimated   fair  value  of   available-for-sale
investments in debt  securities at December 31, 2000, by  contractual  maturity,
were as follows:

                                                                     Estimated
                                                        Cost        Fair Value
                                                        ----        ----------
                                                           (in thousands)

Due in 1 year or less                                 $ 31,410       $ 31,407
Due in 1-2 years                                         4,100          4,146
                                                      --------       --------
Total available-for-sale investments                  $ 35,510       $ 35,553
                                                      ========       ========

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.

Accounting for Stock-Based Compensation

    Marimba has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock  Issued to  Employees"  (APB Opinion No. 25), 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, "Accounting for Stock-Based
Compensation" ("FAS 123"), requires use of option valuation models that were not
developed for use in valuing  employee stock options.  Under APB Opinion No. 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.

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 extends reasonably short credit
terms in most  instances and performs  ongoing credit  evaluations  but does not
require  collateral.  During the years ended  December 31, 2000,  1999 and 1998,
Marimba added  approximately  $2.1 million,  $36,000 and $75,000 to its bad debt
reserves. Total write-offs of uncollectible accounts were $0, $2,000 and $54,000
in these  periods.  During  fiscal  2000,  Marimba  established  a sales  return
allowance  reserve,  in which $237,000 was added to this reserve;  there were no
write-offs during 2000.

    For the  years  ended  December  31,  2000  and  1999,  no  single  customer
represented more than 10% of total revenues.  At December 31, 2000, one customer
represented  40% of accounts  receivable and at December 31, 1999, two customers
represented  16% and 19% of  accounts  receivable.  Revenues  from one  reseller
represented 22% of total revenues for the year ended December 31, 1998. Revenues
to  another  reseller  represented  18% of total  revenues  for the  year  ended
December 31, 1998.

Segment Information

    Marimba has adopted the Financial  Accounting Standards Board's Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information"  ("FAS  131").  FAS 131  changes  the way
companies report selected segment information in annual financial statements and
requires  companies to report selected segment  information in interim financial
reports  to  stockholders.  Marimba  operates  in  one  operating  segment,  the
development  and  marketing of systems  management  software and has  operations
primarily in the United States.  For the years ended December 31, 2000, 1999 and
1998,  export sales to customers outside of the United States were $2.1 million,
$2.5 million and $1.3 million.

Net Loss Per Share

    Basic and diluted net loss per common share are presented in conformity with
FAS No. 128,  "Earnings Per Share" ("FAS 128"),  for all periods  presented.  In
accordance with FAS 128, basic and diluted net loss per share have been


                                       31
<PAGE>
computed using the weighted-average number of shares of common stock outstanding
during the periods, less shares subject to repurchase.

<TABLE>
    The following  table presents the  calculation of basic and diluted net loss
per share:
<CAPTION>
                                                                  Year Ended December 31,
                                                             2000          1999          1998
                                                           --------      --------      --------
                                                           (in thousands, except per share data)
<S>                                                         <C>           <C>           <C>
Net loss.................................................  $(9,672)     $ (4,214)      $(5,681)
                                                           ========      ========      ========
Basic and diluted:
   Weighted-average shares of common stock
       outstanding.......................................   23,391        19,855        13,081
   Less weighted-average shares subject to repurchase....     (191)         (826)       (3,475)
                                                           --------      --------      --------
   Weighted-average shares of common stock
       outstanding used in computing basic and
       diluted net loss per share........................   23,200        19,029         9,606
                                                           ========      ========      ========
   Basic and diluted net loss per share..................  $  (.42)     $   (.22)      $  (.59)
                                                           ========      ========      ========
</TABLE>

    Marimba has excluded all redeemable  convertible preferred stock,  warrants,
outstanding  stock options and shares  subject to repurchase by Marimba from the
calculation  of  diluted  loss  per  share  because  all  such   securities  are
antidilutive for all periods  presented.  Weighted-average  options and warrants
outstanding  to purchase  4,714,000,  2,861,000 and  1,483,000  shares of common
stock and redeemable  convertible  preferred  stock for the years ended December
31, 2000,  1999, and 1998,  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.

Recent Accounting Pronouncements

    In June 1998, the Financial  Accounting  Standards Board issued FAS No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" ("FAS 133"). FAS
133, as amended,  establishes  methods of accounting  for  derivative  financial
instruments and hedging activities related to those instruments as well as other
hedging  activities.  We adopted  FAS 133  effective  January  1, 2001.  Because
Marimba  currently  holds  no  derivative  financial  instruments  and  does not
currently  engage in hedging  activities,  we do not currently  believe that the
adoption of FAS 133, as amended,  will have a  significant  impact on  Marimba's
financial condition, results of operations or cash flows.

    In December  1999,  the  Securities  and  Exchange  Commission  issued Staff
Accounting  Bulletin No. 101 ("SAB 101").  This summarizes  certain areas of the
Staff's views in applying  generally accepted  accounting  principles to revenue
recognition in financial  statements.  Marimba believes that its current revenue
recognition policies comply with SAB 101.

    In  March  2000,   the   Financial   Accounting   Standards   Board   issued
Interpretation  No. 44,  Accounting  for Certain  Transactions  Involving  Stock
Compensation - an  interpretation of APB No. 25 ("FIN 44"). FIN 44 clarifies the
application  of APB 25 and,  among other issues  clarifies  the  following:  the
definition  of an employee  for  purposes of applying  APB 25; the  criteria for
determining whether a plan qualifies as a non-compensatory  plan; the accounting
consequence of various  modifications to the terms of the previously fixed stock
options or awards;  and the  accounting  for an exchange  of stock  compensation
awards in a business combination.  FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific  events that occurred after either December
15, 1998 or January 12, 2000.  The  application of FIN 44 has not had a material
impact on Marimba's financial position or results of operations.


                                       32
<PAGE>
2.  Property and Equipment

    Property and equipment consist of the following:

                                                           December 31,
                                                        2000          1999
                                                      -------       -------
                                                          (in thousands)

 Furniture and equipment...........................   $   746       $   764
 Computer equipment................................     5,152         3,325
 Purchased software................................     1,353         1,097
 Leasehold improvements............................     1,061           291
                                                      -------       -------
                                                        8,312         5,477
 Accumulated depreciation and amortization.........    (4,038)       (2,522)
                                                      -------       -------
 Property and equipment, net.......................   $ 4,274       $ 2,955
                                                      =======       =======

    Property and equipment at December 31, 2000 and 1999  includes  assets under
capitalized leases of approximately $378,000, which were acquired in 2000. These
assets were fully amortized at December 31, 2000.

3.  Commitments

    Marimba leases its office facilities under various  noncancelable  operating
lease  agreements.  As of December 31, 2000, future minimum lease payments under
noncancelable operating leases are as follows:

                                                               Operating
                                                                Leases
                                                                ------
                                                            (in thousands)
Year ending December 31:
     2001..........................................          $   1,920
     2002..........................................              2,010
     2003..........................................              1,964
     2004..........................................              1,960
     2005..........................................                728
                                                             ----------
         Total minimum lease payments..............          $   8,582
                                                             ==========

    Marimba's  headquarters  facility lease expires in April 2005.  Rent expense
under operating  leases totaled  approximately,  $2.2 million,  $1.8 million and
$1.2 million for the years ended December 31, 2000, 1999 and 1998.

4.  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  $2.0 million.  In
2000, we recorded deferred  compensation of approximately  $1.9 million,  net of
reductions of $703,000 in 2000 due to cancelled  shares,  which  represented the
intrinsic value of certain  restricted  stock awards.  Deferred  compensation is
being amortized over the vesting periods of the options and restricted  stock on
a graded vesting  method.  We amortized  deferred  compensation  expense of $1.7
million,  $1.4  million  and  $251,000  for fiscal  years  2000,  1999 and 1998,
respectively.   This   compensation   expense  relates  to  options  awarded  to
individuals in all operating expense categories. The amortization of our current
deferred  compensation,  net of  reductions of $703,000 in 2000 due to cancelled
shares, will approximate $1.6 million in 2001 and $301,000 in 2002.


                                       33
<PAGE>
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 common shares. In December 1999, the warrant was exercised.

    As  of  December  31,  2000,  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, and the shares of common stock
to  be  issued  upon  completion  of  this  offering  will  be  fully  paid  and
nonassessable.

Preferred Stock

    Our 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

    We did not declare nor pay any cash  dividends  on our capital  stock during
the fiscal years ended December 31, 2000,  1999 and 1998 and do not expect to do
so in the foreseeable  future.  We anticipate that all future earnings,  if any,
generated  from  operations  will be  retained  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.


                                       34
<PAGE>
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, 2000, 42,266 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  1st 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. A total of 2,175,810
shares of common stock were reserved for issuance under the 1999 Omnibus Plan as
of December  31, 2000,  and an  additional  943,379  shares of common stock were
added to the  reserve on January 1, 2001.  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.

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.  A total of 165,000 shares of common stock
were reserved for issuance, to non-employee members of the Board of Directors as
of December 31, 2000, and an additional 37,500 shares of common stock were added
to the reserve on January 1, 2001.  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.   Each  individual  who  first  becomes  a
non-employee  Board  member  after  the  date of the  Company's  initial  public
offering  will be granted a fully vested option  ("Initial  Option") to purchase
15,000 shares of the Company's  common stock on the date such  individual  joins
the Board,  provided  such  individual  has not been in the prior  employ of the
Company.  In addition,  at each annual meeting of  stockholders  of the Company,
each  individual  who will continue to be a director  after such annual  meeting
will receive an  additional  fully vested option  ("Annual  Option") to purchase
7,500 shares of common stock. Each director who received an Initial Option under
the  Directors  Plan will first be eligible  to receive an Annual  Option in the
calendar  year that is two years after the  calendar  year in which the director
received the Initial  Option.  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.

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


                                       35
<PAGE>
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.

     On July 21, 2000, the Board of Directors  approved a 1,000,000 share option
grant to an employee outside of any of Marimba's stock option plans. The options
will become  exercisable with respect to the first 25% of the option shares upon
completion of twelve months of continuous service and the balance of the options
shares  will vest in a series of  successive  equal  monthly  installments  upon
completion  of  each  of  the  next  thirty-six  months  of  continuous  service
thereafter.  The options have a maximum term of ten years measured from the date
of grant and are exercisable at $21.1875 per share, which is equal to the market
price of our shares on the date of grant.

<TABLE>
    A summary of Marimba's stock option activity is as follows:
<CAPTION>

                                                           Options Outstanding
                                              ------------------------------------------
                                                                                     Weighted-
                                         Shares        Number          Price          Average
                                       Available         Of             Per           Exercise
                                       for Grant       Shares          Share           Price
                                       ---------       ------          -----           -----


<S>                                    <C>             <C>         <C>     <C>          <C>
Balance at January 1, 1998.......      1,312,993       794,500     $ .15 --  .75        $  .41

 Authorized......................      1,300,000
 Granted.........................     (2,017,800)    2,017,800      1.00 -- 8.50          3.54
 Exercised.......................             --      (238,569)      .50 -- 2.00           .96
 Repurchased.....................        253,417            --           --                 --
 Canceled........................        381,163      (381,163)      .15 -- 3.50           .84
                                      -----------   -----------
Balance at December 31, 1998.....      1,229,773     2,192,568       .15 -- 8.50          3.16

 Authorized......................      1,400,000
 Granted.........................     (2,252,750)    2,252,750     10.00 --  31.38       20.59
 Exercised.......................             --      (615,171)      .15 --  20.00        2.49
 Repurchased.....................         70,309            --           --                 --
 Canceled........................        367,352      (367,352)      .50 --  31.38       10.75
                                      -----------   -----------
Balance at December 31, 1999.....        814,684     3,462,795       .15 --  31.38       13.84

 Authorized......................      5,440,810
 Granted.........................     (5,979,392)    5,979,392    .0001  --  46.00       17.41
 Exercised.......................             --      (458,964)   .0001  --  20.00        2.40
 Repurchased.....................        108,546            --           --                 --
 Canceled........................      2,383,870    (2,383,870)      .50 --  46.00       19.00
                                      -----------   -----------
Balance at December 31, 2000.....      2,768,518     6,599,353      $.15 -- $46.00  $    16.01
                                      ===========   ===========
</TABLE>

    As of December  31, 2000 and 1999,  there were 833,352 and  2,585,545  fully
vested and exercisable  shares with a weighted  average exercise price of $11.32
and $8.56 per share.


                                       36
<PAGE>
<TABLE>
    The  following  table  details  outstanding  and  exercisable  options as of
December 31, 2000:
<CAPTION>

                                        Outstanding                               Exercisable
                           ---------------------------------------------    ---------------------------
                                       Weighted-Average
                                          Remaining
    Range of              Number of      Contractual    Weighted-Averag    Number of     Weighted-Averag
 Exercise Price             Shares          Life        Exercise Price      Shares       Exercise Price
 --------------             ------          ----        --------------      ------       --------------
<S>                       <C>                <C>        <C>                  <C>             <C>
$ .0001--$4.87            1,225,447          8.90       $   3.51             392,568         $   2.42
       5.12                 399,750          9.85           5.12                   0                0
       5.25               1,092,500          9.80           5.25                   0                0
  7.00 -- 15.12             841,579          8.88          14.27             226,275            13.38
 16.12 -- 20.00             270,078          9.06          18.03              99,685            19.27
       21.19              1,396,500          9.55          21.19                 937            21.19
 26.25 -- 31.37             870,499          9.11          28.29             111,762            30.69
$39.62 -- $46.00            503,000          9.18          44.66               2,125            40.37
                         ----------                                          -------
       Total              6,599,353          9.30       $  16.01             833,352         $  11.32
                         ==========                                          =======
</TABLE>

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.

<TABLE>
    The  fair  value  of each  option  granted  through  December  31,  2000 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 vale 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  weighted-average
assumptions:
<CAPTION>

                                                           Year Ended December 31,
                                                        2000          1999        1998
                                                        ----          ----        ----
<S>                                                   <C>           <C>          <C>
Fair value of options.............................    $ 16.25       $ 12.87      $ .73
Fair value of restricted shares...................      13.03          --          --
Assumptions:
   Risk-free interest rate........................       5%             6%         5%
   Expected life..................................    3 years       3 years     4 years
   Volatility.....................................        140%         101%        --
   Dividend yield.................................       --            --          --
</TABLE>

    In 2000,  Marimba  issued 200,000  restricted  shares under the 1999 Omnibus
Plan.

    The  weighted-average  fair value of  options  granted  during  1998 with an
exercise price below the deemed fair value of Marimba's common stock on the date
of grant was $2.07.

    The  weighted-average  fair market  value of shares  granted  under our 1999
Employee Stock Purchase Plan (see plan description below) were $10.79 and $13.68
for the years ended December 31, 2000 and 1999,  respectively,  calculated using
the Black-Scholes pricing model. The following weighted-average assumptions were
used in fiscal 2000:  risk-free  interest rate of 5%,  expected life of 2 years,
volatility  of 140% and dividend  yield of zero;  and in fiscal 1999:  risk-free
interest rate of 6%,  expected life of 2 years,  volatility of 101% and dividend
yield of zero.


                                       37
<PAGE>
<TABLE>
    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:
<CAPTION>

                                                               Year Ended December 31,
                                                          2000          1999           1998
                                                      ------------    ------------   -----------
                                                         (in thousands, except per share data)
<S>                                                   <C>             <C>            <C>
Net loss:
     As reported..................................    $    (9,672)    $    (4,214)   $    (5,681)
                                                      ============    ============   ===========
     Pro forma....................................    $   (36,900)    $   (10,532)   $    (6,123)
                                                      ============    ============   ===========
Basic and diluted net loss per share:
      As reported.................................    $      (.42)    $      (.22)   $      (.59)
                                                      ============    ============   ===========
      Pro forma...................................    $     (1.59)    $      (.55)   $      (.64)
                                                      ============    ============   ===========
</TABLE>

    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.

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 962,905  shares of common  stock were  reserved
for  issuance  under the 1999  Purchase  Plan as of December  31,  2000,  and an
additional  471,690  shares of common stock were added to the reserve on January
1, 2001. 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
88,811  shares at an average  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,
2000 and 1999, respectively.

7.   Income Taxes

     Marimba's provision for income taxes for the years ended December 31, 2000,
1999 and 1998 consists 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,
                                                          2000          1999
                                                        -------       -------
                                                           (in thousands)
Deferred tax assets:
       Net operating loss carryforwards..............   $ 7,900       $ 6,100
       Research credit carryforwards.................     1,300         1,100
       Deferred revenue..............................     1,800           900
       Other.........................................     3,600           200
                                                        -------       -------
               Total deferred tax assets.............    14,600         8,300
Valuation allowance..................................   (14,600)       (8,300)
                                                        -------       -------
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 $6.3  million  and $2.2  million  during 2000 and 1999,
respectively.


                                       38
<PAGE>
     As of December 31, 2000,  Marimba had net operating loss  carryforwards for
federal income tax purposes of  approximately  $20 million,  which expire in the
years 2010 through  2020 and federal  research  and  development  tax credits of
approximately $900,000, which expire in the years 2012 through 2020.

     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

    On March 3, 1997,  Novadigm,  Inc. filed a complaint  against us in the U.S.
District Court for the Northern District of California alleging  infringement of
a patent held by Novadigm (U.S. Patent No. 5,581,764, the "Novadigm Patent"). On
July 30, 1999,  Marimba filed a complaint  against Novadigm in the U.S. District
Court for the Northern District of California alleging  infringement by Novadigm
of a patent  held by us (U.S.  Patent  No.  5,919,247,  the  "Marimba  Patent").
Effective November 10, 2000, Marimba and Novadigm executed an agreement settling
both actions. Pursuant to the agreement, the parties have dismissed both actions
without  prejudice.  Under the agreement,  the other terms of the settlement are
confidential.

9.   Notes Receivable from Officer

     In July 2000, in connection with the Company's grant of a restricted  stock
bonus of 100,000 shares of the Company's common stock to an executive officer of
the  Company,  the  executive  officer  received  a loan  facility  for up to $1
million.  The loan facility bears interest of 6.6% per annum and is repayable as
to 50% of the  outstanding  principal  amount and accrued  interest in September
2002 and as to the remaining  principal amount and accrued interest in September
2004. However,  repayment of all of the outstanding principal amount and accrued
interest  under the loan  facility  is due upon the  earlier of the date that is
three months from the date the executive  officer's  employment with the Company
ceases for any reason or the closing date of a change in control of the Company.
The loan is  secured  by the  shares of the  Company's  common  stock  under the
restricted  stock bonus. As of December 31, 2000, the loan facility had not been
drawn down.

10.   Comprehensive Income

     As of January 1, 1998,  we adopted  Financial  Accounting  Standard No. 130
(SFAS 130), "Reporting Comprehensive Income." SFAS 130 established new rules for
the  reporting  and  display  of   comprehensive   income  and  its  components.
Comprehensive  income is defined  as the change in equity of a company  during a
period  from   transactions  and  other  events  and   circumstances   excluding
transactions  resulting from  investments by owners and  distributions to owners
and is to  include  unrealized  gains and  losses  that have  historically  been
excluded  from net income and reflected  instead in equity.  We have not had any
such  material   transactions  or  events  during  the  periods  presented  and,
accordingly, comprehensive income is not materially different from net income as
reported in the consolidated financial statements.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
              FINANCIAL DISCLOSURES

     None.


                                       39
<PAGE>
                                    PART III

     The  information  required  by  this  Part  III  will  be  provided  in our
definitive   proxy  statement  for  our  2001  Annual  Meeting  of  Stockholders
(involving the election of directors),  which definitive proxy statement will be
filed  pursuant to Regulation  14A not later than 120 days  following our fiscal
year ended  December 31, 2000, and is  incorporated  herein by this reference to
the following extent:

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by Item 10 is  incorporated  herein by reference
from the section entitled "Proposal No. 1 -- Election of Directors" of the Proxy
Statement.

ITEM 11.  EXECUTIVE COMPENSATION

    The information required by Item 11 is incorporated herein by reference from
the section entitled  "Executive  Compensation  and Related  Information" of the
Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by Item 12 is incorporated herein by reference from
the  section  entitled  "Stock  Ownership  of  Certain   Beneficial  Owners  and
Management" of the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by Item 13 is incorporated herein by reference from
the section entitled  "Certain  Relationships  and Related  Transactions" of the
Proxy Statement.

                                     PART IV

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

    (a)  (1) Financial Statements

         See the  Consolidated  Financials  Statements  and  Supplementary  Data
         beginning on page 23 of this Form 10-K.

         (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 on page 40 of this Form 10-K for the exhibits  filed
         as part of or incorporated by reference into this Form 10-K.

    (b)  Reports on Form 8-K
         During the quarter  ended  December 31, 2000,  the Company did not file
         any reports on Form 8-K.

    (c)  See Exhibit  Index at page 46 of this Form 10-K for the exhibits  filed
         as part of or incorporated by reference into this Form 10-K.

    (d)  See  the  Consolidated  Financial  Statements  and  Supplementary  Data
         beginning on page 23 of this Form 10-K.


                                       40
<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                 MARIMBA, INC.

  Date: March 27, 2001           By:/s/ Kenneth W. Owyang
                                    ---------------------
                                    Kenneth W. Owyang
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons,  on behalf of the Registrant in
the capacities and on the dates indicated:

PRINCIPAL EXECUTIVE OFFICER:

By:   /s/ John Olsen                                     Date:    March 27, 2001
      --------------
     John Olsen
     President, Chief Executive Officer and Director

PRINCIPAL FINANCIAL/ACCOUNTING OFFICER:

By:   /s/ Kenneth W. Owyang                              Date:    March 27, 2001
      ---------------------
      Kenneth W. Owyang
      Vice President and Chief Financial Officer

ADDITIONAL DIRECTORS:

By:   /s/ Kim K. Polese                                  Date:    March 27, 2001
      -----------------
      Kim K. Polese
      Chairman, Chief Strategy Officer and Director

By:   /s/ Aneel Bhusri                                   Date:    March 27, 2001
      ----------------
      Aneel Bhusri
      Director

By:   /s/ Raymond J. Lane                                Date:    March 27, 2001
      -------------------
      Raymond J. Lane
      Director

By:   /s/ Douglas J. Mackenzie                           Date:    March 27, 2001
      ------------------------
      Douglas J. Mackenzie
      Director

By:   /s/ Stratton D. Sclavos                            Date:    March 27, 2001
      -----------------------
      Stratton D. Sclavos
      Director


                                       41
<PAGE>
                                  MARIMBA, INC.
                                  EXHIBIT INDEX

      Exhibit
        No.                                 Description
        ---                                 -----------

         3.1     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.
         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 -  incorporated  herein by reference to Exhibit 10.2
                 to the Company's  Registration  Statement on Form S-1 (File No.
                 333-72353).
         10.3*   1999 Employee Stock Purchase Plan, as amended to date.
         10.4    1999 Non-Employee  Directors Option Plan - incorporated  herein
                 by  reference  to Exhibit  10.2 to the  Company's  Registration
                 Statement on Form S-1 (File No. 333-72353).
         10.9    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.
         21.1*   List of Subsidiaries of the Registrant.
         23.1*   Consent of Ernst & Young LLP, Independent Auditors.

------------------------
         *  Filed with this Form 10-K



                                       42