<PAGE>   1

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

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


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1998


                                       OR

[X]      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 0-22158



                                 NETMANAGE, INC.
             (Exact name of registrant as specified in its charter)


                    DELAWARE                                      77-0252226
         (State or other jurisdiction of                        (IRS employer
         incorporation or organization)                     identification no.)



                          10725 NORTH DE ANZA BOULEVARD
                           CUPERTINO, CALIFORNIA 95014
          (Address of principal executive offices, including zip code)

                                 (408) 973-7171
              (Registrant's telephone number, including area code)



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 [ ]

Number of shares of registrant's common stock outstanding as of July 31, 1998:
44,209,359

================================================================================


<PAGE>   2


                                 NETMANAGE, INC.
                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
PART I.           FINANCIAL INFORMATION                                                      PAGE
<S>               <C>                                                                        <C>
Item 1.           Financial Statements

                  Condensed Consolidated Balance Sheets at June 30, 1998 and
                  December 31, 1997                                                             3

                  Condensed Consolidated Statements of Operations for the three
                  and six months ended June 30, 1998 and June 30, 1997                          4

                  Condensed Consolidated Statements of Cash Flows for the six
                  months ended June 30, 1998 and June 30, 1997                                  5

                  Notes to Condensed Consolidated Financial Statements                          6
Item 2.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                                     9


PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings                                                            18

Item 2.           Changes in Securities                                                        19

Item 3.           Defaults upon Senior Securities                                              19

Item 4.           Submission of Matters to a Vote of Security Holders                          19

Item 5.           Other Information                                                            19

Item 6.           Exhibits and Reports on Form 8-K                                             19

                  Signatures                                                                   20

</TABLE>



It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-K for the year ended December 31,
1997, filed on March 31, 1998.

                                       2
<PAGE>   3




                                 NETMANAGE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                       JUNE 30,       DECEMBER 31,
ASSETS                                                   1998             1997
                                                       --------        ---------
                                                     (UNAUDITED)
<S>                                                   <C>              <C>      
CURRENT ASSETS:
   Cash and cash equivalents                          $  24,882        $  12,706
   Short-term investments                                26,032           36,845
   Accounts receivable, net                              10,492           13,408
   Prepaid expenses and other current assets             12,944           15,726
                                                      ---------        ---------
        Total current assets                             74,350           78,685
                                                      ---------        ---------

PROPERTY AND EQUIPMENT, at cost:
   Computer software and equipment                       13,183           13,010
   Furniture and fixtures                                 5,464            5,512
   Leasehold improvements                                 1,258            1,308
                                                      ---------        ---------
                                                         19,905           19,830
   Less - Accumulated depreciation                      (13,021)         (10,999)
                                                      ---------        ---------
        Net property and equipment                        6,884            8,831
                                                      ---------        ---------

LONG-TERM INVESTMENTS                                    20,565           19,734
GOODWILL AND OTHER INTANGIBLES, net                       2,231            3,293
OTHER ASSETS                                              9,491            9,050
                                                      ---------        ---------
                                                      $ 113,521        $ 119,593
                                                      =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                   $   2,047        $   1,674
   Accrued liabilities                                    2,952            5,185
   Accrued payroll and payroll-related expenses           3,120            4,804
   Deferred revenue                                       7,782            9,118
   Income taxes payable                                   2,402            2,362
                                                      ---------        ---------
        Total current liabilities                        18,303           23,143
                                                      ---------        ---------

LONG-TERM LIABILITIES                                       258              363
                                                      ---------        ---------

STOCKHOLDERS' EQUITY:
   Common stock                                             442              438
   Additional paid-in capital                            92,735           91,564
   Retained earnings                                      3,823            5,996
   Cumulative translation adjustments                    (2,040)          (1,911)
                                                      ---------        ---------
        Total stockholders' equity                       94,960           96,087
                                                      ---------        ---------
                                                      $ 113,521        $ 119,593
                                                      =========        =========
</TABLE>


         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.


                                       3
<PAGE>   4




                                 NETMANAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                               -----------------------------           -----------------------------
                                                                JUNE 30,           JUNE 30,           JUNE 30,             JUNE 30,
                                                                  1998               1997               1998                  1997
                                                               --------            --------            --------            --------
<S>                                                            <C>                 <C>                 <C>                 <C>     
NET REVENUES:
   License fees                                                $ 10,611            $  8,963            $ 24,566            $ 21,243
   Services                                                       3,929               3,738               7,288               7,837
                                                               --------            --------            --------            --------
        Total net revenues                                       14,540              12,701              31,854              29,080

COST OF REVENUES                                                    704                 899               1,696               2,024
                                                               --------            --------            --------            --------

GROSS MARGIN                                                     13,836              11,802              30,158              27,056
                                                               --------            --------            --------            --------

OPERATING EXPENSES:
   Research and development                                       4,573               4,778               9,103              10,868
   Sales and marketing                                            9,723              10,518              18,902              20,817
   General and administrative                                     2,755               2,444               5,423               4,834
   Amortization of goodwill                                         471                 260                 957                 520
                                                               --------            --------            --------            --------
        Total operating expenses                                 17,522              18,000              34,385              37,039
                                                               --------            --------            --------            --------

LOSS FROM OPERATIONS                                             (3,686)             (6,198)             (4,227)             (9,983)

INTEREST INCOME AND OTHER, NET                                      595               1,362               1,417               2,617
EQUITY IN INCOME  OF
   UNCONSOLIDATED AFFILIATE                                         204                 288                 653                  79
                                                               --------            --------            --------            --------

LOSS BEFORE PROVISION FOR INCOME TAXES                           (2,887)             (4,548)             (2,157)             (7,287)
PROVISION (BENEFIT) FOR INCOME TAXES                               (183)                 --                  16                  --
                                                               --------            --------            --------            --------
NET LOSS                                                       $ ( 2,704)          $ (4,548)           $ (2,173)           $ (7,287)
                                                               ========            ========            ========            ========
NET LOSS PER SHARE
     Basic                                                     $  (0.06)           $  (0.10)           $  (0.05)           $  (0.17)
     Diluted                                                   $  (0.06)           $  (0.10)           $  (0.05)           $  (0.17)

WEIGHTED AVERAGE COMMON SHARES
   AND EQUIVALENTS
     Basic                                                       44,158              43,328              43,944              43,255
     Diluted                                                     44,158              43,328              43,944              43,255

</TABLE>



         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.


                                       4


<PAGE>   5



                                 NETMANAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                             SIX MONTHS ENDED
                                                                                                        ----------------------------
                                                                                                        JUNE 30,           JUNE 30,
                                                                                                          1998                1997
                                                                                                        --------           --------
<S>                                                                                                     <C>                <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                                             $ (2,173)          $ (7,287)
   Adjustments to reconcile net loss  to net cash provided by operating activities:
        Depreciation and amortization                                                                      3,917              4,721
        Equity in income of unconsolidated affiliate                                                      (1,417)               (79)
        Provision for doubtful accounts                                                                       68                 --
        Changes in assets and liabilities, net of business combinations:
           Accounts receivable                                                                             2,848              5,642
           Prepaid expenses and other assets                                                               2,765              3,444
           Accounts payable                                                                                  373               (157)
           Accrued liabilities, payroll and payroll-related expenses                                      (3,917)            (1,423)
           Deferred revenue                                                                               (1,441)            (2,837)
           Income taxes payable                                                                               40               (179)
                                                                                                        --------           --------
                Net cash provided by operating activities                                                  1,063              1,845
                                                                                                        --------           --------

 CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of short-term investments                                                                    (8,818)           (23,895)
   Proceeds from maturity of short-term investments                                                       19,234             22,139
   Purchases of long-term investments                                                                     (9,914)           (17,613)
   Proceeds from maturity of long-term investments                                                         8,951             19,513
   Purchases of property and equipment                                                                      (355)              (606)
   Purchases of technology and other intangible assets                                                        --               (530)
   Investment in unconsolidated affiliate                                                                     --               (163)
                                                                                                        --------           --------
                Net cash provided by (used in) investing activities                                        9,098             (1,155)
                                                                                                        --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock, net                                                             1,175                517
                                                                                                        --------           --------
                Net cash provided by financing activities                                                  1,175                517
                                                                                                        --------           --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                      840                (93)
                                                                                                        --------           --------
NET INCREASE  IN CASH AND CASH EQUIVALENTS                                                                12,176              1,114

CASH AND CASH EQUIVALENTS, beginning of period                                                            12,706             19,483
                                                                                                        --------           --------
CASH AND CASH EQUIVALENTS, end of period                                                                $ 24,882           $ 20,597
                                                                                                        ========           ========
</TABLE>



         The accompanying notes are an integral part of these condensed
                       consolidated financial statements.


                                       5

<PAGE>   6


                                 NETMANAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1.   INTERIM FINANCIAL DATA

     The interim condensed consolidated financial statements for the three- and
     six-month periods ended June 30, 1998 and 1997 for NetManage, Inc. (the
     "Company") have been prepared on the same basis as the year end
     consolidated financial statements and, in the opinion of management,
     include all adjustments (consisting of only normal recurring adjustments)
     necessary to present fairly the financial information set forth therein in
     accordance with generally accepted accounting principles. The Company
     believes the results of operations for the interim periods are subject to
     fluctuation and may not be an indicator of future financial performance and
     should be read in conjunction with the information contained in the
     Company's Annual Report on Form 10K for the fiscal year ended December 31,
     1997.

2.   CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiaries. All intercompany accounts and
     transactions have been eliminated. The Company's investment in an
     unconsolidated affiliate, NetVision, Ltd., is accounted for by the equity
     method.

3.    ACQUISITIONS

     On June 15, 1998, the Company entered into an Agreement and Plan of
     Reorganization (the "Reorganization Agreement") with FTP Software, Inc.
     ("FTP") whereby a wholly-owned subsidiary of the Company will be merged
     into FTP and each outstanding share of the common stock of FTP will be
     converted into 0.72767 of a share of the Company's common stock, subject to
     downward adjustment based upon certain conditions described in the
     Reorganization Agreement (the "Exchange Ratio"). Outstanding FTP options
     will be converted into options to purchase shares of the Company's common
     stock at the same conversion rate, with appropriate changes to the exercise
     price. This merger is conditioned upon, among other things, approval of the
     merger by FTP's stockholders and approval by the Company's stockholders of
     the issuance of the shares of the Company's common stock in the merger.
     Because FTP has met certain of the financial tests set forth in the
     Reorganization Agreement, the Exchange Ratio would not be adjusted if the
     closing of the merger occurs before August 31, 1998, as currently expected.
     If the merger closes on or after August 31, 1998, in order for there to be
     no adjustment to the Exchange Ratio, FTP would need to meet additional
     financial tests as described in the Reorganization Agreement.
    
4.    NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
     Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
     accounting and reporting standards requiring that every derivative
     instrument be recorded in the balance sheet as either an asset or liability
     measured at its fair value and requires that changes in the derivative's
     fair value be recognized currently in earnings unless specific hedge
     accounting criteria are met. SFAS No. 133 is effective for all fiscal years
     beginning after June 15, 1998 and may be adopted as of the beginning of any
     fiscal quarter after June 15, 1998. The Company plans to adopt SFAS No. 133
     in the first quarter of 1999 and does not believe that its adoption will
     have a material effect on the Company's financial statements.

5.   NET LOSS PER SHARE

     Basic net loss per share data has been computed using the weighted average
     number of shares of common stock outstanding during the periods. Diluted
     net loss per share data has been computed using the weighted average number
     of shares of common stock and potentially dilutive common stock.
     Potentially dilutive securities, which include shares issuable upon the
     exercise of outstanding common stock options computed using the treasury
     stock method, of 3,696,218 and 3,951,528 for the three- and six-month
     periods ended June 30, 1998 and 1997, respectively were not included in the
     computation of diluted loss per common share because to do so 


                                       6
<PAGE>   7

     would have been antidilutive for the respective periods. For the three- and
     six-month periods ended June 30, 1998 and 1997, the number of shares used
     in the computation of diluted earnings per share was the same as those used
     for the computation of basic earnings per share as all potential common
     shares were antidilutive.


6.   REVENUE RECOGNITION

     During the quarter ended March 31, 1998, the Company adopted the Statement
     of Position (SOP) 97-2 "Software Revenue Recognition," which provides
     guidance on applying generally accepted accounting principles in
     recognizing revenue on software transactions. The adoption of SOP 97-2 did
     not have a material impact on the consolidated financial statements for the
     three or six-months ended June 30, 1998.

7.   COMPREHENSIVE LOSS

     During the quarter ended March 31, 1998, the Company adopted SFAS No. 130
     "Comprehensive Income" which was issued by the FASB in 1997. SFAS No. 130
     requires companies to report a new, additional measure of income on the
     income statement or to create a new financial statement that has the new
     measure of income on it. "Comprehensive Income" includes foreign currency
     translation gains and losses and other unrealized gains and losses that
     have previously been excluded from net income and reflected instead in
     stockholders' equity. The following table summarizes comprehensive loss for
     the three and six-month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                       Three Months Ended                    Six Months Ended
                                                                      June 30,    June 30,                 June 30,    June 30,
                                                                    1998               1997               1998               1997
                                                                   -------            -------            -------            -------
<S>                                                                <C>                <C>                <C>                <C>     
Net loss                                                           $(2,704)           $(4,548)           $(2,173)           $(7,287)
Foreign currency translation adjustments,
(net of tax benefit of $0 in 1998 and 1997)                           (134)              (130)              (129)              (656)
                                                                   -------            -------            -------            -------
Comprehensive loss                                                 $(2,838)           $(4,678)           $(2,302)           $(7,943)
                                                                   =======            =======            =======            =======
</TABLE>

8.    COMMITMENTS AND CONTINGENCIES

     On January 9, 1997, a securities class action complaint, Head, et al. v.
     NetManage, Inc., et al., No. 07763295, was filed in the Superior Court of
     California, Santa Clara County, against the Company and certain of its
     directors and current and former officers. On January 10, 1997, the same
     plaintiffs filed a securities class action complaint, Head, et al. v.
     NetManage, Inc., et al., No. C-97-20061-JW, in the United States District
     Court for the Northern District of California, against the same defendants.
     Both complaints allege that, between July 25, 1995 and January 11, 1996,
     the defendants made false or misleading statements of material fact about
     the Company's prospects and failed to follow generally accepted accounting
     principles. The state court complaint asserts claims under California state
     law; the federal court complaint asserts claims under the federal
     securities laws. In addition, on September 10, 1997, the Company and
     several of its officers and directors were named in a securities class
     action complaint filed in the Northern District of California, Beasley v.
     NetManage, Inc., et al., C-97-3329 FMS, (N.D. Cal.). This complaint is
     substantially similar to the previously-filed case of Head et al. v.
     NetManage, Inc. et al., discussed above, and contains similar allegations,
     names the same defendants, and purports to represent purchasers of
     NetManage stock during the same class period as in the previously-filed
     complaint. The complaints seek an unspecified amount of damages. On
     February 24, 1998, the federal court granted the defendants' motion to
     dismiss the federal class action complaint in Head, et al. v. NetManage,
     Inc., et al. The plaintiffs filed an amended complaint and the defendants
     have moved to dismiss. The Company believes there is no merit to these
     cases and intends to defend both cases vigorously. There can be no
     assurance that the Company will be able to prevail in the lawsuits, or that
     the pendency of the lawsuits will not adversely affect the Company's
     operations. As the outcome of this matter cannot be reasonably determined,
     the Company has not accrued for any potential loss contingencies.



                                       7

<PAGE>   8

     On March 21, 1997, a securities class action complaint, Interactive Data
     Systems, Inc., et al. v. NetManage, Inc., et al., No. CV764945, was filed
     in the Superior Court of California, Santa Clara County, against the
     Company and certain of its directors and officers. On June 19, 1997, one of
     the plaintiffs in that action filed a securities class action complaint,
     Molinari v. NetManage, Inc., et al., No. C-97-20544-JW-PVT, in the United
     States District Court for the Northern District of California against the
     same defendants. Both complaints allege that, between April 18, 1996 and
     July 18, 1996, the defendants made false or misleading statements of
     material fact about the Company's prospects. The state court complaint
     asserts claims under California state law; the federal complaint asserts
     claims under the federal securities laws. Both complaints seek an
     unspecified amount of damages. On February 26, 1998, the state court
     entered judgement in favor of the Company in the state case. The plaintiffs
     have filed a notice of appeal from this judgement and are expected to file
     an amended complaint as to the individual defendants. The Company believes
     there is no merit to either case and intends to defend both cases
     vigorously. There can be no assurance that the Company will be able to
     prevail in the lawsuits, or that the pendency of the lawsuits will not
     adversely affect the Company's operations. As the outcome of this matter
     cannot be reasonably determined, the Company has not accrued for any
     potential loss contingencies.

     On October 10, 1997, a verified derivative complaint was filed in the
     United States District Court for the Northern District of California
     against nine present and former officers and directors of the Company
     alleging that these persons violated various duties to the Company. Sucher
     v. Alon et al., No. C-98-203-CRB. The derivative complaint also names the
     Company as a nominal defendant. The derivative complaint is predicated on
     the factual allegations contained in the class action complaints discussed
     above. No demand was previously made to the Company's Board of Directors
     concerning the allegations of the derivative complaint, which seeks an
     unspecified amount of damages. The Court dismissed the complaint on the
     ground that the plaintiff was obligated to make a demand on the Board of
     Directors. The plaintiff is expected to file an amended complaint.

     On November 26, 1997, a complaint was filed against the Company in the
     Superior Court of California, San Diego County, Shaw et al. v. NetManage,
     Inc., No. 716081. The plaintiffs, who held a significant ownership interest
     in AGE before it was acquired by NetManage, bring causes of action alleging
     fraud, negligent misrepresentations, negligence and breach of contract with
     respect to the Company's acquisition of AGE. The complaint seeks an
     unspecified amount of damages. The Company believes there is no merit to
     the case and intends to defend the case vigorously. There can be no
     assurance that the Company will be able to prevail in the lawsuit, or that
     the pendency of the lawsuit will not adversely affect the Company's
     operations. As the outcome of this matter cannot be reasonably determined,
     the Company has not accrued for any loss contingencies.

     The Company may be contingently liable with respect to certain asserted and
     unasserted claims that arise during the normal course of business. In the
     opinion of management, the outcome of all other such matters presently
     known to management will not have a material adverse effect on the
     Company's business, financial position or results of operations.


                                       8

<PAGE>   9



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

This Quarterly Report on Form 10Q contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Such forward-looking statements include, among others, statements regarding
expected revenues from newly introduced products, statements regarding expected
fluctuations in operating expenses and capital spending, statements regarding
the Company's expectation that indirect sales will increase as a percentage of
domestic and total revenues, the Company's expectation that it will increase its
marketing and sales efforts in major European and Asian markets, the Company's
expectation that revenues from its Core Technology products will continue to
account for a substantial portion of the Company's revenue, and statements
regarding the Company's expectations as to the composition of revenues between
international and domestic. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, among
others, that the markets for the Company's products, including but not limited
to Chameleon(TM) UNIX(R) Link 97 and Chameleon HostLink 97, AS/400(R),
SupportNow, OpSession, N/S Portfolio and NS/Router could grow more slowly than
the Company or market analysts believe, or the Company will not be able to take
advantage of growth in those markets. In addition, there is no assurance that
the Company's products for real-time customer support over the Internet will
continue to receive customer acceptance, especially in light of the early stage
of development of the markets for such Internet-based applications, that the
Company will not suffer increased competitive pressures, that the Company's
corporate buying decisions will not be influenced by the actions of the
Company's competitors or other market factors, or that the Company will be able
to continue to execute on its business plan in a manner that will allow it to
sustain profitability and growth, or that the continuing economic difficulties
in Asia will not adversely affect sales of the Company's products in that
region. The amount of the restructuring charges and timing of completion of the
restructuring is dependent upon a number of factors including the rate at which
the Company is able to terminate office leases and the accuracy of management's
estimates of lease termination and other restructuring charges. Additional
factors are identified under the heading "Factors That May Affect Future Results
and Financial Condition". Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in the
Company's Report on Form 10-K for the year ended December 31, 1997. The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.


OVERVIEW

NetManage, Inc. (the "Company") develops, markets and supports PC connectivity
software for the Microsoft Windows 3.1, Windows 95 and Windows NT platforms and
IBM system OS/2 and Novell, offering applications for UNIX(R), AS/400(R) and IBM
Mainframe host systems. The Company also provides remote access, application
sharing and help desk technology in its newly introduced OpSession and
SupportNow products. Its products are sold and serviced worldwide by the
Company's direct sales force, international subsidiaries and authorized channel
partners. Since the Company's inception, revenues from the Chameleon family of
products have represented substantially all of the Company's revenues, and the
Company expects that revenues from its Core Technology products will continue to
account for a substantial portion of the Company's revenues for the foreseeable
future.


ACQUISITIONS

On June 15, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with FTP Software, Inc. ("FTP")
whereby a wholly-owned subsidiary of the Company will be merged into FTP and
each outstanding share of the common stock of FTP will be converted into 0.72767
of a share of the Company's common stock, subject to downward adjustment based
upon certain conditions described in the Reorganization Agreement (the "Exchange
Ratio"). Outstanding FTP options will be converted into options to purchase
shares of the Company's common stock at the same conversion rate, with
appropriate changes to the exercise price. This merger is conditioned upon,
among other things, approval of the merger by FTP's stockholders and approval by
the Company's stockholders of the issuance of the shares of the Company's common
stock in the merger. Because FTP has met certain of the financial tests set
forth in the Reorganization Agreement, the Exchange Ratio would not be adjusted
if the closing of the merger occurs before August 31, 1998, as currently
expected. If the merger closes on or after August 31, 1998, in order for there
to be no adjustment to the Exchange Ratio, FTP would need to meet additional
financial tests as described in the Reorganization Agreement.


                                       9
<PAGE>   10

RESTRUCTURING

In the third quarter of 1997, the Company initiated a plan to restructure its
operations worldwide due to adverse business conditions including reduced sales
of the Company's products. The restructuring plan included the termination of a
number of employees worldwide and the reduction in worldwide office space, which
primarily consisted of the consolidation of certain domestic technical support
and engineering locations. The restructuring actions were substantially
completed as of the end of the second quarter of 1998.

RESULTS OF OPERATIONS

During the past year, the Company discontinued several low revenue generating
products and focused efforts on controlling costs in order to reduce operating
expenses, including a restructuring plan announced and executed in the third
quarter of 1997, in an attempt to return the Company to profitability.

Because the Company generally ships software products within a short period
after receipt of an order, the Company does not have a material backlog of
unfilled orders, and revenues in any one quarter are substantially dependent on
orders booked in that quarter. The Company's operating expense levels are based
in part on the Company's expectations as to future revenues and to a large
extent are fixed. Operating expenses decreased during the second quarter of 1998
as compared to the same period in 1997 as a result of the restructuring plan
discussed above, the resulting reduction of headcount and the closing and/or
consolidation of facilities. Operating expenses are expected to continue to
fluctuate as a percentage of revenues as the Company's newly introduced products
begin contributing to revenues.



                                       10


<PAGE>   11



JUNE 30, 1998 COMPARED TO JUNE 30, 1997
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)                                       Three Months Ended                        Six Months Ended
                                                   1998            1997          Change        1998          1997          Change
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>               <C>         <C>            <C>           <C>  
Net revenues:
       License fees                             $   10.6        $    9.0          18.4%       $   24.6       $  21.2       15.6%
       Services                                      3.9             3.7           5.1%            7.3           7.8       (0.1%)
                                                 -------        --------                      --------       -------
       Total net revenues                       $   14.5        $   12.7          14.5%       $   31.9       $  29.0        9.5%

As a percentage of net revenues:
       License fees                                 73.1%           70.6%                         77.1%         73.1%
       Services                                     26.9%           29.4%                         22.9%         26.9%
                                                 -------        --------                      --------       -------
         Total net revenues                        100.0%          100.0%                        100.0%        100.0%

Gross margin                                    $   13.8        $   11.8          17.2%       $   30.2       $  27.1       11.5%
   As a percentage of net revenues                  95.2%           92.9%                         94.7%         93.0%

Research and development                        $    4.6        $    4.8          (4.3%)      $    9.1       $  10.9      (16.2%)
   As a percentage of net revenues                  31.7%           37.6%                         28.5%         37.4%

Sales and marketing                             $    9.7        $   10.5          (7.6%)      $   18.9       $  20.8       (9.2%)
   As a percentage of net revenues                  66.9%           82.8%                         59.2%         71.6%

General and administrative                      $    2.8        $    2.4          12.7%       $    5.4       $   4.8       12.2%
   As a percentage of net revenues                  18.9%           19.3%                         17.0%         16.6%

Interest income and other, net                  $    0.6        $    1.4         (56.3%)      $    1.4       $   2.6      (45.9%)
   As a percentage of net revenues                   5.5%           10.7%                          4.4%          9.0%

Benefit for income taxes                        $   (0.2)           --           100.0%           --            --        100.0%

   Effective tax rate                               (6.3%)          --                            --            --            

</TABLE>

Net revenues
Historically, substantially all of the Company's net revenues have been derived
from software license fees. Service revenues have been primarily attributable to
maintenance agreements associated with licenses.

The Company has operations worldwide with sales offices located in the United
States, Europe and Japan. International revenues as a percentage of total net
revenues were approximately 27% and 17% for the three-month periods ended June
30, 1998 and 1997, respectively, and approximately 30% and 19% for the six-month
periods ended June 30, 1998 and 1997, respectively. In the latter half of 1997,
the Company took steps to reorganize its staffing and management, distributor
relationships, and product marketing in Europe as well as Japan. These efforts,
together with the Company's July 1997 acquisition of NetSoft which had
historically been successful in marketing and selling its products
internationally, resulted in the increase in international revenues both in
absolute dollars and as a percentage of total net revenues for the three- and
six-month periods ended June 30, 1998 as compared to the same periods in 1997.

License fees increased both in absolute dollars and as a percentage of total net
revenues during the three- and six-month periods ended June 30, 1998 as compared
to the same periods in 1997. This increase is primarily attributable to the
Company's expanded product offerings as a result of the Company's 1997
acquisitions of NetSoft and Relay.


                                       11

<PAGE>   12

Service revenues decreased as a percentage of total net revenues for the three-
and six-month periods ended June 30, 1998 as compared to the same periods in
1997, primarily as a result of the increase in the total net revenues base as
compared to the same periods in the prior year.

Software license fees are generally recognized as revenue upon shipment if the
fee is considered fixed and determinable, the arrangement does not include
significant customization of the software and collectibility is probable.
Allowances for returns and doubtful accounts are provided based on historical
rates of returns and write-offs, which have not been material to date. Certain
of the Company's sales to distributors are under agreements providing right of
return and price protection on unsold merchandise. Accordingly, the Company
defers recognition of such sales until the merchandise is sold by the
distributor.

The Company provides ongoing maintenance and support to its customers, generally
under annual service agreements. Maintenance and support is comprised of
software updates for existing products and telephone support. Service revenues
are recognized on a pro-rata basis over the term of such agreements.
Periodically the Company has provided training and consulting services to
selected customers. Such revenue is recognized as the related services are
performed and has not been material to date. The Company does not expect that
revenues generated from such training and consulting services will become
materially significant in the future.

No customer accounted for more than 10% of net revenues during the three- or
six-month periods ended June 30, 1998 or 1997.

Gross margin
Cost of revenues primarily includes royalties paid to third parties for licensed
software incorporated into the Company's products as well as costs associated
with product packaging, documentation and software duplication. Cost of service
revenues through June 30, 1998 has not been material and is not reported
separately.

Gross margin increased both in absolute dollars and as a percentage of total net
revenues for the three- and six-month periods ended June 30, 1998 as compared to
the same periods in 1997, primarily as a result of the change in the mix of
products sold as well as the mix of distribution channels used by the Company.

Gross margin as a percentage of net revenues may fluctuate in the future due to
increased price competition, the mix of distribution channels used by the
Company, the mix of license fee revenues versus service revenues, the mix of
products sold and the mix of international versus domestic revenues. The Company
typically recognizes higher gross margins on direct sales than on sales through
indirect channels.

Research and development
Research and development ("R&D") expenses consist primarily of salaries and
benefits, occupancy and travel expenses, as well as fees paid to outside
consultants. The decrease in R&D expenses in absolute dollars and as a
percentage of total net revenues for the three- and six-month periods ended June
30, 1998 as compared to the same periods of the prior year primarily reflects
cost savings, particularly in salaries and benefits, associated with employee
attrition, as well as the Company's continued efforts to control operating
expenses.

Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," under which the
Company is required to capitalize software development costs after technological
feasibility is established, which the Company defines as a working model and
further defines as a beta version of the software. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic life and changes in technology. Costs that
do not qualify for capitalization are charged to R&D expense when incurred. To
date, internal software development costs that were eligible for capitalization
have not been significant and the Company has charged all internal software
developments costs to R&D expense as incurred.

                                       12
<PAGE>   13

Sales and marketing
Sales and marketing ("S&M") expenses consist primarily of salaries and
commissions of sales and marketing personnel, advertising and promotional
expenses, and customer service and support costs. The decrease in S&M expenses
both in absolute dollars and as a percentage of total net revenues for the
three- and six-month periods ended June 30, 1998 as compared to the same periods
in 1997 primarily reflects cost savings related to employee attrition and the
resulting declines in salaries and benefits, and a decline in promotional
expenses as the Company re-evaluated its marketing and selling strategies.

General and administrative
General and administrative ("G&A") expenses increased in absolute dollars for
the three- and six-month periods ended June 30, 1998 as compared to the same
periods in 1997 due to an increase in salaries expense as a result of the
NetSoft acquisition as well as additional legal expenses associated with
defending the lawsuits filed against the Company in 1997 as discussed in Part
II, Item 1, Legal Proceedings. The change in G&A expenses as a percentage of
total net revenues for both the three- and six-month periods ended June 30, 1998
as compared to the same periods in 1997, is attributable to the corresponding
changes in the total net revenues base.

Interest income and other, net
The decline in interest income and other, net in both absolute dollars and as a
percentage of total net revenues for both the three- and six-month periods ended
June 30, 1998 as compared to the same periods in 1997 is primarily the result of
a decrease in the aggregate amount of cash and investments from $103.4 million
at June 30, 1997 to $71.4 million at June 30, 1998.

<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------------------
                                                    |                |
                                                      As of June 30,      As of December 31,
(In millions)                                              1998                   1997
--------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>    
Cash and cash equivalents                               $  24.8                $  12.7
Short-term investments                                     26.0                   36.8
Long-term investments                                      20.6                   19.7
Net cash provided by (used in) operating activities         1.1                   (5.8)
Net cash provided by (used in) investing activities         9.1                   (1.9)
Net cash provided by financing activities                   1.2                    1.2
                                                        -------                 ------
</TABLE>


Since the Company's inception, growth has been financed primarily through cash
provided by operations and sales of capital stock. The Company's primary
financing activities to date consist of its initial and secondary stock
offerings and preferred stock issuances, and have aggregated net proceeds to the
Company of approximately $72.5 million. The Company does not have a bank line of
credit or an equipment lease facility.

The Company's cash and cash equivalents, short-term investments and long-term
investments increased from $69.3 million at December 31, 1997 to $71.4 million
at June 30, 1998. This increase was primarily due to cash provided by the
Company's operations and investing activities.

The Company's principal investing activities to date have been the purchase of
short and long-term investments, purchases of property and equipment, and cash
payments for acquisitions. Net of amounts invested, the Company received
proceeds of $9.5 million from maturities of short-term and long-term investments
during the six-month period ended June 30, 1998. Expenditures for purchases of
property and equipment were minimal during the six months ended June 30,1998 due
to the Company's efforts to control operating expenses and attempt to return the
Company to profitability. The Company does not have any specific commitments
with regard to future capital expenditures. The Company's principal commitment
as of June 30, 1998 consists of leases on its facilities.


                                       13

<PAGE>   14

Net cash provided by financing activities during the second quarter of 1998
reflects proceeds from the issuance of common stock under the Company's stock
option plan.

At June 30, 1998, the Company had working capital of $56.0 million. The Company
believes that its current cash balances and cash flows from current operations
will be sufficient to meet the Company's working capital and capital expenditure
requirements for the foreseeable future.


FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

Fluctuations in Operating Results
The Company has experienced and expects to experience in future periods
significant fluctuations in operating results that may be caused by many factors
including, among others, demand for the Company's products, introduction or
enhancements of products by the Company or its competitors, technological
changes in computer networking; market acceptance of new products, customer
order deferrals in anticipation of new products, the size and timing of
individual orders, mix of international and domestic revenues, mix of
distribution channels through which the Company's products are sold, seasonality
of revenues, quality control of products, changes in the Company's operating
expenses, personnel changes, foreign currency exchange rates and general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.

Lack of Backlog
Because the Company generally ships software products within a short period
after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and revenues in any one quarter are substantially
dependent on orders booked in that quarter. The Company's expense levels are
based in part on its expectations as to future revenues and to a large extent
are fixed. Therefore, the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall of demand in relation to the Company's expectations or any
material delay of customer orders would have an almost immediate adverse impact
on the Company's operating results and on the Company's ability to achieve
profitability. Fluctuations in operating results may also result in volatility
in the price of the Company's common stock.

Restructuring Risks
During 1997, the Company initiated a plan to restructure its operations and
focus on its core competencies of UNIX(R), AS/400(R) Midrange and IBM Mainframe
connectivity. The restructuring actions were substantially completed as of the
end of the second quarter of 1998.The Company undertook the restructuring in
response to adverse business conditions in order to improve the Company's future
financial performance, however, no assurance can be given that the restructuring
will prove to be successful, that future operating results will improve, or that
the actions undertaken in the restructuring will not disrupt the Company's
remaining operations. Further, there can be no assurance that additional
reorganization of the Company's operations will not be required in the future.

Risks of Acquisitions
The Company's merger and acquisition transactions, including the recent
acquisitions of NetSoft and Relay and the agreement to acquire FTP, have been
motivated by various factors, including the desire to obtain new technologies,
expand and enhance the Company's product offerings, attract key personnel and
strengthen the Company's presence in the international and OEM marketplace.
Product and technology acquisitions entail numerous risks, including the
diversion of management's attention away from day-to-day operations,
difficulties in the assimilation of acquired operations and personnel (such as
sales, engineering and customer support), the incorporation of acquired products
into existing product lines, the failure to realize anticipated benefits in
terms of cost savings and synergies, undisclosed liabilities, adverse short-term
effects on reported operating results, the amortization of acquired intangible
assets, the potential loss of key employees from acquired companies and the
difficulty of presenting a unified corporate image.


                                       14

<PAGE>   15

The Company regularly evaluates product and technology acquisition opportunities
and anticipates that it may make additional acquisitions in the future if it
determines that an acquisition would further its corporate strategy. No
assurance can be given that any acquisition by the Company will or will not
occur, that if an acquisition does occur that it will not materially and
adversely affect the Company or that any such acquisition will be successful in
enhancing the Company's business. If the operations of an acquired company or
business do not meet the Company's expectations, the Company may be required to
restructure the acquired business or write-off the value of some or all of the
assets of the acquired business.

Product Development and Competition
The market for the Company's products is intensely competitive and characterized
by rapidly changing technology, evolving industry standards, changes in
customers' needs and frequent new product introductions. Particularly over the
past year, many customers have delayed purchase decisions due to the confusion
in the marketplace relating to rapidly changing technology and product
introductions. To maintain or improve its position in this industry, the Company
must continue to enhance its current products and to develop, introduce
successfully and market new products on a timely and cost-effective basis. The
Company has experienced difficulty in developing and introducing new products
and enhancing existing products in a manner which satisfies customer
requirements and changing market demands. Any further failure by the Company to
anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in product development or introduction,
would have a material adverse effect on the Company's results of operations. The
failure to develop on a timely basis these or other enhancements incorporating
new functionality could cause customers to delay purchase of the Company's
current products or cause customers to purchase products from the Company's
competitors; either situation would adversely affect the Company's results of
operations. There can be no assurance that the Company will be successful in
developing new products or enhancing its existing products on a timely basis, or
that such new products or product enhancements will achieve market acceptance.

Many of the Company's competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base, than the Company. The market for the
Company's products is characterized by significant price competition and the
Company anticipates that it will face increasing pricing pressures from its
current and new competitors in the future. Moreover, given that there are low
barriers to entry into the software market and that the market is rapidly
evolving and subject to rapid technological change, the Company believes that
competition will persist and intensify in the future. Accordingly, there can be
no assurance that the Company will be able to provide products that compare
favorably with the products of the Company's competitors or that competitive
pressures will not require the Company to reduce its prices. Any material
reduction in the price of the Company's products would require the Company to
increase unit sales in order to maintain revenues at existing levels. There can
be no assurance that the Company will be successful in doing so. The Company
recently announced products complementary with connectivity products marketed by
Microsoft. Microsoft is expected to increase development of such products which
could have a material adverse effect on the Company's results of operations in
the future.

The Company's competitors could seek to expand their product offerings by
designing and selling products using technology that could render obsolete or
adversely affect sales of the Company's products. These developments may
adversely affect the Company's sales of its own products either by directly
affecting customer purchasing decisions or by causing potential customers to
delay their purchases of the Company's products.

Substantially all of the Company's net revenues have been derived from the sales
of products that provide inter-networking applications for the Microsoft Windows
environment and are marketed primarily to Windows users. As a result, sales of
the Company's products would be materially adversely affected by market
developments adverse to Windows. In addition, the Company's strategy of
developing products based on the Windows operating environment is substantially
dependent on its ability to gain pre-release access to, and to develop expertise
in, current and future Windows developments by Microsoft. No assurance can be
given as to the ability of the Company to provide on a timely basis products
compatible with future Windows releases.


                                       15
<PAGE>   16

Global Market Risks
The Company derived approximately 27% and 30% of net revenues from international
sales during the three and six-months ended June 30, 1998, respectively. While
the Company expects that international sales will continue to account for a
significant portion of its net revenues, there can be no assurance that the
Company will be able to maintain or increase international market demand for the
Company's products or that the Company's distributors will be able to
effectively meet that demand. Risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs and risks of localizing
products for foreign countries, longer accounts receivable payment cycles,
difficulties in managing international operations, currency fluctuations,
potentially adverse tax consequences, repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. There can be no assurance that
such factors will not have an adverse effect on the Company's future
international sales and, consequently, on the Company's results of operations.
In addition, the recent financial difficulties of Asian economies could result
in reduced revenue from sales to customer locations in such areas.

Marketing and Distribution
As part of its strategy to develop multiple distribution channels, the Company
expects to increase its use of direct sales, resellers, particularly value added
resellers and system integrators, in addition to distributors and original
equipment manufacturers. The Company expects that indirect sales will grow as a
percentage of both domestic and total revenues and that any material increase in
the Company's indirect sales as a percentage of revenues will adversely affect
the Company's average selling prices and gross margins due to the lower unit
costs that are typically charged when selling through indirect channels. There
can be no assurance that the Company will be able to attract or retain resellers
and distributors who will be able to market the combined companies' products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The Company ships products to resellers and distributors on
a purchase order basis, and many of the Company's resellers and distributors
carry competing product lines. Therefore, there can be no assurance that any
reseller or distributor will continue to represent the combined companies'
products, and the inability to recruit or retain important resellers or
distributors could adversely affect the Company's results of operations.

Proprietary Rights
The Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary rights. The Company seeks to protect its software, documentation
and other written materials under patent, trade secret and copyright laws, which
afford only limited protection. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In selling its products, the Company relies primarily on "shrink wrap"
licenses that are not signed by licensees and, therefore, may be unenforceable
under the laws of certain jurisdictions. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an extent
as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology. In
addition, the Company has received, and may receive in the future,
communications from third parties asserting that the Company's products
infringe, or may infringe, the proprietary rights of third parties, seeking
indemnification against such infringement or indicating that the Company may be
interested in obtaining a license from such third parties. There can be no
assurance that any of such claims would not result in protracted and costly
litigation.

The Company believes that, due to the rapid pace of innovation within its
industry, factors such as the technological and creative skills of its personnel
are more important to establishing and maintaining a technology leadership
position within the industry than are the various legal means of protecting its
technology. The Company believes that its products and technology do not
infringe any existing proprietary rights of others, although there can be no
assurance that third parties will not assert infringement claims in the future.

                                       16
<PAGE>   17


Employee Retention
The majority of the Company's employee workforce is located in the extremely
competitive employment markets of the Silicon Valley and Orange County in
California and in Haifa, Israel. During the latter half of 1996 and throughout
1997, the Company experienced high attrition at all levels and across all
functions of the Company. The attrition experienced by the Company was
attributable to various factors including, among others, industry-wide demand
exceeding supply for experienced engineering and sales professionals. The
Company has and will continue to address the issue of attrition. Managing
employee attrition, integrating acquired operations and products and expanding
both the geographic areas of its customer base and operations have resulted in
substantial demands on the Company's management resources. The Company's future
operating results will be dependent in part on its ability to retain and attract
its employee workforce, train and manage its management and employee base, and
continue to implement and improve its operating and financial controls. There
can be no assurance that the Company will be able to manage such challenges
successfully.

Year 2000 Compliance
The Company is aware of the issues associated with the programming code in
existing computers systems as the millenium ("year 2000") approaches. The issue
is whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. The Company believes that any costs incurred
related to year 2000 compliance will not have a material impact on its business,
operations or financial condition.






     NetManage, Chameleon UNIX(R) Link, Chameleon HostLink, Chameleon 3270LT,
     Chameleon Host Agent, OpSession, SupportNow, NS/Portfolio, NS/Router, the
     NetManage logo and the lizard logos are trademarks or registered trademarks
     of NetManage, Inc. in the United States and other Countries. UNIX(R) is a
     registered trademark in the U.S. and other countries, licensed exclusively
     through X/Open Company Limited. AS/400(R) is a registered trademark in the
     U.S. and other countries of International Business Machines Corporation.
     All other trademarks are the property of their respective owners. 


                                       17
<PAGE>   18

PART II     OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On January 9, 1997, a securities class action complaint, Head, et al. v.
NetManage, Inc., et al., No. 07763295, was filed in the Superior Court of
California, Santa Clara County, against the Company and certain of its directors
and current and former officers. On January 10, 1997, the same plaintiffs filed
a securities class action complaint, Head, et al. v. NetManage, Inc., et al.,
No. C-97-20061-JW, in the United States District Court for the Northern District
of California, against the same defendants. Both complaints allege that, between
July 25, 1995 and January 11, 1996, the defendants made false or misleading
statements of material fact about the Company's prospects and failed to follow
generally accepted accounting principles. The state court complaint asserts
claims under California state law; the federal court complaint asserts claims
under the federal securities laws. In addition, on September 10, 1997, the
Company and several of its officers and directors were named in a securities
class action complaint filed in the Northern District of California, Beasley v.
NetManage, Inc., et al., C-97-3329 FMS, (N.D. Cal.). This complaint is
substantially similar to the previously-filed case of Head et al. v. NetManage,
Inc. et al., discussed above, and contains similar allegations, names the same
defendants, and purports to represent purchasers of NetManage stock during the
same class period as in the previously-filed complaint. The complaints seek an
unspecified amount of damages. On February 24, 1998, the federal court granted
the defendants' motion to dismiss the federal class action complaint in Head, et
al. v. NetManage, Inc., et al. The plaintiffs filed an amended complaint and the
defendants have moved to dismiss. The Company believes there is no merit to
these cases and intends to defend both cases vigorously. There can be no
assurance that the Company will be able to prevail in the lawsuits, or that the
pendency of the lawsuits will not adversely affect the Company's operations. As
the outcome of this matter cannot be reasonably determined, the Company has not
accrued for any potential loss contingencies.

On March 21, 1997, a securities class action complaint, Interactive Data
Systems, Inc., et al. v. NetManage, Inc., et al., No. CV764945, was filed in the
Superior Court of California, Santa Clara County, against the Company and
certain of its directors and officers. On June 19, 1997, one of the plaintiffs
in that action filed a securities class action complaint, Molinari v. NetManage,
Inc., et al., No. C-97-20544-JW-PVT, in the United States District Court for the
Northern District of California against the same defendants. Both complaints
allege that, between April 18, 1996 and July 18, 1996, the defendants made false
or misleading statements of material fact about the Company's prospects. The
state court complaint asserts claims under California state law; the federal
complaint asserts claims under the federal securities laws. Both complaints seek
an unspecified amount of damages. On February 26, 1998, the state court entered
judgement in favor of the Company in the state case. The plaintiffs have filed a
notice of appeal from this judgement and are expected to file an amended
complaint as to the individual defendants. The Company believes there is no
merit to either case and intends to defend both cases vigorously. There can be
no assurance that the Company will be able to prevail in the lawsuits, or that
the pendency of the lawsuits will not adversely affect the Company's operations.
As the outcome of this matter cannot be reasonably determined, the Company has
not accrued for any potential loss contingencies.

On October 10, 1997, a verified derivative complaint was filed in the United
States District Court for the Northern District of California against nine
present and former officers and directors of the Company alleging that these
persons violated various duties to the Company. Sucher v. Alon et al., No.
C-98-203-CRB. The derivative complaint also names the Company as a nominal
defendant. The derivative complaint is predicated on the factual allegations
contained in the class action complaints discussed above. No demand was
previously made to the Company's Board of Directors concerning the allegations
of the derivative complaint, which seeks an unspecified amount of damages. The
Court dismissed the complaint on the ground that the plaintiff was obligated to
make a demand on the Board of Directors. The plaintiff is expected to file an
amended complaint.

On November 26, 1997, a complaint was filed against the Company in the Superior
Court of California, San Diego County, Shaw et al. v. NetManage, Inc., No.
716081. The plaintiffs, who held a significant ownership interest in AGE before
it was acquired by NetManage, bring causes of action alleging fraud, negligent
misrepresentations, negligence and breach of contract with respect to the
Company's acquisition of AGE. The complaint seeks an unspecified amount of
damages. The Company believes there is no merit to the case and intends to
defend the case vigorously. There can be no assurance that the Company will be
able to prevail in the lawsuit, or that the pendency 

                                       18


<PAGE>   19

of the lawsuit will not adversely affect the Company's operations. As the
outcome of this matter cannot be reasonably determined, the Company has not
accrued for any loss contingencies.

The Company may be contingently liable with respect to certain asserted and
unasserted claims that arise during the normal course of business. In the
opinion of management, the outcome of all other such matters presently known to
management will not have a material adverse effect on the Company's business,
financial position or results of operations.

ITEM 2.  CHANGES IN SECURITIES

Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

The 1998 Annual Meeting of Stockholders was held at the offices of the Company
at 10725 N. DeAnza Boulevard, Cupertino, California on May 21, 1998 at 9:00 a.m.
local time, for the following purposes:

1.   To elect two directors to hold office until the Annual Meeting of
     Stockholders in the year 2001

2.   To ratify the selection of Arthur Andersen LLP as the independent auditors
     of the Company for its fiscal year ending December 31, 1998.

Stockholders of record at the close of business on March 30, 1998 were entitled
to vote at the meeting.

a.     On the vote for the election of the directors, the following individuals
       received the number of votes indicated:
<TABLE>
<CAPTION>

                                                    For                         Against
                                                    ---                         -------
<S>                                             <C>                             <C>      
       John Bosch                               38,186,131                      1,322,365
       Dr. Shelley Harrison                     38,206,050                      1,302,446
</TABLE>

b.     On the motion with respect to the selection of Arthur Andersen LLP as the
       independent auditors of the Company:
<TABLE>
<CAPTION>

<S>                                             <C>                             <C>      
                     For                          Against                       Abstain
                     ---                          -------                       -------                     
                  39,044,647                      384,405                       79,444
</TABLE>

ITEM 5.  OTHER INFORMATION

Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.       Exhibits

<TABLE>
        <S>       <C>
          2.1     Agreement and Plan of Reorganization among the Company, FTP
                  Software, Inc. and Amanda Acquisition Corp. dated as of June
                  15, 1998, as amended on June 30, 1998 and July 14, 1998
                  (Incorporated by reference from exhibit to Registration
                  Statement on Form S-4, File No. 333-59101) filed by the
                  Company with the Commission on July 15, 1998.

          27.1    Financial Data Schedule.
</TABLE>

b.       Reports on Form 8-K

         A Current Report on Form 8K dated June 15, 1998 was filed by the
         Registrant on June 19, 1998 to report under Item 5 thereof, the
         Registrant's Agreement and Plan of Reorganization among the Registrant,
         Amanda Acquisition Corporation and FTP Software, Inc.


                                       19

<PAGE>   20



                                   SIGNATURES



PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.



                                                NETMANAGE, INC.
                                                (REGISTRANT)


DATE: AUGUST, 14, 1998                          BY:   /S/ GARY R. ANDERSON
      ----------------------------              -----------------------------
                                                GARY R. ANDERSON
                                                CHIEF FINANCIAL OFFICER AND
                                                SENIOR VICE PRESIDENT
                                                (PRINCIPAL FINANCIAL AND
                                                ACCOUNTING OFFICER)



                                       20
<PAGE>   21

INDEX TO EXHIBITS

Exhibit
Number                  Description
------                  -----------

27.1               Financial Data Schedule