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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, DC 20549




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FORM 10-Q





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

For the quarterly period ended June 30, 2003

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period
from __________ to __________

Commission file number 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 [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes
[   ]    No [ X ]

Number of shares of registrants common stock outstanding as of August 5, 2003:
8,664,900.



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TABLE OF CONTENTS



|                          |                                                                                                |                                                         |  |  |  |  |  | 
|------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------- |  |  |  |  |  | 
|                          |                                                                                                | Condensed Consolidated Balance Sheets                  
|                          |                                                                                                | Condensed Consolidated Statements of Operations        
|                          |                                                                                                | Condensed Consolidated Statements of Comprehensive Loss
|                          |                                                                                                | Condensed Consolidated Statements of Cash Flows        
|                          |                                                                                                | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS   
|                          | Item 2  Managements discussion and analysis of financial condition and results of operations
|                          | Item 3. Quantitative and qualitative disclosures about market risk                            
|                          | Item 4. Controls and procedures                                                               
|PART II OTHER INFORMATION
|                          | Item 1. Legal Proceedings                                                                     
|                          | Item 2. Changes in Securities                                                                 
|                          | Item 3. Defaults upon Senior Securities                                                       
|                          | Item 4. Submission of Matters to a Vote of Security Holders                                   
|                          | Item 5. Other Information                                                                     
|                          | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES               
|EXHIBIT INDEX            
|EXHIBIT 10.19            
|EXHIBIT 31.1             
|EXHIBIT 31.2             
|EXHIBIT 32.1             



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NetManage, Inc.
Table of Contents

|         |  |                                                                                       |  |                                                                                                                                         |    |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|         |  |                                                                                       |  |                                                                                                                                         |    | Page
|         |  |                                                                                       |  |                                                                                                                                         |    |     
|Part I.  |  | Financial Information                                                                 |  |                                                                                                                                         |    |     
|Item 1.  |  | Financial Statements                                                                  |  |                                                                                                                                         |    |     
|         |  |                                                                                       |  | Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002                                                            |    |      | 3  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and
June 30, 2002(as restated)         |    |      | 4  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended June 30,
2003 and June 30, 2002(as restated) |    |      | 5  | 
|         |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2003 and
June 30, 2002(as restated)                   |    |      | 6  | 
|         |  |                                                                                       |  | Notes to Condensed Consolidated Financial Statements                                                                                    |    |      | 7  | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                                                         | 17 |     
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                                         | 32 |     
|Item 4   |  | Controls and Procedures                                                               |  |                                                                                                                                         | 32 |     
|PART II. |  | OTHER INFORMATION                                                                     |  |                                                                                                                                         |    |     
|Item 1.  |  | Legal Proceedings                                                                     |  |                                                                                                                                         | 34 |     
|Item 2.  |  | Changes in Securities                                                                 |  |                                                                                                                                         | 34 |     
|Item 3.  |  | Defaults upon Senior Securities                                                       |  |                                                                                                                                         | 35 |     
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                                         | 35 |     
|Item 5.  |  | Other Information                                                                     |  |                                                                                                                                         | 35 |     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                         | 36 |     
|         |  |                                                                                       |  | Signatures                                                                                                                              |    |      | 37 | 
|         |  |                                                                                       |  | Certifications                                                                                                                          |    |      | 38 | 

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NetManage, Inc.




Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)


|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |        |        |        | 
|-------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------ | -------- | ------ | ------------ | ------ | ------ | ------ | 
|                                       |                                                                         |                                                            |                           |                                            |        | June 30, |        | December 31,
|                                       |                                                                         |                                                            |                           |                                            |        | 2003     |        | 2002        
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |             
|ASSETS                                 |                                                                         |                                                            |                           |                                            |        |          |        |             
|Current Assets:                        |                                                                         |                                                            |                           |                                            |        |          |        |             
|                                       | Cash and cash equivalents                                               |                                                            | $                         | 25,749                                     |        |          | $      | 24,014       |       
|                                       | Short-term investments                                                  |                                                            |                           | 273                                        |        |          |        | 80           |       
|                                       | Accounts receivable, net of allowances of $919 and $1,077, respectively |                                                            |                           | 6,204                                      |        |          |        | 18,332       |       
|                                       | Prepaid expenses and other current assets                               |                                                            |                           | 3,219                                      |        |          |        | 2,933        |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         | Total current assets                                       |                           |                                            | 35,445 |          |        |              | 45,359 |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|Property and equipment, at cost        |                                                                         |                                                            |                           |                                            |        |          |        |             
|                                       |                                                                         | Computer software and equipment                            |                           |                                            | 1,317  |          |        |              | 1,106  |       
|                                       |                                                                         | Furniture and fixtures                                     |                           |                                            | 5,107  |          |        |              | 4,598  |       
|                                       |                                                                         | Leasehold improvements                                     |                           |                                            | 1,354  |          |        |              | 1,273  |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            | 7,778                     |                                            |        |          | 6,977  |             
|                                       |                                                                         | Less-accumulated depreciation                              |                           |                                            | (5,712 | )        |        |              | (4,654 | )     
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            |                           | Net property and equipment                 |        |          | 2,066  |              |        |        | 2,323  | 
|Goodwill, net                          |                                                                         |                                                            | 1,762                     |                                            |        |          | 1,762  |             
|Other intangibles, net                 |                                                                         |                                                            | 2,615                     |                                            |        |          | 3,573  |             
|Other assets                           |                                                                         |                                                            | 313                       |                                            |        |          | 221    |             
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            |                           | Total assets                               |        | $        | 42,201 |              |        | $      | 53,238 | 
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                         |                                                            |                           |                                            |        |          |        |             
|Current Liabilities:                   |                                                                         |                                                            |                           |                                            |        |          |        |             
|                                       | Accounts payable                                                        |                                                            | $                         | 2,360                                      |        |          | $      | 2,431        |       
|                                       | Accrued liabilities                                                     |                                                            |                           | 8,055                                      |        |          |        | 9,549        |       
|                                       | Accrued payroll and related expenses                                    |                                                            |                           | 2,990                                      |        |          |        | 3,693        |       
|                                       | Deferred revenue                                                        |                                                            |                           | 13,674                                     |        |          |        | 18,551       |       
|                                       | Income taxes payable                                                    |                                                            |                           | 1,567                                      |        |          |        | 1,346        |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            | Total current liabilities |                                            |        | 28,646   |        |              |        | 35,570 |       
|Long-term liabilities                  |                                                                         |                                                            | 1,516                     |                                            |        |          | 1,581  |             
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            | Total liabilities         |                                            |        | 30,162   |        |              |        | 37,151 |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|Commitments and contingencies (Note 5) |                                                                         |                                                            |                           |                                            |        |          |        |             
|Stockholders equity:                  |                                                                         |                                                            |                           |                                            |        |          |        |             
|                                       | Common stock, $0.01 par value -                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         | Authorized - 125,000,000 shares                            |                           |                                            |        |          |        |              |        |       
|                                       |                                                                         | Issued - 10,741,748 and 10,698,025 shares, respectively    |                           |                                            |        |          |        |              |        |       
|                                       |                                                                         | Outstanding - 8,664,900 and 8,693,108 shares, respectively |                           |                                            | 107    |          |        |              | 107    |       
|                                       | Treasury stock, at cost - 2,076,848 and 2,004,917 shares, respectively  |                                                            |                           | (20,804                                    | )      |          |        | (20,629      | )     
|                                       | Additional paid in capital                                              |                                                            |                           | 177,868                                    |        |          |        | 177,836      |       
|                                       | Accumulated deficit                                                     |                                                            |                           | (141,059                                   | )      |          |        | (138,157     | )     
|                                       | Accumulated other comprehensive loss                                    |                                                            |                           | (4,073                                     | )      |          |        | (3,070       | )     
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         | Total stockholders equity                                 |                           |                                            | 12,039 |          |        |              | 16,087 |       
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       
|                                       |                                                                         |                                                            |                           | Total liabilities and stockholders equity |        | $        | 42,201 |              |        | $      | 53,238 | 
|                                       |                                                                         |                                                            |                           |                                            |        |          |        |              |       

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

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NetManage, Inc.




Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |        | 
|------------------------------------------- | ------------------------------------ | ------------------------ | ------ | ------------------ | ------ | ---------------- | ------ | ------------- | ------ | ---- | ------ | ------ | ------ | ------------- | ------ | ------ | ------ | 
|                                            |                                      |                          |        | Three Months Ended |        | Six Months Ended
|                                            |                                      |                          |        | June 30,           |        | June 30,        
|                                            |                                      |                          |        |                    |        |                 
|                                            |                                      |                          |        | 2003               |        | 2002             |        | 2003          |        | 2002
|                                            |                                      |                          |        |                    |        |                  |        |               |        |     
|                                            |                                      |                          |        |                    |        |                  |        | (As restated, |        |      |        |        |        | (As restated,
|                                            |                                      |                          |        |                    |        |                  |        | see Note 7)   |        |      |        |        |        | see Note 7)  
|Net revenues:                               |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |       
|                                            | License fees                         |                          | $      | 4,227              |        |                  | $      | 7,890         |        |      | $      | 10,236 |        |               | $      | 18,053 |       
|                                            | Services                             |                          |        | 7,645              |        |                  |        | 8,304         |        |      |        | 15,754 |        |               |        | 17,161 |       
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|                                            |                                      | Total net revenues       |        |                    | 11,872 |                  |        |               | 16,194 |      |        |        | 25,990 |               |        |        | 35,214 | 
|Cost of revenues:                           |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |       
|                                            | License fees                         |                          |        | 558                |        |                  |        | 579           |        |      |        | 1,076  |        |               |        | 1,382  |       
|                                            | Services                             |                          |        | 1,206              |        |                  |        | 1,651         |        |      |        | 2,527  |        |               |        | 3,316  |       
|                                            | Amortization of developed technology |                          |        | 349                |        |                  |        | 561           |        |      |        | 659    |        |               |        | 1,122  |       
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|                                            |                                      | Total cost of revenues   |        |                    | 2,113  |                  |        |               | 2,791  |      |        |        | 4,262  |               |        |        | 5,820  | 
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Gross margin                                |                                      |                          | 9,759  |                    |        |                  | 13,403 |               |        |      | 21,728 |        |        |               | 29,394 |       
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Operating expenses:                         |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |       
|                                            | Research and development             |                          |        | 2,103              |        |                  |        | 3,592         |        |      |        | 4,716  |        |               |        | 7,189  |       
|                                            | Sales and marketing                  |                          |        | 6,174              |        |                  |        | 10,012        |        |      |        | 13,635 |        |               |        | 19,451 |       
|                                            | General and administrative           |                          |        | 3,032              |        |                  |        | 2,499         |        |      |        | 5,769  |        |               |        | 4,970  |       
|                                            | Restructuring charges, net           |                          |        | 909                |        |                  |        |              |        |      |        | 1,490  |        |               |        |       |       
|                                            | Amortization of intangible assets    |                          |        | 150                |        |                  |        | 202           |        |      |        | 299    |        |               |        | 404    |       
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|                                            |                                      | Total operating expenses |        |                    | 12,368 |                  |        |               | 16,305 |      |        |        | 25,909 |               |        |        | 32,014 | 
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Loss from operations                        |                                      |                          | (2,609 | )                  |        |                  | (2,902 | )             |        |      | (4,181 | )      |        |               | (2,620 | )     
|Loss on investments, net                    |                                      |                          |       |                    |        |                  |       |               |        |      | (32    | )      |        |               |       |       
|Interest income and other, net              |                                      |                          | 57     |                    |        |                  | 121    |               |        |      | 120    |        |        |               | 202    |       
|Foreign currency transaction gains (losses) |                                      |                          | 854    |                    |        |                  | (713   | )             |        |      | 890    |        |        |               | (1,308 | )     
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Loss before income taxes                    |                                      |                          | (1,698 | )                  |        |                  | (3,494 | )             |        |      | (3,203 | )      |        |               | (3,726 | )     
|Provision (benefit) for income taxes        |                                      |                          | 16     |                    |        |                  | 340    |               |        |      | (301   | )      |        |               | 587    |       
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Net loss                                    |                                      | $                        | (1,714 | )                  |        | $                | (3,834 | )             |        | $    | (2,902 | )      |        | $             | (4,313 | )     
|                                            |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |        |       
|Net loss per share                          |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |       
|                                            | Basic and diluted                    |                          | $      | (0.20              | )      |                  | $      | (0.43         | )      |      | $      | (0.34  | )      |               | $      | (0.48  | )     
|Weighted average common shares              |                                      |                          |        |                    |        |                  |        |               |        |      |        |        |        |               |        |       
|                                            | Basic and diluted                    |                          |        | 8,650              |        |                  |        | 8,977         |        |      |        | 8,636  |        |               |        | 9,031  |       

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

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NetManage, Inc.




Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)


|                                   |                                               |   |                    |        |                  |   |               |       |      |   |        |        |               |   |        |       |  
|---------------------------------- | --------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------------- | ----- | ---- | - | ------ | ------ | ------------- | - | ------ | ----- | -
|                                   |                                               |   | Three Months Ended |        | Six Months Ended
|                                   |                                               |   | June 30,           |        | June 30,        
|                                   |                                               |   |                    |        |                 
|                                   |                                               |   | 2003               |        | 2002             |   | 2003          |       | 2002
|                                   |                                               |   |                    |        |                  |   |               |       |     
|                                   |                                               |   |                    |        |                  |   | (As restated, |       |      |   |        |        | (As restated,
|                                   |                                               |   |                    |        |                  |   | see Note 7)   |       |      |   |        |        | see Note 7)  
|Net loss                           |                                               | $ | (1,714             | )      |                  | $ | (3,834        | )     |      | $ | (2,902 | )      |               | $ | (4,313 | )    
|Other
comprehensive income (loss): |                                               |   |                    |        |                  |   |               |       |      |   |        |        |               |   |        |      
|                                   | Unrealized gain (loss) on investments, net    |   |                    | (39    | )                |   |               | (570  | )    |   |        | 47     |               |   |        | (630  | )
|                                   | Foreign currency translation adjustments, net |   |                    | (1,016 | )                |   |               | 1,802 |      |   |        | (1,050 | )             |   |        | 2,011 |  
|                                   |                                               |   |                    |        |                  |   |               |       |      |   |        |        |               |   |        |      
|Total comprehensive loss           |                                               | $ | (2,769             | )      |                  | $ | (2,602        | )     |      | $ | (3,905 | )      |               | $ | (2,932 | )    
|                                   |                                               |   |                    |        |                  |   |               |       |      |   |        |        |               |   |        |      

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

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NetManage, Inc.




Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |       |               |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------- | --------------------------------------------------------- | --------------------------------------------------- | ----- | ---------------- | ------ | ------ | ----- | ------------- | ------ | -
|                                                     |                                                                                            |                                              |                                                           |                                                     |       | Six Months Ended
|                                                     |                                                                                            |                                              |                                                           |                                                     |       | June 30,        
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                 
|                                                     |                                                                                            |                                              |                                                           |                                                     |       | 2003             |        | 2002  
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |       
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |       | (As restated,
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |       | see Note 7)  
|Cash flows from operating activities:                |                                                                                            |                                              |                                                           |                                                     |       |                  |        |       
|                                                     | Net loss                                                                                   |                                              | $                                                         | (2,902                                              | )     |                  | $      | (4,313 | )    
|                                                     | Adjustments to reconcile net loss to net cash provided by (used in ) operating activities: |                                              |                                                           |                                                     |       |                  |        |        |      
|                                                     |                                                                                            | Depreciation and amortization                |                                                           |                                                     | 1,625 |                  |        |        | 2,517 |              
|                                                     |                                                                                            | Provision for doubtful accounts and returns  |                                                           |                                                     | 25    |                  |        |        | 9     |              
|                                                     |                                                                                            | Loss on disposal of fixed assets             |                                                           |                                                     | 36    |                  |        |        | 265   |              
|                                                     |                                                                                            | Loss on investments                          |                                                           |                                                     | 32    |                  |        |        |      |              
|                                                     |                                                                                            | Changes in operating assets and liabilities: |                                                           |                                                     |       |                  |        |        |       |              
|                                                     |                                                                                            |                                              | Accounts receivable                                       |                                                     |       | 12,103           |        |        |       | 6,357         |       
|                                                     |                                                                                            |                                              | Prepaid expenses and other current assets                 |                                                     |       | (186             | )      |        |       | (815          | )     
|                                                     |                                                                                            |                                              | Other assets                                              |                                                     |       | (92              | )      |        |       | 261           |       
|                                                     |                                                                                            |                                              | Accounts payable                                          |                                                     |       | (173             | )      |        |       | (612          | )     
|                                                     |                                                                                            |                                              | Accrued liabilities, payroll and payroll-related expenses |                                                     |       | (2,506           | )      |        |       | (86           | )     
|                                                     |                                                                                            |                                              | Deferred revenue                                          |                                                     |       | (5,186           | )      |        |       | (4,397        | )     
|                                                     |                                                                                            |                                              | Income taxes payable                                      |                                                     |       | 221              |        |        |       | 603           |       
|                                                     |                                                                                            |                                              | Long-term liabilities                                     |                                                     |       | (65              | )      |        |       | (615          | )     
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|                                                     |                                                                                            |                                              |                                                           | Net cash provided by (used in) operating activities |       |                  | 2,932  |        |       |               | (826   | )
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|Cash flows from investing activities:                |                                                                                            |                                              |                                                           |                                                     |       |                  |        |       
|                                                     | Purchases of short-term investments                                                        |                                              |                                                           | (184                                                | )     |                  |        | (11    | )    
|                                                     | Proceeds from maturities of short-term investments                                         |                                              |                                                           | 36                                                  |       |                  |        |       |      
|                                                     | Purchases of property and equipment                                                        |                                              |                                                           | (261                                                | )     |                  |        | (467   | )    
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|                                                     |                                                                                            |                                              |                                                           | Net cash used in investing activities               |       |                  | (409   | )      |       |               | (478   | )
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|Cash flows from financing activities:                |                                                                                            |                                              |                                                           |                                                     |       |                  |        |       
|                                                     | Proceeds from sale of common stock, net of issuance costs                                  |                                              |                                                           | 32                                                  |       |                  |        | 342    |      
|                                                     | Repurchase of common stock                                                                 |                                              |                                                           | (175                                                | )     |                  |        | (1,643 | )    
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|                                                     |                                                                                            |                                              |                                                           | Net cash used in financing activities               |       |                  | (143   | )      |       |               | (1,301 | )
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|Effect of exchange rate changes on cash              |                                                                                            |                                              | (645                                                      | )                                                   |       |                  | 454    |       
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|Net increase (decrease) in cash and cash equivalents |                                                                                            |                                              | 1,735                                                     |                                                     |       |                  | (2,151 | )     
|Cash and cash equivalents, beginning of the period   |                                                                                            |                                              | 24,014                                                    |                                                     |       |                  | 33,038 |       
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      
|Cash and cash equivalents, end of the period         |                                                                                            | $                                            | 25,749                                                    |                                                     |       | $                | 30,887 |       
|                                                     |                                                                                            |                                              |                                                           |                                                     |       |                  |        |        |      

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

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NETMANAGE, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Interim financial data



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying interim unaudited condensed consolidated financial
statements of NetManage, Inc. (the Company) have been prepared in accordance
with accounting principles generally accepted in the United States of America
(generally accepted accounting principles) for interim financial information
and in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation. Actual results for fiscal year 2003 could differ materially from
those reported in this quarterly report on Form 10-Q. The Company believes the
results of operations for interim periods are subject to fluctuation and may
not be an indicator of future financial performance. The financial statements
should be read in conjunction with the audited financial statements and notes
thereto, included in our annual report on Form 10-K for the year ended December
31, 2002, as filed with the Securities and Exchange Commission.

2. Consolidation

The interim unaudited condensed consolidated financial statements include
the Companys accounts and those of its wholly owned subsidiaries. All
inter-company accounts and transactions have been eliminated.

3. Summary of significant accounting policies

Use of estimates

The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Foreign currency translation, foreign exchange contracts and comprehensive loss

The functional currency of the Companys foreign subsidiaries is the
local currency. Gains and losses resulting from the translation of the foreign
subsidiaries financial statements are reported as a separate component of
stockholders equity. Gains and losses resulting from foreign
currency transactions are included in net income.

The Company currently does not enter into financial instruments for either
trading or speculative purposes.

Comprehensive loss is comprised of net loss and other comprehensive items
such as foreign currency translation gain/loss and unrealized gains or losses
on marketable securities classified as available for sale.

Short-term investments

The Company accounts for its investments under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities.Under SFAS No. 115, the Companys
investments classified as available-for-sale securities are
reported at fair value, with unrealized gains and losses, net of tax, reported
in the balance sheet as Accumulated other comprehensive loss.
Held-to-maturity securities are valued using the amortized cost method. At June
30, 2003 and December 31, 2002, the fair value of the time
deposit investments,
which have original maturities in excess of 90 days, approximated amortized cost and, as such, gross unrealized holding gains and
losses were not material. The fair value of the available-for-sale securities
was determined based on quoted market prices at the reporting dates for those
instruments. The carrying value of the Companys short-term investments by
major security type consisted of the following as of June 30, 2003 and December
31, 2002 (in thousands):

|                    |  |          |     |              |  |   |    | 
|------------------- |  | -------- | --- | ------------ |  | - | -- | 
|                    |  | June 30, |     | December 31,
|Description         |  | 2003     |     | 2002        
|                    |  |          |     |             
|Time deposits       |  | $        | 150 |              |  | $ |   | 
|KANA Software, Inc* |  |          | 123 |              |  |   | 80 | 
|                    |  |          |     |              |  |   |    | 
|Total               |  | $        | 273 |              |  | $ | 80 | 
|                    |  |          |     |              |  |   |    | 

*KANA Software, Inc. is a publicly traded company in which the Company
owns a minority interest of less than 1%.

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Goodwill and other intangible assets, net

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangibles Assets(SFAS No. 142).Under SFAS No. 142, goodwill is no
longer subject to amortization over its estimated useful life. Rather, SFAS No.
142 requires that goodwill and other intangible assets deemed to have an
indefinite useful life be reviewed for impairment upon adoption of SFAS No. 142
(January 1, 2002) and at least annually thereafter.

Intangible assets with determinable useful lives are amortized on a
straight-line basis over their estimated useful lives ranging from two to seven
years. The following table provides a summary of the carrying amounts of other
intangible assets (in thousands).

|                                           |                      |   |          |        |              |   |        |        |  
|------------------------------------------ | -------------------- | - | -------- | ------ | ------------ | - | ------ | ------ | -
|                                           |                      |   | June 30, |        | December 31,
|                                           |                      |   | 2003     |        | 2002        
|                                           |                      |   |          |        |             
|Carrying amount of:                        |                      |   |          |        |              |   |        |       
|                                           | Developed technology |   | $        | 11,332 |              |   | $      | 11,332 |  
|                                           | Customer base        |   |          | 3,177  |              |   |        | 3,177  |  
|                                           | RUMBA trade name     |   |          | 1,492  |              |   |        | 1,492  |  
|                                           | Patents & copyrights |   |          | 399    |              |   |        | 399    |  
|                                           |                      |   |          |        |              |   |        |       
|Gross carrying amount of other intangibles |                      |   | 16,400   |        |              |   | 16,400 |       
|Less accumulated amortization:             |                      |   |          |        |              |   |        |       
|                                           | Developed technology |   |          | (9,562 | )            |   |        | (8,903 | )
|                                           | Customer base        |   |          | (2,648 | )            |   |        | (2,461 | )
|                                           | RUMBA trade name     |   |          | (1,243 | )            |   |        | (1,156 | )
|                                           | Patents & copyrights |   |          | (332   | )            |   |        | (307   | )
|                                           |                      |   |          |        |              |   |        |       
|Net carrying amount of other intangibles   |                      | $ | 2,615    |        |              | $ | 3,573  |       
|                                           |                      |   |          |        |              |   |        |        |  

The aggregate amortization expense for the three and six months ended June
30, 2003 was $499,000, and $958,000, respectively. The aggregate amortization
expense for the three and six months ended June 30, 2002 was $763,000, and
$1,526,000, respectively.

Minimum future amortization expense at June 30, 2003 is as follows:

|               |       |   |       |       | 
|-------------- | ----- | - | ----- | ----- | 
|Remainder 2003 |       | $ | 958   |      
|2004           |       |   | 1,657 |      
|               |       |   |       |      
|               | Total |   | $     | 2,615 | 

Accrued liabilities and restructuring

Accrued liabilities at June 30, 2003 and December 31, 2002 consisted of the
following (in thousands):

|                           |       |      |          |       |              |   |       |       | 
|-------------------------- | ----- | ---- | -------- | ----- | ------------ | - | ----- | ----- | 
|                           |       |      | June 30, |       | December 31,
|Description                |       | 2003 |          | 2002 
|                           |       |      |          |      
|Restructuring (see Note 4) |       | $    | 3,253    |       |              | $ | 4,593 |      
|Other accruals             |       |      | 4,802    |       |              |   | 4,956 |      
|                           |       |      |          |       |              |   |       |      
|                           | Total |      | $        | 8,055 |              |   | $     | 9,549 | 
|                           |       |      |          |       |              |   |       |      

In June 2002, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
which addresses accounting for restructuring and similar costs. SFAS No. 146
supersedes previous accounting guidance, principally Emerging Issues Task
Force, or EITF, Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that the liability
for costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of the commitment to an exit plan. SFAS No. 146 also
requires that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS No. 146, which the Company adopted for
restructuring activities initiated after December 31, 2002, may affect the timing of recognizing future
restructuring costs as well as the amounts recognized.

Concentrations of credit risk

Financial instruments which subject the Company to concentrations of credit
risk consist principally of cash investments and trade receivables. The Company
has a cash investment policy that limits the amount of credit exposure to any
one issuer and restricts placement of these investments to issuers evaluated as
creditworthy. Concentrations of credit risk with respect to trade receivables
are limited due to

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the large number of customers comprising the Companys
customer base and their dispersion across many different industries and
geographies. There were no customers that accounted for more than 10% of
consolidated revenues in the second quarter of 2003, and in the six month
period ended June 30, 2003. For the three and six month periods ended June 30,
2002 there were no customers that accounted for more than 10% of consolidated
revenues.

Accounting for stock based compensation

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment of FASB Statement No.123,
which provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has adopted the
amended annual and interim disclosure requirements of SFAS No. 123.

SFAS
No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date
based on the fair value of the award which is recognized over the service
period, which is usually the vesting period. However, it also allows an entity
to continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the amount an employee
must pay to acquire the stock. Stock options issued under the Companys stock
option plans have no intrinsic value at the grant date. Accordingly, under APB
Opinion No. 25, no compensation cost is recognized. The Company has elected to
continue with the method of accounting prescribed in APB Opinion No. 25 and, as
a result, must provide pro forma disclosures of net income and earnings per
share and other disclosures as if the fair value based method of accounting had
been applied. Had compensation cost for the Companys outstanding stock options
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method prescribed by SFAS No. 123, the
Companys net loss and loss per share would have been adjusted to the pro forma
amounts indicated below (in thousands except per share data):

|                                                                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                |  | Three Months Ended |        | Six Months Ended
|                                                                                                                |  | June 30,           |        | June 30,        
|                                                                                                                |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                                                                                |  |                    |        |                  |  |      |        |     
|Net loss reported under APB 25                                                                                  |  | $                  | (1,714 | )                |  | $    | (3,834 | )    |  | $ | (2,902 | ) |  | $ | (4,313 | )
|Add: Stock-based employee compensation expense included in
reported net loss                                    |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards |  |                    | (353   | )                |  |      | (678   | )    |  |   | (761   | ) |  |   | (1,311 | )
|                                                                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net loss                                                                                              |  | $                  | (2,067 | )                |  | $    | (4,512 | )    |  | $ | (3,663 | ) |  | $ | (5,624 | )
|                                                                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Basic and diluted loss per share, as reported                                                                   |  | $                  | (0.20  | )                |  | $    | (0.43  | )    |  | $ | (0.34  | ) |  | $ | (0.48  | )
|Basic and diluted loss per share, pro forma                                                                     |  | $                  | (0.24  | )                |  | $    | (0.50  | )    |  | $ | (0.42  | ) |  | $ | (0.62  | )

The fair value of each option granted is estimated on the date of grant
using the Black-Scholes model with the following assumptions used for grants
during the applicable periods:

|                        |  |                    |  |                  |  |                    |  |                  |  |  |  |  |  |  |  | 
|----------------------- |  | ------------------ |  | ---------------- |  | ------------------ |  | ---------------- |  |  |  |  |  |  |  | 
|                        |  | Three Months ended |  | Six Months Ended |  | Three Months Ended |  | Six Months Ended
|                        |  | June 30, 2003      |  | June 30, 2003    |  | June 30, 2002      |  | June 30, 2002   
|                        |  |                    |  |                  |  |                    |  |                 
|Volatility              |  | 90.39%             |  | 90.90%           |  | 84.28%             |  | 85.86%          
|Risk-free interest rate |  | 1.96-2.50%         |  | 1.96-2.72%       |  | 3.87-4.35%         |  | 3.87-4.69%      
|Dividend yield          |  | 0.00%              |  | 0.00%            |  | 0.00%              |  | 0.00%           
|Expected term           |  | 3 - 4 months       |  | 3 - 4 months     |  | 3 - 4 months       |  | 3 - 4 months    
|                        |  | beyond vest date   |  | beyond vest date |  | beyond vest date   |  | beyond vest date

Stock option exchange offer

On May 16, 2003 the Company announced a voluntary stock option exchange
program for certain of its employees. The offer to

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exchange options, or Offer,
was open to eligible option holders, excluding non-employee members of the
board of directors and non-exempt employees, holding options to purchase shares of the
Companys common stock with an exercise price per share of $1.50 or
greater. In accordance with the terms of the Offer, participating employees
tendered eligible options in exchange for replacement options. These
replacement options will then be granted to employees at least six months and
one day following the date their original options were exchanged and cancelled.
Under the terms of the Offer, replacement options will vest and become
exercisable for the balance of the option shares in accordance with the same
type of installment vesting schedule that was in effect for the cancelled options,
but measured from the grant date of the replacement options, and no vesting
credit will be provided for the period between the date the
original options were tendered and the date the replacement options are
granted.

On June 13, 2003, employees tendered options to purchase a total of
542,150 shares in connection with the Offer, which were cancelled
under the Companys
1992 Stock Option Plan as amended, and the 1999 Non-statutory Stock Option Plan
following their exchange. Subject to the continued employment of the employees
who exchanged options, replacement options to purchase a total of 542,150
shares are expected to be granted on or around December 16, 2003.

The exercise price of the replacement options will be based on the fair
market value of the Companys common stock on the date the replacement options
are granted. The fair market value of the Companys common stock will be equal
to the last reported sale price of its common stock on the Nasdaq National
Market on the date it grants the replacement options.

The
exchange program is being accounted for in accordance with FASB
Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensationan
Interpretation of APB Opinion No. 25and results in no compensation expense.

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 potential dilutive common shares. Potential dilutive
common shares include dilutive shares issuable upon the exercise of outstanding
common stock options computed using the treasury stock method. For the three
and six month periods ended June 30, 2003 and 2002, the number of shares used
in the computation of diluted loss per share was the same as those used for the
computation of basic loss per share. For the three and six month periods ended
June 30, 2003 and 2002, potentially dilutive securities
(primarily stock options) are as shown in the
following table and were not included in the computation of diluted net loss
per share because to do so would have been anti-dilutive.

|                            |  |                             |        |                           |  |      |        |      |  |  |        |  |  |  |        | 
|--------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                            |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                            |  |                             |        |                          
|                            |  | 2003                        |        | 2002                      |  | 2003 |        | 2002
|                            |  |                             |        |                           |  |      |        |     
|Potentially dilutive shares |  |                             | 39,032 |                           |  |      | 25,477 |      |  |  | 36,260 |  |  |  | 46,550 | 

Income taxes

As part of the process of preparing its consolidated financial statements,
the Company is required to estimate its income taxes in each of the
jurisdictions in which the Company operates. This process involves estimating
the Companys actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as deferred
revenue, for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included in the Companys consolidated
balance sheet. The Company must then assess the likelihood that its deferred
tax assets will be recovered from future taxable income and to the extent the
Company believes that recovery is not likely, it must establish a valuation
allowance. To the extent the Company establishes a valuation allowance or its
allowance in a period changes, the amount recognized as a provision for income
taxes in the statement of operations could change. The income tax provision of
$16,000 for the quarter ended June 30, 2003 resulted primarily from
international tax expense of $6,000 and U.S. state tax expense of $10,000. The
income tax provision of $340,000 for the quarter ended June 30, 2002 resulted
primarily from international tax expense of $382,000 and U.S. state tax
benefits of $42,000. The income tax benefit of $301,000 for the six months
ended June 30, 2003 resulted primarily from German tax refunds of $481,000, net
of international tax expense of $172,000 and U.S. state tax expense of $8,000.
The income tax provision of $587,000 for the six months ended June 30, 2002
resulted primarily from international tax expense of $685,000, net of
U.S. state
tax benefits of $98,000.

Recent accounting pronouncements

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. This Statement is effective for financial instruments entered into or
modified after May 31,

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2003, and otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company currently has
no financial instruments which meet these requirements.

In April 2003 the FASB issued SFAS No. 149, Amendment of Statement No. 133
on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts. The
Statement clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative, clarifies when a
derivative contains a financing component, amends the definition of an
underlying derivative to conform it to language used in FASB Interpretation FIN No. 45,
and amends certain other existing pronouncements. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. All provisions of the Statement,
except those related to forward purchases or sales of when-issued securities,
should be applied prospectively. The Company
currently has no instruments that meet the definition of a derivative, and
therefore, the adoption of this Statement will have no impact on the Companys
financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which addresses consolidation by
business enterprises of variable interest entities that either: (i) do not have
sufficient equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support, or (ii) the
equity investors lack an essential characteristic of a controlling financial
interest. FIN 46 requires disclosure of Variable Interest Entities (VIEs) in
financial statements issued after January 31, 2003, if it is reasonably
possible that as of the transition date: (i) the company will be the primary
beneficiary of an existing VIE that will require consolidation, or (ii) the
company will hold a significant variable interest in, or have significant
involvement with, an existing VIE. The adoption of FIN 46 had no impact on the
Companys financial statements.

In November 2002, the FASB issued FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which addresses the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under guarantees. FIN 45 also requires the recognition of a liability by a
guarantor at the inception of certain guarantees that are entered into or
modified after December 31, 2002. The Company has adopted the disclosure
requirements of FIN 45 and will apply the recognition and measurement provision
for all material guarantees entered into or modified after December 31, 2002.

Reclassifications

Certain reclassifications have been made to the 2002 financial statements
to conform to the current year presentation.

4. Restructuring of operations

On January 31, 2003, the Company announced a restructuring of operations
designed to refocus its business units around its core business functions, to
relocate certain of its functional operations to the Companys corporate
headquarters, and to reduce operating expenses. As part of the restructuring,
the Company reduced its workforce in excess of 30% and has recorded a $2.9
million charge to operating expenses in the first half of 2003. The Company
anticipates that an additional $0.2 million in employee related costs will be
recorded in the second half of 2003. The distribution of the reduction in
workforce was as follows:

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|                           |  |              |     |              |  |               |    |  |  |  |     | 
|-------------------------- |  | ------------ | --- | ------------ |  | ------------- | -- |  |  |  | --- | 
|                           |  | Terminations |     | Replacements |  | Net Reduction
|                           |  |              |     |              |  |              
|Operations                 |  |              | 10  |              |  |               | 6  |  |  |  | 4   | 
|Services                   |  |              | 16  |              |  |               | 1  |  |  |  | 15  | 
|Research and development   |  |              | 19  |              |  |               |   |  |  |  | 19  | 
|Sales and marketing        |  |              | 54  |              |  |               | 4  |  |  |  | 50  | 
|General and administrative |  |              | 24  |              |  |               | 5  |  |  |  | 19  | 
|                           |  |              |     |              |  |               |    |  |  |  |     | 
|Total                      |  |              | 123 |              |  |               | 16 |  |  |  | 107 | 
|                           |  |              |     |              |  |               |    |  |  |  |     | 

The restructuring charge for the six month period ended June 30, 2003
includes approximately $0.6 million of expenses related to leased facilities no
longer needed for the Companys operations and $2.3 million of employee
severance and other related expenses. The Company anticipates that the execution of
the restructuring actions will require total cash expenditures of $3.1 million,
which is expected to be funded from internal operations and existing cash
balances. As of June 30, 2003, the Company had incurred costs totaling $2.9
million related to the restructuring, which required $1.6 million in cash
expenditures. The remaining reserve related to this restructuring is
approximately $1.3 million, and is included in accrued liabilities as of June
30, 2003.

The following table lists the components of the January 2003 restructuring
reserve for the six month period ended June 30, 2003 (in thousands):

|                                                   |  |          |        |            |  |       |      |   |  |   |        |  
|-------------------------------------------------- |  | -------- | ------ | ---------- |  | ----- | ---- | - |  | - | ------ | -
|                                                   |  | Employee |        | Excess     |  |       |      |  
|                                                   |  | Costs    |        | Facilities |  | Total
|                                                   |  |          |        |            |  |      
|Balance at December 31, 2002                       |  | $        |       |            |  | $     |     |   |  | $ |       |  
|Initial reserve established                        |  |          | 2,341  |            |  |       | 591  |   |  |   | 2,932  |  
|Reserve utilized in six months ended June 30, 2003 |  |          | (1,513 | )          |  |       | (156 | ) |  |   | (1,669 | )
|                                                   |  |          |        |            |  |       |      |   |  |   |        |  
|Balance at June 30, 2003                           |  | $        | 828    |            |  | $     | 435  |   |  | $ | 1,263  |  
|                                                   |  |          |        |            |  |       |      |   |  |   |        |  

On August 8, 2002, the Company announced a restructuring of its operations
designed to re-align its core business functions and reduce operating expenses.
As part of the restructuring, the Company intended to reduce its workforce by
approximately 26% and recorded a $4.6 million charge to operating expenses in
the third quarter of 2002. The restructuring charge included approximately $2.6
million of expenses related to facilities no longer needed for Company
operations and $2.0 million of employee severance and other related expenses.
In March 2003, based on a review of current operations, the decision was made
to revise the original restructuring plan by retaining certain personnel in
European locations who had been identified for termination and certain related
offices that had been identified for closure. This decision resulted in a $1.2
million reversal of the restructuring accrual as of March 31, 2003, and a
corresponding reduction of restructuring expense for the three months then
ended. Such reversal was comprised of expected employee costs of approximately
$0.8 million and expected facilities expenses of
approximately $0.4 million. In June 2003, NetManage recorded an
additional $40,000 in restructuring expense relating to employee termination
costs in Latin America. The distribution of the reduction in workforce was as
follows:

|                           |  |              |     |          |  |               |   |  |  |  |     | 
|-------------------------- |  | ------------ | --- | -------- |  | ------------- | - |  |  |  | --- | 
|                           |  | Terminations |     | Retained |  | Net Reduction
|                           |  |              |     |          |  |              
|Operations                 |  |              | 6   |          |  |               |  |  |  |  | 6   | 
|Services                   |  |              | 17  |          |  |               |  |  |  |  | 17  | 
|Research and development   |  |              | 53  |          |  |               |  |  |  |  | 53  | 
|Sales and marketing        |  |              | 22  |          |  |               | 8 |  |  |  | 14  | 
|General and administrative |  |              | 11  |          |  |               | 1 |  |  |  | 10  | 
|                           |  |              |     |          |  |               |   |  |  |  |     | 
|Total                      |  |              | 109 |          |  |               | 9 |  |  |  | 100 | 
|                           |  |              |     |          |  |               |   |  |  |  |     | 

As of June 30, 2003, NetManage had incurred costs totaling $2.0 million
related to this restructuring accrual which required $2.0 million in cash
expenditures. The remaining reserve related to this restructuring is
approximately $1.4 million, and is included in accrued liabilities as of June
30, 2003.

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The following table lists the components of the August 2002 restructuring
reserve for the six month periods ended June 30, 2003 (in thousands):

|                                                                    |  |          |       |            |  |       |       |   |  |   |        |  
|------------------------------------------------------------------- |  | -------- | ----- | ---------- |  | ----- | ----- | - |  | - | ------ | -
|                                                                    |  | Employee |       | Excess     |  |       |       |  
|                                                                    |  | Costs    |       | Facilities |  | Total
|                                                                    |  |          |       |            |  |      
|Balance at December 31, 2002                                        |  | $        | 1,122 |            |  | $     | 2,156 |   |  | $ | 3,278  |  
|Change in estimate recorded as a reduction of
restructuring expense |  |          | (828  | )          |  |       | (395  | ) |  |   | (1,223 | )
|Reserve utilized in six months ended June 30, 2003                  |  |          | (200  | )          |  |       | (455  | ) |  |   | (655   | )
|                                                                    |  |          |       |            |  |       |       |   |  |   |        |  
|Balance at June 30, 2003                                            |  | $        | 94    |            |  | $     | 1,306 |   |  | $ | 1,400  |  
|                                                                    |  |          |       |            |  |       |       |   |  |   |        |  

On August 3, 2000, the Company announced a restructuring of its operations
designed to re-focus on its core business functions and reduce operating
expenses. In connection with the restructuring, the Company reduced its
workforce by approximately 20% and made provisions for reductions in office
space, related overhead expenses, and the write down of certain assets. The
total amount of the restructuring charge was $5.6 million. The restructuring
charge included approximately $3.0 million of estimated expenses for
facilities-related charges, $1.6 million of employee-related expenses for
employee terminations, approximately $200,000 in other equipment and
professional services and an $800,000 settlement to Verity for a software
license that NetManage does not plan to use. In September 2002, based on a
review of its continuing obligations associated with the original restructuring
charge, NetManage recorded a reduction in estimate for facilities of
approximately $521,000 and an increase in estimate for other charges of
approximately $249,000. In June 2003, NetManage recorded a further reduction in
the estimate for facilities of approximately $65,000 and in the estimate for
equipment of approximately $15,000. As of June 30, 2003, total cash
expenditures incurred with respect to this restructuring reserve were $5.2
million. The remaining balance of the reserve was approximately $51,000, which
is included in accrued liabilities as of June 30, 2003.

The following table lists the components of the August 2000 restructuring
reserve for the six month period ended June 30, 2003 (in thousands):

|                                                                    |  |            |     |       |  |       |     |   |  |   |     |  
|------------------------------------------------------------------- |  | ---------- | --- | ----- |  | ----- | --- | - |  | - | --- | -
|                                                                    |  | Excess     |     |       |  |       |     |   |  |  
|                                                                    |  | Facilities |     | Other |  | Total
|                                                                    |  |            |     |       |  |      
|Balance at December 31, 2002                                        |  | $          | 88  |       |  | $     | 119 |   |  | $ | 207 |  
|Change in estimate recorded as a reduction of
restructuring expense |  |            | (65 | )     |  |       | (15 | ) |  |   | (80 | )
|Reserve utilized in six months ended June 30, 2003                  |  |            | (21 | )     |  |       | (55 | ) |  |   | (76 | )
|                                                                    |  |            |     |       |  |       |     |   |  |   |     |  
|Balance at June 30, 2003                                            |  | $          | 2   |       |  | $     | 49  |   |  | $ | 51  |  
|                                                                    |  |            |     |       |  |       |     |   |  |   |     |  

In the fourth quarter of 1999, following the acquisitions of Wall Data,
Incorporated and Simware Inc., the Company initiated a plan to restructure its
worldwide operations in order to integrate the operations of the two acquired
companies. In connection with this plan, the Company recorded a $3.8 million
charge to operating expenses in 1999. The restructuring charge included
approximately $1.9 million of estimated expenses for facilities-related charges
associated with the consolidation of redundant operations, $1.4 million of
employee-related expenses for employee terminations and $0.5 million for legal,
accounting and other. The Company anticipated that the execution of the
restructuring actions would require total cash expenditures of approximately
$3.6 million, which the Company expected to be funded from internal operations.
In 2002, in connection with a review of its obligations for facilities, the
Company recorded a reduction in the estimated expenses of approximately
$128,000. In the six month period ended June 30, 2003, based on a review of its
continuing facilities obligations, the Company recorded a $157,000
increase in
the restructuring reserve with a corresponding increase of restructuring
expense. As of June 30, 2003, total cash expenditures incurred with respect to
this restructuring reserve were approximately $3.6 million. The remaining
reserve is approximately $0.2 million, and is included in accrued liabilities
as of June 30, 2003.

The following table lists the components of the restructuring reserve for
the six month period ended June 30, 2003 (in thousands):

|                                                     |  |            |      |  
|---------------------------------------------------- |  | ---------- | ---- | -
|                                                     |  | Excess    
|                                                     |  | Facilities
|                                                     |  |           
|Balance at December 31, 2002                         |  | $          | 435  |  
|Change in estimate recorded to restructuring expense |  |            | 157  |  
|Reserve utilized in six months ended June 30, 2003   |  |            | (362 | )
|                                                     |  |            |      |  
|Balance at June 30, 2003                             |  | $          | 230  |  
|                                                     |  |            |      |  

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In August 1998, following the acquisition of FTP Software Inc., the Company
initiated a plan to restructure its worldwide operations as a result of
business conditions and in connection with the integration of the operations of
FTP. In connection with this plan, the Company recorded a $7.0 million charge
to operating expenses in 1998. Additionally, prior to the acquisition, FTP had
recorded a restructuring charge. The Company assumed the remaining
restructuring liability of $9.7 million as of the date of the acquisition for a
total restructuring liability of $16.7 million. In 2002, based on a review of
all obligations, the Company recorded an increase in this reserve, primarily
for facilities expense of approximately $691,000. In the six month period ended
June 30, 2003, based on a review of its continuing facilities obligations, the
Company recorded a $295,000 reduction in the restructuring reserve with a
corresponding reduction of restructuring expense. The remaining reserve
related to this restructuring at June 30, 2003 is approximately $0.3 million
and is included in accrued liabilities.

The following table lists the components of the FTP restructuring reserve
for the six month period ended June 30, 2003 (in thousands):

|                                                                    |  |            |      |  
|------------------------------------------------------------------- |  | ---------- | ---- | -
|                                                                    |  | Excess    
|                                                                    |  | Facilities
|                                                                    |  |           
|Balance at December 31, 2002                                        |  | $          | 673  |  
|Change in estimate recorded as a reduction of restructuring expense |  |            | (295 | )
|Reserve utilized in three months ended June 30, 2003                |  |            | (68  | )
|                                                                    |  |            |      |  
|Balance at June 30, 2003                                            |  | $          | 310  |  
|                                                                    |  |            |      |  

5. Commitments and contingencies

Legal proceedings

On November 22, 1999, Kenneth Fisher filed a complaint alleging violations
of the False Claims Act, 31 U.S.C. § 3729 et seq., against the Company and its
affiliates Network Software Associates, Inc. (NSA), and NetSoft Inc.
(NetSoft), in the United States District Court of the District of Columbia.
Fisher purported to file the action on behalf of himself and the Government.
NetManage acquired NSA and NetSoft in 1997. The United States government
declined to pursue the action on its own behalf and, therefore, the action was
pursued by Kenneth Fisher, as relator, on behalf of himself and the Government.
NetManage, and its affiliates, first learned of the action when NetManage was
served with the amended complaint in May 2001. On September 5, 2001, Mr. Fisher
agreed to voluntarily dismiss NetManage from this action, without prejudice, in
exchange for an agreement to suspend applicable statutes of limitation as to
Mr. Fishers claims.

On January 31, 2002, on an order of the court granting in part and denying
in part defendants motion to dismiss the May 2001 amended complaint, Mr.
Fisher filed a Second Amended Complaint, or Second Complaint, in the United
States District Court of the District of Columbia against NSA and NetSoft among
numerous other defendants. On May 13, 2002, on an order of the court following
defendants successful motion to strike the Second Complaint, Mr. Fisher filed
a Third Amended Complaint, or Complaint, in the United States District Court of
the District of Columbia against NSA and NetSoft among numerous other
defendants. The Complaint alleges that NSA, NetSoft and the other defendants
made false claims to the government to obtain government contracts set aside
for entities owned and controlled by disadvantaged persons admitted to the
Section 8(a) Minority Small Business Development Program. Specifically, the
Complaint alleges that from 1993 to 1997, NSA, NetSoft, and the other
defendants presented false or fraudulent claims for payment or approval to the
government in violation of 31 U.S.C. § 3729 (a)(1), and used false records or
statements to get claims paid or approved by the government in violation of 31
U.S.C. § 3729 (a) (2). In addition, the Complaint alleges that NSA, NetSoft
and the other defendants conspired to defraud the government by working to
fraudulently continue NSAs certification as a Section 8 (a) entity for alleged
use by NSAs Federal Systems Division and by getting fraudulent claims allowed
and paid by virtue of the alleged fraudulent Section 8(a) status, in violation
of 31 U.S.C. § 3729 (a) (3). NetManage did not acquire NSA until July 1997 and
had no involvement with the events alleged by Mr. Fisher. According to the
earlier amended complaint (although not alleged in the current Complaint), Mr.
Fishers theory was that the liabilities of NSA and NetSoft, including alleged
liability in this suit, passed to NetManage. Discovery is presently continuing
in this matter. On May 31, 2002, NSA and NetSoft and the other defendants
answered the complaint. NetManage, and its affiliates, vigorously dispute Mr.
Fishers allegations. The Company has insufficient information at this time to
estimate the possible loss, if any, which might result from this lawsuit.

In addition, NetManage may be contingently liable with respect to certain
asserted and unasserted claims that arise during the normal course of business.
Management believes the impact, if any, resulting from these matters would not
have a material impact on the Companys financial statements.

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Leases

Facilities and equipment are leased under non-cancelable operating leases
expiring on various dates through the year 2011. As of June 30, 2003, future
minimum rental and lease payments, net of any sublease income, under
non-cancelable operating leases are as follows:

|                 |  |                                                           |        |      |  |              |       |              |  |               |       |  |  |   |       |  |  |   |       | 
|---------------- |  | --------------------------------------------------------- | ------ | ---- |  | ------------ | ----- | ------------ |  | ------------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                 |  | Amount of Commitment Expiration Per Period (in thousands)
|                 |  |                                                          
|                 |  |                                                           |        |      |  | Less than 1  |       |              |  |               |       |  |  |   |       |  |  |  
|                 |  | Total                                                     |        | year |  | 2 to 3 years |       | 4 to 5 years |  | After 5 years
|                 |  |                                                           |        |      |  |              |       |              |  |              
|Operating leases |  | $                                                         | 13,794 |      |  | $            | 6,334 |              |  | $             | 3,784 |  |  | $ | 1,628 |  |  | $ | 2,048 | 
|                 |  |                                                           |        |      |  |              |       |              |  |               |       |  |  |   |       |  |  |   |       | 

Other

As an element of its standard commercial terms, the Company includes an
indemnification clause in its software licensing agreements that indemnifies
the licensee against liability and damages (including legal defense costs)
arising from any claims of patent, copyright, trademark, or trade secret
infringement by the Companys software. Our indemnification
limitation is the cost to defend any third party claim brought
against our customers and to the maximum a refund of the purchase
price. Our Company licenses software on a perpetual basis.

6. Segment information

The Company operates in two market segments: Host Accessand Host Integration.
The Companys Chief Executive Officer evaluates these market segments at the
sales and bookings level.

The
Companys Host Access product line is designed to provide the
technology to make the connection between personal computers and large
corporate computers possible. These products are designed to leverage the
strengths and popularity of the Internet, as well as corporate private
networks, and offer features to improve network manageability. The Host
Integrationproduct line is designed to provide the technology to allow
customers to leverage the investment they have in existing host-based systems,
applications and business processes for new web-based presentations,
applications, and solutions. These two product lines have similar economic
characteristics and are similar with respect to the nature of the products, the
nature of the production processes, the type of customer that the products are
sold to and the methods used to distribute the products. Net revenues for the
Host Accessand Host Integrationproduct lines was as follows for the three and
six months ended June 30, 2003 and 2002 (in thousands):

|                 |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|---------------- |  | --------------------------- | ------ | ------------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                 |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                 |  |                             |        |                          
|                 |  | 2003                        |        | 2002                      |  | 2003 |        | 2002
|                 |  |                             |        |                           |  |      |        |     
|Host Access      |  | $                           | 11,233 |                           |  | $    | 15,398 |      |  | $ | 23,298 |  |  | $ | 33,446 | 
|Host Integration |  |                             | 639    |                           |  |      | 796    |      |  |   | 2,692  |  |  |   | 1,768  | 
|                 |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 
|Total            |  | $                           | 11,872 |                           |  | $    | 16,194 |      |  | $ | 25,990 |  |  | $ | 35,214 | 
|                 |  |                             |        |                           |  |      |        |      |  |   |        |  |  |   |        | 

7. Restatement of financial statements

Subsequent to the issuance of the Companys interim
unaudited condensed consolidated financial statements for the three and six
months ended June 30, 2002, management determined that the accounting treatment
was inappropriate for certain transactions, and that the following adjustments
were required:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. For the three months ended June 30, 2002, license fees were reduced
by approximately $46,000 to correct for rebate expense of $168,000
previously recorded as a selling expense and the release of approximately
$122,000 in excess returns reserves. For the six months ended June 30, 2002,
the net reduction in license fees was approximately $58,000 and includes an
approximate $12,000 reduction in the three months ended March 31, 2002 for
rebate expense previously recorded as sales expense.                                                                                                                                                                                                                                                                          
|
| | b. Selling and marketing expense was decreased by approximately $169,000
for the three months ended June 30, 2002 and approximately $335,000 for the
six months ended June 30, 2002 to record the net effect in the first quarter
of 2002 of: (i) a decrease in commission expense of $216,000 that should have
been expensed in 2001; (ii) an increase of approximately $163,000 for
expenses associated with a corporate sales meeting held in the first quarter
of 2002; and (iii) a decrease in rebate expenses of approximately $113,000
associated with sales returns that should have been recorded as a reduction
of the sales return reserve of
approximately $101,000, and license revenue of approximately $12,000.
For the three months ended June 30, 2002, an additional

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| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | reduction of approximately $169,000 in sales expense was recorded to reclassify rebate
expense of $168,000 to license fees and to adjust other miscellaneous expense
by $1,000.



| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. Amortization expense was reduced by $29,000 and $59,000 respectively
for the three and six month periods ended June 30, 2002, as a result of a
purchase price adjustment recorded in 2000 with respect to the acquisition of
Wall Data.                                                                                                                                                                             
|
| | d. Provision for income taxes was increased by $210,000 and $386,000
respectively for the three and six month periods ended June 30, 2002 to
adjust for the utilization of pre-acquisition net operating losses and tax
credits of Simware which had been previously recognized as a reduction of the
provision for income taxes instead of a reduction of intangible assets
associated with he acquisition of Simware.

As a result of the adjustments described above, the accompanying interim
condensed consolidated financial statements for the three and six months ended
June 30, 2002 have been restated to reflect the correction of the matters as
described above.

A summary of the significant effects of the restatement is as follows (in
thousands, except per share amounts):

|                              |                                       |  |                             |        |                           |  |             |        |                |  |   |        |   |  |   |        |  
|----------------------------- | ------------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ----------- | ------ | -------------- |  | - | ------ | - |  | - | ------ | -
|                              |                                       |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                              |                                       |  |                             |        |                          
|                              |                                       |  | 2002                        |        | 2002                      |  | 2002        |        | 2002          
|                              |                                       |  |                             |        |                           |  |             |        |               
|                              |                                       |  | (As previously              |        |                           |  |             |        | (As previously |  |   |        |  
|                              |                                       |  | reported(*)                 |        | (As restated)             |  | reported(*) |        | (As restated) 
|Statement of Operations Data: |                                       |  |                             |        |                           |  |             |        |                |  |   |        |   |  |   |       
|                              | Total net revenues                    |  | $                           | 16,240 |                           |  | $           | 16,194 |                |  | $ | 35,272 |   |  | $ | 35,214 |  
|                              | Cost of revenues                      |  |                             | 2,791  |                           |  |             | 2,791  |                |  |   | 5,820  |   |  |   | 5,820  |  
|                              | Gross margin                          |  |                             | 13,449 |                           |  |             | 13,403 |                |  |   | 29,452 |   |  |   | 29,394 |  
|                              | Sales and marketing                   |  |                             | 10,181 |                           |  |             | 10,012 |                |  |   | 19,786 |   |  |   | 19,451 |  
|                              | Amortization of intangible assets     |  |                             | 231    |                           |  |             | 202    |                |  |   | 463    |   |  |   | 404    |  
|                              | Provision for income taxes            |  |                             | 130    |                           |  |             | 340    |                |  |   | 201    |   |  |   | 587    |  
|                              | Net loss                              |  |                             | (3,775 | )                         |  |             | (3,834 | )              |  |   | (4,262 | ) |  |   | (4,313 | )
|                              | Net loss per share basic and diluted |  |                             | (0.42  | )                         |  |             | (0.43  | )              |  |   | (0.47  | ) |  |   | (0.48  | )

(*) Reflects certain reclassifications to conform to the current period
presentation.

8. Related party transactions

On May 28, 2003, NetManage entered into an independent contractor services
agreement with Shelley Harrison, pursuant to which Dr. Harrison will receive
compensation in consideration for consultancy and advisory services he is
providing the Companys Chief Executive Officer and NetManages management
team. The terms of the agreement require the Company to pay Dr. Harrison a
fixed fee of $150,000 per year and a one time grant to Dr. Harrison of an
option to purchase 150,000 shares of the Companys common stock, at an exercise
price of $1.92 per share (which represents the quoted market price
of the stock at the date of grant), inclusive of the compensation Dr. Harrison receives in
connection with his service on NetManages Board of Directors. In connection
with his entering into the agreement, Dr. Harrison resigned from the Companys
Audit Committee effective May 28, 2003.

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Item 2  Managements discussion and analysis of financial condition and results of operations.

Some of the statements contained in this Quarterly Report on Form 10-Q are
forward-looking statements, including, but not limited to, those specifically
identified as such, that involve risks and uncertainties, including those set
forth below under the heading Factors that may affect our future results and
financial condition and elsewhere in this report. 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 and Section 21E of the
Exchange Act, including, without limitation, statements regarding our
expectations, beliefs, intentions or strategies regarding the future. These
statements involve known and unknown risks, uncertainties and other factors,
which may cause our actual results to differ materially from those implied by
the forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential, or continue
or the negative of these terms or other comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. All forward-looking statements included in this Report are
based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements.

Overview

We have operations worldwide with sales offices located in the United
States, Europe, Canada, and Israel. We develop and market software and service
solutions that are designed to enable our customers to access and leverage the
considerable investment they have in their host-based business applications,
processes and data. Our business is primarily focused on providing a broad
spectrum of specific personal computer and network or application server-based
software and tools. These products are designed to allow our customers to
access and use their mission-critical line-of-business host applications and
resources; to publish information from existing host systems in a web
presentation, particularly to new users, via the Internet; to create new
web-based applications that leverage our existing business processes and
applications; and, to ensure the continued operation of these solutions through
the incorporation and deployment of innovative, real-time, Internet-based
support solutions.

Our business is targeted at taking advantage of the trend of many major
corporations worldwide to adopt Business-to-Business, or B2B, or
Business-to-Consumer, or B2C, initiatives. In this market, we aim to enable our
customers to bridge between their existing access systems and technologies,
Business-to-Employee, or B2E, and those required to compete in the B2B and B2C
marketplaces. The corporate resources internal to the organization, those
behind existing B2E solutions, are the basis of any eBusiness transformation
for an existing company. Alongside these solutions, we are focused on providing
products that are designed to allow existing corporate business processes to be
extended to business partners in the supply and demand chains, and products
that are designed to allow new business processes to be created in support of
corporate eBusiness B2B and B2C initiatives. We also focus on taking advantage
of major current industry trends: the expansion of the Internet and its
adoption as the eCommerce and eBusiness infrastructure; the continued
mobilization of personal computer users and the adoption of mobile information
access and display devices; and the availability of broader access to corporate
data and information for people internal and external to an organization.

We develop and market these software solutions to allow our customers to
access and leverage applications, business processes and data on International
Business Machines Corporation (IBM) corporate mainframe computers, and IBM
midrange computers such as iSeries (formerly AS/400) and on UNIX based servers.
We provide professional support, maintenance, and technical consultancy
services to our customers in association with the products we develop and
market. We provide professional applications and management consultancy to our
customers in association with the server-based products we deliver that are
designed to allow customers to develop and deploy new web-based applications.

Our principal products are compatible with Microsoft Windows .NET, Windows
XP, Windows 2000, Windows NT, Windows 98, Windows 95, and Windows 3.x operating
systems, IBM operating systems, Novell, Inc. operating systems and various
implementations of the industry standard UNIX operating system such as IBMs
AIX, Hewlett-Packard Companys HP/UX, Sun Microsystems Inc.s Solaris, and the
open source Linux system.

We have a range of host access, publishing and integration products. Our
Host Accessproducts are designed to provide the applications and solutions
that allow end-user devices, including personal computers, and devices running
web browsers, to communicate with large centralized corporate computer systems.
Our Host Accessproducts are sold under the brand name of RUMBA for client-side
solutions. We also sell Host Accesssolutions under the OnWeb brand name that
deliver connectivity for web browser users without

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requiring software on the
users device other than the browser, collectively known as zero footprint
solutions. Our Host Integrationproducts provide server-side solutions that are
designed to allow the integration of multiple host applications and business
processes to create new applications for the web. These products also allow our
customers to integrate existing legacy applications with new platform solutions
such as those built using Microsofts .NET Framework, IBMs WebSphere or BEAs
WebLogic.

In order to ensure that our product line is as simple as possible for our
customers to understand, and to ensure that purchasing decisions with respect
to NetManage products are as straightforward as possible, in the first quarter
of 2003 we revised and updated our product packaging and market messaging. We
believe that different solutions can converge to provide new and extended value
from host applications. Because our customers require a suite of solutions to
address the spectrum of needs that they have, we have broadened the market
promotion of the Rumba Host Access products and OnWeb Host Integration
products to our NetManage Host Access Platform(HAP). HAP
reflects our commitment to our customers to provide a complete line of compatible and co-existing products that
allow host systems to be accessed and leveraged. From full PC-based
applications through to server solutions that leverage existing business
processes for new solutions built with environments such as Microsoft .NET. As
part of the HAP initiative, we have also reviewed and revised our product
licensing model to better fit present market needs.

Results of operations

During the past several years, we have implemented a number of initiatives
designed to control costs and reduce operating expenses, including the
discontinuance of several low revenue-generating products and the
implementation of worldwide restructurings of our operations.

In the first half of 2003, we continued to experience a reduction in
revenues, which we believe relates primarily to the poor North American and
European economies. Customers continue to postpone or cancel decisions to
purchase technology products because of uncertainties within their own
businesses. We do not anticipate any improvements in the current business
environment through the remainder of 2003 and into 2004. As a result, we
believe it was necessary to refocus our operations and reduce our operating
expenses to bring them more in line with our revised anticipated revenue
levels, which we expect to be comparable or less than those of the previous
twelve months. On January 31, 2003, NetManage announced a restructuring of its
operations designed to meet those goals. As part of the restructuring,
NetManage reduced its workforce in excess of 30% and has recorded a $2.9
million charge to operating expenses in the first half of 2003 (See Note 4 to
Financial Statements- Restructuring of operations).

On August 8, 2002, we announced a restructuring of our operations designed
to re-align our core business functions and reduce operating expenses. As part
of this restructuring, we intended to reduce our workforce by approximately 26%
and recorded a $4.6 million charge to operating expenses in the third quarter
of 2002. The restructuring charge included approximately $2.6 million of
expenses related to facilities no longer needed for company operations and $2.0
million of employee severance and other related expenses for employee
terminations. In March 2003, based on a review of current operations, we
decided to revise the original restructuring plan by retaining certain
personnel in European locations who had been identified for termination and
certain related offices that had been identified for closure. This decision
resulted in a $1.2 million reversal of the restructuring accrual as of March
31, 2003, and a corresponding reduction of restructuring expense for the three
months then ended. Such reversal was comprised of expected employee costs of
approximately $0.9 million and expected facilities expenses of approximately
$0.3 million.

As of June 30, 2003, we had incurred costs totaling $2.0 million related
to this restructuring accrual which required $2.0 million in cash expenditures.
The remaining reserve related to this restructuring is approximately $1.4
million, and is included in accrued liabilities as of June 30, 2003 (See Note 4
to Financial Statements - Restructuring of operations).

We initiated restructuring plans as a result of our acquisitions of Wall
Data, Simware, and Aqueduct Software, Inc, including a $5.6 million
restructuring plan announced on August 3, 2000. As part of the restructuring,
we reduced our workforce by approximately 20%, consisting mostly of Engineering
and Customer Support personnel who were focused primarily on our older
technologies, predominantly acquired through the Wall Data and FTP
acquisitions. With the reduction in personnel, knowledge levels with respect to
certain products and our ability to enhance and expand products acquired from
Wall Data and FTP was reduced, thus impacting future expected revenues from
these product families. In connection with the restructuring, we made
provisions for reductions in office space, related overhead expenses, and the
write-down of certain assets. The total amount of the restructuring charge was
$5.6 million. The restructuring charge includes approximately $3.0 million of
expenses for facilities-related charges, $1.6 million of employee-related
expenses for employee terminations, approximately $200,000 in other equipment
and professional service costs, and an $800,000 settlement to Verity for a
software license. In September 2002, based on a review of our continuing
obligations associated with the original restructuring charge, we recorded a
reduction in estimate for facilities of approximately $521,000 and an increase
in estimate for other charges of approximately $249,000. In June 2003, we
recorded a further reduction in the estimate for facilities of approximately
$65,000 and in the estimate for

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equipment of approximately $15,000. As of June
30, 2003, our total cash expenditures incurred were approximately $5.2 million.
(See Note 4 to Financial Statements  Restructuring of operations).

We experienced a reduction in incoming orders from the latter half of 2000
through the third quarter of 2001, and incoming orders did not begin to
increase until the fourth quarter of 2001. The slowdown in the North American
economy, as well as the events associated with the September 11, 2001 disaster,
influenced customers willingness to place new orders for our products. We
experienced significant revenue reduction in each quarter of 2001, compared to
the same quarter of the previous year and this trend continued into the third
quarter of 2002. In some cases, customers chose to reduce the number of desktop
units at the time of annual maintenance renewal to reflect a reduction-in-force
at their facilities, or they continued to postpone buying decisions due to
budget constraints. The reduction in revenue in the first quarter of 2003 was
primarily attributed to our North American operations. Our second quarter 2003
revenues were approximately 26% less than the amount recorded in the second
quarter of 2002 and approximately 15% less than the amount recorded in the
first quarter of 2003. There can be no assurance that revenues will increase at
all in future periods.

Because we generally ship software products within a short period after
receipt of an order, we do not have a material backlog of unfilled orders, and
revenues in any one quarter are substantially dependent on orders booked in
that quarter. Our operating expense levels are based, in part, on our
expectation of future revenues and, to a large extent, are fixed. In the second
quarter of 2003, operating expenses, excluding restructuring charges, continued
to decline when compared to the first quarter of 2003 and the second quarter of
2002, and may fluctuate as a percentage of net revenues as we develop and
introduce new products.

As described herein, under the heading Factors that may affect our future
results and financial condition, acquisitions involve a number of risks,
including risks relating to the integration of the acquired companys
operations, personnel, and products. There can be no assurance that the
integration of previously acquired companies, or the integration of any future
acquisitions, will be accomplished successfully, and the failure to effectively
accomplish any of these integrations could have a material adverse effect on
our results of operations and financial condition.

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Three and six months ended June 30, 2003 compared to June 30, 2002 (dollars in
millions):



|                                                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |     |     |  
|--------------------------------------------------- | --------------------------------------------------- | ------------------ | ---- | --------------------------- | ----- | ---- | ---- | ------------- | ----- | - | ---- | ---- | ---- | - | ---- | --- | --- | -
|                                                    |                                                     |                    |      | Three months ended June 30,
|                                                    |                                                     |                    |      | 2003                        |       | 2002 |      | Change       
|                                                    |                                                     |                    |      |                             |       |      |      |              
|                                                    |                                                     |                    |      |                             |       |      |      | (As restated) |       |   |      |      |      |   |      |    
|Net revenues                                        |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | License fees                                        |                    | $    | 4.2                         |       |      | $    | 7.9           |       |   | $    | (3.7 | )    |   |      | -47 | %  
|                                                    | Services                                            |                    |      | 7.7                         |       |      |      | 8.3           |       |   |      | (0.6 | )    |   |      | -7  | %  
|                                                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total net revenues |      |                             | 11.9  |      |      |               | 16.2  |   |      |      | (4.3 | ) |      |     | -27 | %
|As a percentage of net revenues:                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | License fees                                        |                    |      | 35.3                        | %     |      |      | 48.8          | %     |   |      |      |      |   |      |     |    
|                                                    | Services                                            |                    |      | 64.7                        | %     |      |      | 51.2          | %     |   |      |      |      |   |      |     |    
|                                                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total net revenues |      |                             | 100.0 | %    |      |               | 100.0 | % |      |      |      |   |      |     |     |  
|Gross margin - license fees                         |                                                     | $                  | 3.7  |                             |       | $    | 7.3  |               |       | $ | (3.6 | )    |      |   | -49  | %  
|Gross margin - service                              |                                                     |                    | 6.4  |                             |       |      | 6.7  |               |       |   | (0.3 | )    |      |   | -4   | %  
|Gross
margin - amortization of developed technology |                                                     |                    | (0.3 | )                           |       |      | (0.6 | )             |       |   | 0.3  |      |      |   | -50  | %  
|                                                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total gross margin |      | $                           | 9.8   |      |      | $             | 13.4  |   |      | $    | (3.6 | ) |      |     | -27 | %
|As a percentage of net revenue                      |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | Gross margin - license fees                         |                    |      | 31.1                        | %     |      |      | 45.1          | %     |   |      |      |      |   |      |     |    
|                                                    | Gross margin - service                              |                    |      | 53.8                        | %     |      |      | 41.3          | %     |   |      |      |      |   |      |     |    
|                                                    | Gross margin - amortization of developed technology |                    |      | -2.5                        | %     |      |      | -3.7          | %     |   |      |      |      |   |      |     |    
|                                                    |                                                     |                    |      |                             |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total gross margin |      |                             | 82.4  | %    |      |               | 82.7  | % |      |      |      |   |      |     |     |  
|Research and development                            |                                                     | $                  | 2.1  |                             |       | $    | 3.6  |               |       | $ | (1.5 | )    |      |   | -42  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 17.6                        | %     |      |      | 22.2          | %     |   |      |      |      |   |      |     |    
|Sales and marketing                                 |                                                     | $                  | 6.2  |                             |       | $    | 10.0 |               |       | $ | (3.8 | )    |      |   | -38  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 52.1                        | %     |      |      | 61.7          | %     |   |      |      |      |   |      |     |    
|General and administrative                          |                                                     | $                  | 3.0  |                             |       | $    | 2.5  |               |       | $ | 0.5  |      |      |   | 20   | %  
|                                                    | As a percentage of net revenue                      |                    |      | 25.2                        | %     |      |      | 15.4          | %     |   |      |      |      |   |      |     |    
|Restructuring charge,net                            |                                                     | $                  | 0.9  |                             |       | $    |     |               |       | $ | 0.9  |      |      |   | 0    | %  
|                                                    | As a percentage of net revenue                      |                    |      | 7.6                         | %     |      |      | 0.0           | %     |   |      |      |      |   |      |     |    
|Amortization of intangibles                         |                                                     | $                  | 0.2  |                             |       | $    | 0.2  |               |       | $ |     |      |      |   | 0    | %  
|                                                    | As a percentage of net revenue                      |                    |      | 1.7                         | %     |      |      | 1.2           | %     |   |      |      |      |   |      |     |    
|Interest income and other, net                      |                                                     | $                  |     |                             |       | $    | 0.1  |               |       | $ | (0.1 | )    |      |   | -100 | %  
|                                                    | As a percentage of net revenue                      |                    |      | 0.0                         | %     |      |      | 0.6           | %     |   |      |      |      |   |      |     |    
|Loss on investment, net                             |                                                     | $                  |     |                             |       | $    |     |               |       | $ |     |      |      |   | 0    | %  
|                                                    | As a percentage of net revenue                      |                    |      | 0.0                         | %     |      |      | 0.0           | %     |   |      |      |      |   |      |     |    
|Foreign currency gain (loss)                        |                                                     | $                  | 0.9  |                             |       | $    | (0.7 | )             |       | $ | 1.6  |      |      |   | -229 | %  
|                                                    | As a percentage of net revenue                      |                    |      | 7.6                         | %     |      |      | -4.3          | %     |   |      |      |      |   |      |     |    
|Provision (benefit) for income taxes                |                                                     | $                  |     |                             |       | $    | 0.3  |               |       | $ | (0.3 | )    |      |   | -100 | %  
|                                                    | Effective tax rate                                  |                    |      | 0.0                         | %     |      |      | 1.9           | %     |   |      |      |      |   |      |     |    
|Net loss                                            |                                                     | $                  | (1.7 | )                           |       | $    | (3.8 | )             |       | $ | 2.1  |      |      |   | -55  | %  
|                                                    | As a percentage of net revenue                      |                    |      | -14.3                       | %     |      |      | -23.5         | %     |   |      |      |      |   |      |     |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |     |     |  
|--------------------------------------------------- | --------------------------------------------------- | ------------------ | ---- | ------------------------- | ----- | ---- | ---- | ------------- | ----- | - | ---- | ---- | ---- | - | ---- | --- | --- | -
|                                                    |                                                     |                    |      | Six months ended June 30,
|                                                    |                                                     |                    |      | 2003                      |       | 2002 |      | Change       
|                                                    |                                                     |                    |      |                           |       |      |      |              
|                                                    |                                                     |                    |      |                           |       |      |      | (As restated) |       |   |      |      |      |   |      |    
|Net revenues                                        |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | License fees                                        |                    | $    | 10.2                      |       |      | $    | 18.1          |       |   | $    | (7.9 | )    |   |      | -44 | %  
|                                                    | Services                                            |                    |      | 15.8                      |       |      |      | 17.1          |       |   |      | (1.3 | )    |   |      | -8  | %  
|                                                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total net revenues |      |                           | 26.0  |      |      |               | 35.2  |   |      |      | (9.2 | ) |      |     | -26 | %
|As a percentage of net revenues:                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | License fees                                        |                    |      | 39.2                      | %     |      |      | 51.4          | %     |   |      |      |      |   |      |     |    
|                                                    | Services                                            |                    |      | 60.8                      | %     |      |      | 48.6          | %     |   |      |      |      |   |      |     |    
|                                                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total net revenues |      |                           | 100.0 | %    |      |               | 100.0 | % |      |      |      |   |      |     |     |  
|Gross margin - license fees                         |                                                     | $                  | 9.2  |                           |       | $    | 16.7 |               |       | $ | (7.5 | )    |      |   | -45  | %  
|Gross margin - service                              |                                                     |                    | 13.2 |                           |       |      | 13.8 |               |       |   | (0.6 | )    |      |   | -4   | %  
|Gross margin - amortization of developed technology |                                                     |                    | (0.7 | )                         |       |      | (1.1 | )             |       |   | 0.4  |      |      |   | -36  | %  
|                                                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total gross margin |      | $                         | 21.7  |      |      | $             | 29.4  |   |      | $    | (7.7 | ) |      |     | -26 | %
|As a percentage of net revenue                      |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    | Gross margin - license fees                         |                    |      | 35.4                      | %     |      |      | 47.4          | %     |   |      |      |      |   |      |     |    
|                                                    | Gross margin - service                              |                    |      | 50.8                      | %     |      |      | 39.2          | %     |   |      |      |      |   |      |     |    
|                                                    | Gross
margin - amortization of developed technology |                    |      | -2.7                      | %     |      |      | -3.1          | %     |   |      |      |      |   |      |     |    
|                                                    |                                                     |                    |      |                           |       |      |      |               |       |   |      |      |      |   |      |    
|                                                    |                                                     | Total gross margin |      |                           | 83.5  | %    |      |               | 83.5  | % |      |      |      |   |      |     |     |  
|Research and development                            |                                                     | $                  | 4.7  |                           |       | $    | 7.2  |               |       | $ | (2.5 | )    |      |   | -35  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 18.1                      | %     |      |      | 20.5          | %     |   |      |      |      |   |      |     |    
|Sales and marketing                                 |                                                     | $                  | 13.6 |                           |       | $    | 19.4 |               |       | $ | (5.8 | )    |      |   | -30  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 52.3                      | %     |      |      | 55.1          | %     |   |      |      |      |   |      |     |    
|General and administrative                          |                                                     | $                  | 5.8  |                           |       | $    | 5.0  |               |       | $ | 0.8  |      |      |   | 16   | %  
|                                                    | As a percentage of net revenue                      |                    |      | 22.3                      | %     |      |      | 14.2          | %     |   |      |      |      |   |      |     |    
|Restructuring charge, net                           |                                                     | $                  | 1.5  |                           |       | $    |     |               |       | $ | 1.5  |      |      |   | 0    | %  
|                                                    | As a percentage of net revenue                      |                    |      | 5.8                       | %     |      |      | 0.0           | %     |   |      |      |      |   |      |     |    
|Amortization of intangibles                         |                                                     | $                  | 0.3  |                           |       | $    | 0.4  |               |       | $ | (0.1 | )    |      |   | -25  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 1.2                       | %     |      |      | 1.1           | %     |   |      |      |      |   |      |     |    
|Interest income and other, net                      |                                                     | $                  | 0.1  |                           |       | $    | 0.2  |               |       | $ | (0.1 | )    |      |   | -50  | %  
|                                                    | As a percentage of net revenue                      |                    |      | 0.4                       | %     |      |      | 0.6           | %     |   |      |      |      |   |      |     |    
|Loss on investment, net                             |                                                     | $                  |     |                           |       | $    |     |               |       | $ |     |      |      |   | 0    | %  
|                                                    | As a percentage of net revenue                      |                    |      | 0.0                       | %     |      |      | 0.0           | %     |   |      |      |      |   |      |     |    
|Foreign currency gain (loss)                        |                                                     | $                  | 0.9  |                           |       | $    | (1.3 | )             |       | $ | 2.2  |      |      |   | -169 | %  
|                                                    | As a percentage of net revenue                      |                    |      | 3.5                       | %     |      |      | -3.7          | %     |   |      |      |      |   |      |     |    
|Provision (benefit) for income taxes                |                                                     | $                  | (0.3 | )                         |       | $    | 0.6  |               |       | $ | 0.9  |      |      |   | -150 | %  
|                                                    | Effective tax rate                                  |                    |      | -1.2                      | %     |      |      | 1.7           | %     |   |      |      |      |   |      |     |    
|Net loss                                            |                                                     | $                  | (2.9 | )                         |       | $    | (4.3 | )             |       | $ | 1.4  |      |      |   | -33  | %  
|                                                    | As a percentage of net revenue                      |                    |      | -11.2                     | %     |      |      | -12.2         | %     |   |      |      |      |   |      |     |    

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Net revenues

Our revenues are derived from the sale of software licenses and related
services, which include maintenance and support, consulting and training
services. License fees are earned under software license agreements with
end-users and resellers and are generally recognized as revenue upon shipment
of the software if collection of the resulting receivable is probable, the fee
is fixed and determinable and vendor-specific objective evidence exists to
allocate the total fee to all undelivered elements of the arrangement.
Certain of our sales are made to domestic distributors under agreements
allowing right-of-return and price protection on unsold merchandise.
Accordingly, we defer recognition of such sales until the distributor sells the
merchandise. Our international distributors generally do not have return rights
and, as such, we generally recognize sales to international distributors upon
shipment, if all other revenue recognition criteria have been met.

Services revenues are derived from software updates for existing software
products, user documentation and technical support, generally under annual
service agreements. These revenues are recognized ratably over the terms of
such agreements. If the services are included in the initial licensing fee, the
fair value of the services is unbundled and recognized ratably over the related
service period. Service revenues derived from consulting and training are
deferred and recognized, when the services are performed, and the collection is
deemed probable.

License fees and services revenues decreased $3.7 million and $0.6
million, respectively, and $7.9 million and $1.3 million, respectively, for the
three and six month periods ended June 30, 2003 as compared to the same periods
in 2002. Total net revenues for the three and six month periods ended June 30,
2003 decreased $4.3 million and $9.2 million, respectively, from those
recorded in the three and six month periods ended June 30, 2002. We believe
these decreases primarily are a result of customer decisions to cancel or
postpone purchases of our products, due to the sluggish North American and
European economies, competitive pressures on our average selling prices, and
financial pressures experienced by our customers and targeted customers.

We have operations worldwide with sales offices located in the United
States, Europe, Canada and support and R&D facilities in Canada and Israel.
Revenues outside of the United States and Canada as a percentage of total net
revenues were approximately 30% and 28% for the three months ended June 30,
2003 and 2002, respectively, and 27% and 29% for the six months ended June 30,
2003 and 2002, respectively.

There were no customers that accounted for more than 10% of consolidated
revenues in the second quarter of 2003, and no customer that accounted for
more than 10% of consolidated revenues in the six month period ended June 30,
2003. For the three and six month period ended June 30, 2002 there were no
customers that accounted for more than 10% of consolidated revenues.

Gross margin

Gross margin remained relatively constant as a percentage of net revenues
at 82% and 84%, for the three and six months ended June
30, 2003 and 2002, respectively, and 83% and 84% for the three and six
months ended June 30, 2002, respectively. Cost of revenues decreased for the three and
six month periods ended June 30, 2003 by $0.7 million and $1.6 million,
respectively, as compared to the three and six month periods ended June 30,
2002. Cost of revenues includes all direct expenses associated with both
license and service revenues as well as the amortization of developed
technology purchased through our acquisition of Wall Data and Simware.

License cost of revenues primarily includes costs associated with order
processing, product packaging, documentation and software duplication,
amortization and write-down of acquired technology, and royalties paid to third
parties for licensed software incorporated into our products. Service cost of
revenues includes costs associated with both consulting and customer service,
and consists primarily of salaries and commissions, benefits, travel, and
occupancy expenses.

Cost of revenues for license fees increased as a percentage of net license
revenues to 13.2% and 10.5% respectively for the three and six month periods
ended June 30, 2003 as compared to 7.3% and 7.7% for the same periods in 2002,
but declined in dollar amounts for both the three and six month periods ended
June 30, 2003 as compared to the same periods in 2002. These increases in
percentage of revenue were primarily the result of a reduction in net license
revenue of $3.7 million and $7.9 million respectively for the three and six
month periods ended June 30, 2003 as compared to the same periods in 2002. The
decrease was a result of a reduction in headcount of 11 full-time employees in
operations from the second quarter of 2002 to the second quarter of 2003, and
continuing cost reduction efforts.

Cost of revenues for services decreased to 15.8% and 16.0% respectively as
a percentage of net services revenues for the three and six month periods ended
June 30, 2003 and to 19.9% and 19.3% for the comparable periods in 2002 and
declined in dollar amounts for both the three and six month periods ended June 30, 2003 as
compared to the same periods in 2002. The decline in cost of revenue for
services primarily resulted from a reduction in headcount of 29 full-time
employees in customer service and consulting from the second quarter of 2002 to
the second quarter of 2003 and the ongoing cost reduction efforts in 2002 and
2003 offset in part by a reduction in services revenues of $0.7 million and
$1.4 million for the three and six month periods ended June 30, 2003,
respectively.

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Gross margin as a percentage of net revenues may fluctuate in the future due to
increased price competition, the mix of distribution channels that we use, the
mix of license fee revenues versus service revenues, the mix of products sold,
and the mix of international versus domestic revenues. We typically recognize
higher gross margins on direct sales than sales through our indirect
distribution channels, which generally carry lower margins.

Research and development

Research and development, or R&D, expenses primarily consist of salaries
and benefits, occupancy and travel expenses, and fees paid to outside
consultants. R&D expenses decreased in dollar amounts and as a percentage of
net revenues for the three and six month periods ended June 30, 2003 as
compared to the same periods in 2002, primarily as a result of a reduction in
headcount of 62 full time employees, and the ongoing cost reduction efforts in
2002 and 2003.

Software development costs are accounted for in accordance with SFAS No.
86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, under which we are required to capitalize software
development costs after technological feasibility is established, which we
categorize as a working model and 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. We did not capitalize any software development costs in
either of the three or six month periods ended June 30, 2003 or June 30, 2002.

Sales and marketing

Sales and marketing expenses consist primarily of salaries and commissions
of sales and marketing personnel, advertising and promotional expenses,
occupancy and related costs. Sales and marketing expenses decreased in dollar
amounts and as a percentage of net revenues for the three and six month periods
ended June 30, 2003 as compared to the same periods in 2002, primarily due to a
reduction in headcount of 57 full-time sales employees and support staff from
the second quarter of 2002 to the second quarter of 2003 and our ongoing cost
reduction efforts in 2002 and 2003. Sales and marketing expenses for the three
and six month periods ended June 30, 2003 also include an allocation of
approximately $111,000 and $222,000, respectively, for a Company sales
incentive goal for 2003. An additional $139,000 and $278,000 related to the sales incentive
is included in other functional areas as of for the three and six
months ended June 30, 2003, respectively. We anticipate the
total expense for this sales incentive to approximate $1.0 million for the
year ending December 31, 2003.

General and administrative

General and administrative expenses consist primarily of salaries,
benefits, accounting, operating, legal, and proportionate shares of occupancy
expenses for our human resources, legal, information technology, facilities and
general management functions as well as bad debt expense. General and
administrative expenses increased in the quarter compared to the same period in
2002 and increased as a percentage of net revenues for the three and six month
periods ended June 30, 2003 as compared to the same periods in 2002. The
primary reason for the increase in general and administrative
expenses results from additional legal expenses incurred in connection with compliance
litigation recently resolved in our favor. These legal expenses are offset in
part by a reduction of 22 full time general and administrative
employees from the second quarter of 2002 to the second quarter of
2003, and
our continuing cost reduction efforts.

Interest income and other, net

Interest income and other, net for the three and six month periods ended
June 30, 2003 and 2002, respectively, are as shown in the following table:

|                       |                         |   |                    |    |                  |   |      |    |      |   |     |     |  |   |     |     | 
|---------------------- | ----------------------- | - | ------------------ | -- | ---------------- | - | ---- | -- | ---- | - | --- | --- |  | - | --- | --- | 
|                       |                         |   | Three months ended |    | Six months ended
|                       |                         |   | June 30,           |    | June 30,        
|                       |                         |   | 2003               |    | 2002             |   | 2003 |    | 2002
|                       |                         |   |                    |    |                  |   |      |    |     
|Interest income:       |                         |   |                    |    |                  |   |      |    |      |   |     |     |  |   |     |    
|                       | On cash and investments |   | $                  | 57 |                  |   | $    | 96 |      |   | $   | 121 |  |   | $   | 195 | 
|                       | On tax refunds          |   |                    |   |                  |   |      | 2  |      |   |     |    |  |   |     | 2   | 
|Interest expense       |                         |   |                   |    |                  |   | (3   | )  |      |   |    |     |  |   | (22 | )  
|Other income (expense) |                         |   |                   |    |                  |   | 26   |    |      |   | (1  | )   |  |   | 27  |    
|                       |                         |   |                    |    |                  |   |      |    |      |   |     |     |  |   |     |    
|Total                  |                         | $ | 57                 |    |                  | $ | 121  |    |      | $ | 120 |     |  | $ | 202 |    
|                       |                         |   |                    |    |                  |   |      |    |      |   |     |     |  |   |     |    

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The reduction in earned interest results from a reduction of our cash
balances, and 20% lower effective annual interest rates during the first half
of 2003 compared to the same period in 2002.

For the three and six months periods ended June 30, 2002 interest income
of $2,000 was received on an income tax refund of $20,000. For the same periods
in 2003, the Company did not record any interest income on tax refunds.

Transaction gains and losses from foreign currency activity excludes activity
flowing through our inter-company accounts (see below).

Foreign currency transaction gains (losses)

For the three and six month periods ended June 30, 2003, we recorded
transaction gains of approximately $0.8 million and $0.9 million, respectively.
For the three and six month periods ended June 30, 2002, we recorded
transaction losses of approximately $0.7 million and $1.3 million,
respectively. These transaction gains and losses are attributable to
inter-company balances recorded using primarily the Israeli Shekel. In the three and six month periods ended June 30,
2002, the Israeli Shekel fell approximately 3% and 10%, respectively, against
the U.S. dollar and 14% and 21% against the Euro. For the same period in 2003,
the Israeli Shekel gained approximately 7% and 9%, respectively,
against the U.S.
dollar and approximately 2% and 0% against the Euro.

Provision for income taxes

Our effective tax rate for 2003 is less than 1% due to our current tax
loss position. Income taxes primarily include international withholding taxes
and state taxes. The tax provision of $16,000 for the quarter ended June 30,
2003 resulted primarily from international tax expense of $6,000 and U.S. state
tax expense of $10,000. The income tax benefit of $301,000 for the six months
ended June 30, 2003 resulted primarily from German tax refunds of $481,000, net
of international tax expense of $172,000, and U.S. state tax expense of $8,000.
The income tax provision of $340,000 for the quarter ended June 30, 2002
resulted primarily from international tax expense of $382,000, net of U.S.
state tax benefits of $42,000. The income tax provision of $587,000 for the
six months ended June 30, 2002 resulted primarily from international tax
expense of $685,000, net of U.S. state tax benefits of $98,000.

Liquidity and capital resources

|                          |                                           |  |          |      |  
|------------------------- | ----------------------------------------- |  | -------- | ---- | -
|                          |                                           |  | June 30,
|                          |                                           |  | 2003    
|(In millions)             |                                           | 
|Consists of:              |                                           |  |          |     
|                          | Cash and cash equivalents                 |  | $        | 25.7 |  
|                          | Short-term investments                    |  |          | 0.3  |  
|For the six month period: |                                           |  |          |     
|                          | Net cash provided by operating activities |  |          | 2.8  |  
|                          | Net cash used in investing activities     |  |          | (0.4 | )
|                          | Net cash used in financing activities     |  |          | (0.1 | )

Since our inception, our operations have been financed primarily through
cash provided by operations and sales of capital stock. Our primary financing
activities to date consist of our initial and secondary stock offerings and
preferred stock issuances, from which we derived aggregated net proceeds of
approximately $72.5 million. We do not have a bank line of credit.

Our aggregate cash, cash equivalents and short-term investments increased
from $24.1 million as of December 31, 2002 to $26.0 million as of June 30,
2003. This increase resulted primarily from the receipt of approximately $1.2
million in income and VAT tax refunds and from operating activities, in
particular the significant reduction in our accounts receivable, offset by a
reduction in our accounts payable, accrued liabilities, payroll, and deferred
revenues.

Our principal investing activities to date have been the purchase of
short-term and long-term investments, business acquisitions, and equipment
purchases. We do not have any material commitments with regard to future
capital expenditures at this time.

Net cash used in financing activities in the three and six month periods
ended June 30, 2003 reflects our repurchase of our common stock in the first
quarter of 2003, offset by proceeds from the sale of common stock through our
Employee Stock Purchase Plan.

Our Board of Directors has authorized the purchase from time to time of up
to 2,142,857 shares of our common stock through open market purchases. During
the three months ended June 30, 2003, we did not repurchase any shares of our
common stock. For the six month period ended June 30, 2003, we repurchased
71,932 shares of our common stock at an average price of $2.44 per share for a
total cost of approximately $175,456. Cumulatively as of June 30, 2003, we
have repurchased 2,076,048 shares of our common stock at an average price of
$10.02 per share for an approximate total cost of $20.8 million.

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At June 30, 2003, we had working capital of $6.8 million. We believe that
our current cash balances and future operating cash flows will be sufficient to
meet our working capital and capital expenditure requirements for the
foreseeable future. We do not use off balance sheet financing arrangements as a
source of liquidity or financing.

Stock option exchange offer

On May 16, 2003 the Company announced a voluntary stock option exchange
program for certain of its employees. The offer to exchange options, or Offer,
was open to eligible option holders, excluding non-employee members of the
board of directors and non-exempt employees, holding options to purchase shares
of the Companys common stock with an exercise price per share of $1.50 or
greater. In accordance with the terms of the Offer, participating employees
tendered eligible options in exchange for replacement options. These
replacement options will then be granted to employees at least six months and
one day following the date their original options were exchanged and cancelled.
Under the terms of the Offer, replacement options will vest and become
exercisable for the balance of the option shares in accordance with the same
type of installment vesting schedule that was in effect for the cancelled options,
but measured from the grant date of the replacement options, and no vesting
credit will be provided for the period between the date the
original options were tendered and the date the replacement options are
granted.

The Company has issued options under the Company Plans to provide
employees with an opportunity to acquire or increase their ownership interest
in NetManage, thereby creating a stronger incentive for them to continue their
employment with the Company and to contribute to the attainment of the
Companys business and financial objectives and the creation of value for all
the Companys stockholders. The reason for this offer was that many of the
outstanding options, whether or not they were currently exercisable, had
exercise prices that were significantly higher than the current market price of
the Companys Common Stock. For this reason, the Company believed that these
options did not effectively retain and motivate employees and were unlikely to
be exercised in the foreseeable
future. By making the offer to exchange outstanding options for
replacement
options that will have an exercise price equal to the market value of our
Common Stock on the grant date, the Company intends to provide its employees
with the benefit of owning options that over time may have a greater potential
to increase in value and thereby provide them with a more meaningful incentive
to remain with the Company and to contribute to the attainment of the Companys
business and financial objectives and to create value for all the Companys
stockholders.

On June 13, 2003, employees tendered options to purchase a total of
542,150 shares in connection with the Offer, which were cancelled under our
1992 Stock Option Plan as amended, and our 1999 Non-statutory Stock Option Plan
following their exchange. Subject to the continued employment of the employees
who exchanged options, replacement options to purchase a total of 542,150
shares are expected to be granted on or around December 16, 2003.

The exercise price of the replacement options will be based on the fair
market value of the Companys common stock on the date the replacement options
are granted. The fair market value of the Companys common stock will be equal
to the last reported sale price of its common stock on the Nasdaq National
Market on the date it grants the replacement options.

The exchange program is being accounted for in accordance with FIN 44,
Accounting for Certain Transactions Involving Stock Compensationan
Interpretation of APB Opinion No. 25and results in no compensation expense.

Critical accounting policies

Reference is made to Critical Accounting Policies included in our Annual
Report on Form 10-K for the year ended December 31, 2002 as filed with the SEC
on February 27, 2003. As of the date of the filing of this Quarterly Report,
the Company has not identified any critical accounting policies other than
those discussed in our Annual Report for the year ended December 31, 2002.

Disclosures about market risk

Interest rate risk

Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We place our investments with high
credit quality issuers and, by policy, limit our credit exposure with any one
issuer. As stated in our policy, we are averse to principal loss, and seek to
preserve our invested funds by limiting default risk, liquidity risk, and
territory risk.

We mitigate default and liquidity risks by investing only in high credit
quality securities, and by positioning our portfolio to respond appropriately
to a significant reduction in the credit rating of any investment issuer or
guarantor. To ensure portfolio liquidity the portfolio includes only marketable
securities with active secondary or resale markets. We mitigate territory risk
by only allowing up to 25% of the portfolio to be placed outside of the United
States.

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Foreign currency risk

We transact business in various foreign currencies, primarily in Europe and
Israel and are subject to the risks resulting from the fluctuations of those
currencies in relation to the U.S. dollar. We have not entered into any foreign
currency forward contracts in either 2003 or 2002.

Factors that may affect our future results and financial condition

Our business is subject to a number of risks and uncertainties. You should
carefully consider the risks described below, in addition to the other
information contained in this Report and in our other filings with the SEC. The
risks and uncertainties described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also affect our business operations. If any of
these risks actually occur, our business, financial condition or results of
operations could be seriously harmed. In that event, the market price for our
common stock could decline and you may lose part or all of your investment.

Our operating results have fluctuated significantly in the past and may
continue to do so in the future, which could cause our stock price to decline.

We have experienced, and expect to experience in future periods,
significant fluctuations in operating results that may be caused by many
factors including, among others:



| |  |  | general economic conditions, in particular, the recent slowdown of
purchases of information technology due to current economic conditions in
North America, Europe, and financial pressures experienced by our
customers and targeted customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | demand for our products;                                                                                                                                                                                                                        
|
| |  |  | introduction or enhancements to our products and those of our competitors;                                                                                                                                                                      
|
| |  |  | technological changes in computer networking;                                                                                                                                                                                                   
|
| |  |  | competitive pricing pressures;                                                                                                                                                                                                                  
|
| |  |  | market acceptance of new products;                                                                                                                                                                                                              
|
| |  |  | customer order deferrals in anticipation of new products and product enhancements;                                                                                                                                                              
|
| |  |  | the size and timing of individual product orders;                                                                                                                                                                                               
|
| |  |  | mix of international and domestic revenues;                                                                                                                                                                                                     
|
| |  |  | mix of distribution channels through which our products are sold;                                                                                                                                                                               
|
| |  |  | impact of, or failure to enter into, strategic alliances to promote our products;                                                                                                                                                               
|
| |  |  | quality control of our products;                                                                                                                                                                                                                
|
| |  |  | changes in our operating expenses;                                                                                                                                                                                                              
|
| |  |  | personnel changes; and                                                                                                                                                                                                                          
|
| |  |  | foreign currency exchange rates.                                                                                                                                                                                                                

In addition, our acquisitions, including past acquisitions, of
complementary businesses, products or technologies may cause fluctuations in
our operating results due to in-process research and development charges, the
amortization of acquired intangible assets, and integration costs.

Since we generally ship software products within a short period after
receipt of an order, we do not typically have a material backlog of unfilled
orders, and our revenues in any one-quarter are substantially dependent on
orders booked in that quarter and particularly in the last month of that
quarter. Our expenses are based in part on our expectations as to future
revenues and to a large extent are fixed. Therefore, we may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall of demand for our products in relation
to our expectations or any material delay of customer orders would have an
almost immediate adverse impact on our operating results and on our ability to
achieve profitability.

As a result, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Fluctuations in our operating results have
caused, and may in the future cause us to perform below the expectations of
public market analysts and investors. If our operating results fall below
market expectations, the price of our common stock may fall.

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We have not been profitable on an annual basis since 1995 and may never achieve
profitability in the future.

We had a net loss from operations of approximately $22.0 million for the
year ended December 31, 2002. We have not been profitable in the first or
second quarters of 2003 and have not achieved profitability on an annual basis
since 1995, and we may never obtain sufficient revenues to sustain
profitability in any future period. In addition, price competition may make it
difficult for us to achieve profitability. Increasing competition may cause our
prices to decline, which would harm our operating results. We expect prices
for our software products to decline over the next few years. We expect to face
increased competition in markets where we sell our products, which will make it
more difficult to increase or maintain our revenues or to maintain our prices
and profit margins. We need to significantly increase our sales volume and/or
reduce our costs to be profitable in future periods. If anticipated increases
in sales volume do not keep pace with anticipated pricing pressures, our
revenues would decline and our business could be harmed. This could occur
despite our efforts to introduce and enhance our existing products.

We rely significantly on third parties for sales of our products and our
revenues could decline significantly with little or no notice.

We rely significantly on our independent distributors, systems
integrators, and value-added resellers for marketing and distribution of our
products. The agreements in place with these organizations are generally
non-exclusive, of limited duration, are terminable with little or no notice by
either party and generally do not contain minimum purchase requirements. These
distributors of our products are not within our control and generally represent
competing product lines of other companies in addition to our products. There
can be no assurance that these organizations will give a high priority to the
marketing of our products, and they may give a higher priority to the products
of our competitors.

Furthermore, our results of operations may also be materially adversely
affected by changes in the inventory strategies of our resellers, which can
occur rapidly and may not be related to end-user demand. As part of our
continued strategy of selling through multiple distribution channels, we expect
to continue using indirect distribution channels, particularly value-added
resellers and system integrators, in addition to distributors and original
equipment manufacturers. Any material increase in our indirect sales as a
percentage of revenues may adversely affect our average selling prices and
gross margins due to lower unit costs that are typically charged when selling
through indirect channels. There can be no assurance that we will be able to
attract or retain resellers and distributors who will be able to market our
products effectively, will be qualified to provide timely and cost-effective
customer support and service, or will continue to represent our products. If we
are unable to recruit or retain important resellers or distributors or if they
decrease their sales of our products, we may suffer a material adverse effect
on our business, financial condition or results of operations.

Our acquisitions may have a material adverse effect on our operating results
and financial condition.

We consummated several merger and acquisition transactions, including the
acquisitions of Wall Data and Simware in the fourth quarter of 1999, and the
acquisition of Aqueduct in the second quarter of 2000. These acquisitions were
motivated by various factors, including the desire to obtain new technologies,
expand
and enhance our product offerings, expand our customer base, attract key
personnel, and strengthen our presence in the international and OEM
marketplaces. 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 integration of acquired products with existing product lines;                                                        
|
| |  |  | the failure to realize anticipated benefits of cost savings and synergies;                                               
|
| |  |  | the loss of customers;                                                                                                   
|
| |  |  | undisclosed liabilities;                                                                                                 
|
| |  |  | adverse effects on reported operating results;                                                                           
|
| |  |  | the amortization of acquired intangible assets;                                                                          
|
| |  |  | the loss of key employees; and                                                                                           
|
| |  |  | the difficulty of presenting a unified corporate image.                                                                  

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We have undergone significant restructuring, which may have a material adverse
effect on our operating results.

In early December 1999, following our acquisition of Wall Data and
Simware, we initiated a plan to restructure our worldwide operations in order
to integrate the operations of Wall Data and Simware. We undertook further
restructurings of our operations, primarily in North America, in August 2000,
August 2002 and again in January 2003. All restructuring plans involved
reductions in our worldwide workforce and the consolidation of certain of our
sales, customer support, and research and development facilities. These
restructuring plans may not be successful and may not improve future operating
results. Completion of the restructuring plans may disrupt our operations and
have a material adverse effect on our business, financial condition and results
of operations. We may also be required to implement additional restructuring
plans in the future.

The successful combination of companies requires coordination of sales and
marketing with research and development efforts, and can be difficult to
accomplish. The integration of both Wall Data and Simware involved
geographically separated organizations, and personnel with diverse business
backgrounds and corporate cultures. We believe that factors such as the ongoing
attention and dedication of management and resources required to effect the
complete integration of both Wall Data and Simware, and the consequent
disruption in the business of all parties involved, contributed to
interruptions and loss of momentum in our business activities. Our ability to
maintain or increase revenues from the sale of products from Wall Data and
Simware on an ongoing basis depends in part on our ability to effectively
respond to these factors.

We may not be able to successfully make acquisitions of or investments in other
companies or technologies.

We have very limited experience in acquiring or making investments in
companies, technologies or services. We regularly evaluate product and
technology acquisition opportunities and anticipate that we may make additional
acquisitions in the future if we determine that an acquisition would further
our corporate strategy. Acquisitions in our industry are particularly difficult
to assess because of the rapidly changing technological standards in our
industry. If we make any acquisitions, we will be required to assimilate the
personnel, operations and products of the acquired business and train, retain
and motivate key personnel from the acquired business. However, the key
personnel of the acquired business may decide not to work for us. Moreover, if
the operations of an acquired company or business do not meet our expectations,
we may be required to restructure the acquired business, or write-off the value
of some or all of the assets of the acquired business as we did in the third
quarter of 2000. No assurance can be given that any acquisition by us will or
will not occur, that if an acquisition does occur, that it will not materially
and adversely affect us, or that any such acquisition will be successful in
enhancing our business. If any acquisitions are effected through the issuance
of stock, our shareholders may suffer dilution and any cash used would weaken
our balance sheet.

We are dependent upon our key management for our future success, and few of our
managers are obligated to stay with us.

Our success depends on the efforts and abilities of our senior management and
certain other key personnel. Many of our key employees are employed on an
at-will basis. If any of our key employees were to leave or were unable to work
and we were unable to find a suitable replacement, then our business, financial
condition and results from operations could be materially harmed.

We face significant competition and competition in our market is likely to
increase and could harm our business.

The market for our products is intensely competitive and characterized by
rapidly changing technology, evolving industry standards, price erosion,
changes in customers needs and frequent new product introductions. We
anticipate continued growth and competition in our industry and the entrance of
new competitors into our market. We expect that competition will increase in
the near term and that our primary long-term competitors may not yet have
entered the market. Several key factors contribute to the continued growth of
our marketplace including the proliferation of Microsoft Windows client server
technology, and the continued implementation of web-based access to corporate
mainframe and midrange computer systems. Our connectivity software products
compete with major computer and communication systems vendors, including
Microsoft, IBM, and Sun Microsystems, Inc., as well as smaller networking
software companies such as Jacada Ltd, Seagull, and Hummingbird Communications
Ltd. We also face competition from makers of terminal emulation software such
as Attachmate Corporation, and WRQ, Inc.

Many of our current competitors have, and many of our future competitors
may have substantially greater financial, technical, sales, marketing and other
resources, in addition to greater name recognition and a larger customer base.
The market for our products is characterized by significant price competition
and we anticipate that, in the future, we will face increasing pricing
pressures from our competitors. In addition, our current and future competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements than we can. Increased competition could result in
price reductions, fewer customer orders, reduced gross profit margins, and loss
of market share, any of which could harm our business.

Furthermore, our competitors could seek to expand their product offerings
by designing and selling products using technology that could render obsolete
or adversely affect sales of our products. These developments may adversely
affect sales of our products either by

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directly affecting customer-purchasing
decisions or by causing potential customers to delay purchases of our
products. We have products, which are similar to connectivity products marketed
by Microsoft. Microsoft is expected to increase development of such products,
which could have a material adverse effect on our business, financial condition
or results of operations.

If we fail to manage technological change, respond to consumer demands or
evolving industry standards or if we fail to enhance our products
interoperability with the products of our customers, demand for our products
will decrease and our business will suffer.

From time to time many of our customers have delayed purchase decisions
due to the confusion in the marketplace relating to rapidly changing technology
and product introductions. To maintain or improve our position in our industry,
we must successfully develop, introduce, and market new products and product
enhancements on a timely and cost-effective basis. We have experienced
difficulty from time-to-time in developing and introducing new products and
enhancing existing products in a manner that satisfies customer requirements
and changing market demands. Any further failure by us to anticipate or respond
adequately to changes in technology and customer preferences, or any
significant delays in product development or introduction, could have a
material adverse effect on our business, financial condition, and results of
operations. The failure to develop products or product enhancements
incorporating new functionality on a timely basis could cause customers to
delay the purchase of our current products or cause customers to purchase
products from our competitors. We may not be successful in developing new
products or enhancing our existing products on a timely basis, and any new
products or product enhancements developed by us may not achieve market
acceptance. In addition, we incorporate software and other technologies owned
by third parties into certain of our products and as a result, we are dependent
upon the ability of these parties to enhance their current products, to
develop new products that will meet changing customer needs on a timely and
cost-effective basis, and to respond to emerging industry standards and other
technological changes.

We depend upon technology licensed from third parties, and if we do not
maintain these license arrangements, we will not be able to ship many of our
products and our business will be seriously harmed.

Certain of our products incorporate software and other technologies
developed and maintained by third parties. We license these technologies from
third parties under agreements with a limited duration and we may not be able
to maintain these license arrangements. If we fail to maintain our license
arrangements, or find suitable replacements, we would not be able to ship our
products, and our business would be materially harmed. For example, we have a
license agreement with Dart Communications, Inc. for Power TCP Telnet and Power
TCP VT320 for 5 years, which we use in the OnWeb product line. There can be no
assurance that we would be able to replace the functionality provided by the
third party technologies currently offered in conjunction with our products if
those technologies become unavailable to us or obsolete or incompatible with
future versions of our products or market standards.

We depend upon the compatibility of our products with applications operating on
Microsoft Windows to sell our products.

Substantially all of our net revenues have been derived from the sales of
products that provide internetworking applications for the Microsoft Windows
environment and are marketed primarily to Windows users. As a result, sales of
certain of our products might be negatively impacted by developments adverse to
Microsofts Windows products. In addition, our strategy of developing products
based on the Windows operating environment is substantially dependent on our
ability to gain pre-release access to, and to develop expertise in, current and
future Windows developments by Microsoft. If we are unable to provide on a
timely basis products compatible with future Windows releases, our business
could be harmed.

The loss of any of our strategic relationships would make it more difficult to
keep pace with evolving industry standards and to design products that appeal
to the marketplace.

Our future success depends on our ability to maintain and enter into new
strategic alliances and OEM relationships to develop necessary products or
technologies, to expand our distribution channels or to jointly market or gain
market awareness for our products. We currently rely on strategic
relationships, such as those with Microsoft, to provide us with state of the
art technology, assist us in integrating our products with leading industry
applications and help us make use of economies of scale in manufacturing and
distribution. However, we do not have written agreements with many of our
strategic partners that could ensure these relationships will continue for a
significant period of time. Many of our agreements with these partners are
informal and may be terminated by them at any time.
There can be no assurance that we will be successful in maintaining
current alliances or developing new alliances and relationships or that such
alliances and relationships will achieve their intended purposes.

We may be subject to product returns, product liability claims and reduced
sales because of defects in our products.

Complex software products may contain undetected errors or failures when
first introduced, or as new versions are released. The likelihood of errors or
failures is higher when a new product is introduced or when new versions or
enhancements are released. Errors may also arise as a result of defects in the
products that are incorporated into our products. There can be no assurance
that, despite testing by us and by current and potential customers, errors will
not be found in new products or product enhancements after commencement of
commercial shipments, which could result in loss of or delay in market
acceptance. We may be required to devote significant financial

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resources and
personnel to correct any defects. Known or unknown errors or defects that
affect the operation of our products could result in the following, any of
which could have a material adverse effect on our business, financial
condition, and results of operations:



| |  |  | delay or loss of revenues;                                  
| | - |  | ------------------------------------------------------------
|
| |  |  | cancellation of a purchase order or contract due to defects;
|
| |  |  | diversion of development resources;                         
|
| |  |  | damage to our reputation;                                   
|
| |  |  | failure of our products to achieve market acceptance;       
|
| |  |  | increased service and warranty costs; and                   
|
| |  |  | litigation costs.                                           

Although some of our licenses with customers contain provisions designed
to limit our exposure to potential product liability claims, these contractual
limitations on liability may not be enforceable. In addition, our product
liability insurance may not be adequate to cover our losses in the event of a
product liability claim resulting from defects in our products and may not be
available to us in the future.

Our business depends upon licensing our intellectual property, and if we fail
to protect our proprietary rights, our business could be harmed.

Our ability to compete depends substantially upon our internally developed
technology. We rely primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures, and contractual provisions to
protect our proprietary rights. We seek to protect our software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection, and, to a lesser extent, patent laws. 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. Policing unauthorized use of our products and technology is
difficult and, while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a
persistent problem. In selling our products, we rely primarily on shrink-wrap
and click-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 our proprietary rights to as great an
extent as do the laws of the United States. If we are not successful in
protecting our intellectual property, our business could be substantially
harmed.

Furthermore, there can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. In addition, the number of patents
applied and granted for software inventions is increasing. Despite any
precautions which we have taken:



| |  |  | laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;                                                                            
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | other companies may claim common law trademark rights based upon state
or foreign law which precede our federal registration of such marks; and                                                                                        
|
| |  |  | current federal laws that prohibit software copying provide only
limited protection from software pirates, and effective trademark,
copyright and trade secret protection may be unavailable or limited in
certain foreign countries.

Our pending patent applications may never be issued, and even if issued, may provide us with little protection.

We regard the protection of patentable inventions as important to our business. It is possible that:



| |  |  | our pending patent applications may not result in the issuance of patents;                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our patents may not be broad enough to protect our proprietary rights;                                                                                                                                 
|
| |  |  | any issued patent could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the inventions claimed in those patents;
|
| |  |  | current and future competitors may independently develop similar technology, duplicate our products or design around any of our patents; and                                                           
|
| |  |  | effective patent protection, if any, may not be available in every country in which we do business.                                                                                                    

If we are not successful in asserting our patent rights, our business
could be substantially harmed. At the present time, we have two patents pending
and we have been issued approximately thirty-five patents from the U.S. Patent
Office.

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We have received notices of claims that may result in litigation and we may
become involved in costly and time-consuming litigation over proprietary
rights.

Substantial litigation regarding intellectual property rights exists in
our industry. We expect that software in our industry may be increasingly
subject to third party infringement claims as the number of competitors grows
and the functionality of products in different areas of the industry overlap.
Third parties may currently have, or may eventually be issued, patents that
would be infringed by our products or technology. Certain of these third
parties may make a claim of infringement against us with respect to our
products and technology. We have received, and may receive in the future,
communications from third parties asserting that our products infringe, or may
infringe, the proprietary rights of third parties seeking indemnification
against such infringement or indicating that we may be interested in obtaining
a license from such third parties. Any claims or actions asserted against us
could result in the expenditure of significant financial resources and the
diversion of managements time and efforts. In addition, litigation in which we
are accused of infringement may cause product shipment delays, require us to
develop non-infringing technology or require us to enter into royalty or
license agreements even before the issue of infringement has been decided on
the merits. If any litigation were not to be resolved in our favor, we could
become subject to substantial damage claims and be prohibited from using the
technology at issue without a royalty or license agreement. These royalty or
license agreements, if required, might not be available on acceptable terms, or
at all, and could result in significant costs and harm our business. If a
successful claim of infringement is made against us and we cannot develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed.

Our business is subject to risks from international operations such as legal
uncertainty, tariffs, trade barriers and political and economic instability.

We derived approximately 30% of our net revenues from sales outside of
North America (United States and Canada) during the three month period ended
June 30, 2003 and 27% during the six month period ended June 30, 2003. While we
expect that international sales will continue to account for a significant
portion of our net revenues, there can be no assurance that we will be able to
maintain or increase international market demand for our products or that our
distributors will be able to effectively meet that demand. Risks inherent in
our international business activities generally include, among others:



| |  |  | unexpected changes in regulatory requirements;                                   
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | legal uncertainty, including reduced intellectual property protection;           
|
| |  |  | increased prevalence of intellectual property piracy and misappropriation;       
|
| |  |  | language barriers in business discussions;                                       
|
| |  |  | cultural differences in the negotiation of contracts and conflict resolution;    
|
| |  |  | time zone differences;                                                           
|
| |  |  | the limitations imposed by U.S. export laws;                                     
|
| |  |  | changes in markets caused by a variety of political, social and economic factors;
|
| |  |  | 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 exchange rate fluctuations;                                             
|
| |  |  | potentially adverse tax consequences;                                            
|
| |  |  | repatriation of earnings; and                                                    
|
| |  |  | the burdens of complying with a wide variety of foreign laws.                    



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Many of our customers are subject to many of the risks described above.
These factors may have an adverse effect on our international sales and,
consequently, on our business, financial condition or results of operations.

Terrorist attacks and threats or actual war could adversely affect our
operating results and the price of our common stock.

The terrorist attacks in the U.S., the U.S. response to these attacks, and
the related decline in consumer confidence, and continued economic weakness
have had an adverse impact on our operations. If consumer confidence continues
to decline or does not recover, our

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revenues and results of operations may
continue to be adversely impacted in the remainder of 2003 and beyond. Any
escalation in these events or any similar future events may disrupt our
operations or those of our customers. These events have had and may continue
to have an adverse impact on the U.S. and world economy in general and consumer
confidence and spending in particular, which has and could, continue to harm
our sales. In addition these events could increase volatility in the U.S. and
worldwide financial markets and
economy, which could harm our stock price and may limit the capital
resources available to us, and our customers. This could have significant
impact on our operating results, revenues and costs and may result in the
increased volatility in the market price of our common stock.

Uncertainties exist regarding our stock repurchase program.

Previously, we announced that our board of directors had approved the
repurchase of up to 2,142,857 shares of our common stock. Stock repurchase
activities are subject to certain pricing restrictions, stock market forces,
management discretion and various regulatory requirements. In addition, such
repurchases are at the discretion of our management and may be reduced or
stopped altogether at any time. As a result, there can be no assurance as to
the timing and/or amount of shares that we may repurchase under this stock
repurchase program.

It may be difficult to raise needed capital in the future, which could
significantly harm our business.

We may require substantial additional capital to finance our future growth
and fund our ongoing operations through the remainder of 2003 and beyond. Our
capital requirements will depend on many factors including, among other things:



| |  |  | acceptance of and demand for our products;                                            
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | the number and timing of acquisitions and the cost of such acquisitions;              
|
| |  |  | the costs of developing new products;                                                 
|
| |  |  | the costs associated with our expansion; and                                          
|
| |  |  | the extent to which we invest in new technology and research and development projects.

Although our current business plan does not foresee the need for further
financing activities to fund our operations for the foreseeable future, due to
risks and uncertainties in the marketplace as well as a potential of pursuing
further acquisitions, we may need to raise additional capital. If we issue
additional stock to raise capital particularly at our current low price per
share, our stockholders percentage ownership in NetManage would be reduced.
Additional financing may not be available when needed and, if such financing is
available, it may not be available on terms favorable to us.

Because of their significant stock ownership, our officers and directors can
exert significant control over our future direction.

As of August 5, 2003, our officers, directors and entities affiliated with
them, in the aggregate, beneficially owned approximately 1.5 million shares, or
approximately 17.3% of our outstanding common stock. These stockholders, if
acting together, would be able to exert significant influence on all matters
requiring approval by our stockholders, including the election of directors,
the approval of mergers or other business combination transactions or a sale of
all or substantially all of our assets.

Certain provisions of our stock option plan, our stockholder rights plan, and
our certificate of incorporation and bylaws make changes of control difficult
even if they would be beneficial to stockholders.

Our 1992 Stock Option Plan and our 1999 Nonstatutory Stock Option Plan
currently provide that, in the event of a change of control of NetManage, all
options outstanding under those plans would become fully vested and exercisable
for at least 10 days prior to the consummation of such a change of control
transaction. These acceleration of vesting provisions may have the effect of
deterring or reducing the price that a potential acquirer would be willing to
pay to acquire NetManage.

We have adopted a stockholder rights plan that would cause substantial
dilution to a stockholder, and substantially increase the cost paid by a
stockholder, who attempts to acquire us on terms not approved by our board of
directors. This could prevent us from being acquired. In addition, our board of
directors has the authority without any further vote or action on the part of
the stockholders to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions of the
preferred stock. This preferred stock, if it is ever issued, may have
preference over, and harm the rights of the holders of, our common stock.
Although the issuance of this preferred stock will provide us with flexibility
in connection with possible acquisitions and other corporate purposes, the
issuance of the preferred stock may make it more difficult for a third party to
acquire a majority of our outstanding voting stock. We currently have no plans
to issue preferred stock.

Our certificate of incorporation and bylaws include provisions that may
have the effect of deterring an unsolicited offer to purchase our stock. These
provisions, coupled with the provisions of the Delaware General Corporation
Law, may delay or impede a merger, tender offer or proxy contest involving us.
Furthermore, our board of directors is divided into three classes, only one of
which is elected

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each year. Directors are only capable of being removed by the
affirmative vote of two thirds or greater of all classes of voting stock. These
factors may further delay or prevent a change of control.

We face risks from the uncertainties of current and future governmental
regulation.

We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that various laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in
turn decrease the demand for our products, increase
our cost of doing business or otherwise have an adverse effect on our
business, financial condition or results of operations. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain. Further, due to
the encryption technology contained in certain of our products, such products
are subject to U.S. export controls. There can be no assurance that such export
controls, either in their current form or as may be subsequently enacted, will
not limit our ability to distribute products outside of the United States or
electronically. While we take precautions against unlawful exportation, there
can be no assurance that inadvertent violations will not occur, and the global
nature of the Internet makes it virtually impossible to effectively control the
distribution of our products. In addition, future federal or state legislation
or regulation may further limit levels of encryption or authentication
technology. Any such export restriction, new legislation or regulation or
unlawful exportation could have a material adverse effect on our business,
financial condition, or results of operations.




Item 3. Quantitative and qualitative disclosures about market risk

There have been no material changes in reported market risks since
December 31, 2002. Information regarding interest rate risk and foreign
currency risk is discussed herein in Item 2 under Disclosure of Market Risk.




Item 4. Controls and procedures

Evaluation of disclosure controls and procedures.

As of
the end of the period covered by this filing, we
performed an evaluation under the supervision and with the participation of
NetManages management, including NetManages Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of the design and operation
of NetManages disclosure controls and procedures (as defined in Rules 13a-14(c
) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act), as
amended). Following that evaluation, NetManages management, including the CEO
and CFO, concluded that based on the evaluation, the design and operation of
NetManages disclosure controls and procedures were effective at that time.

During
the Companys most recent fiscal quarter, to address the
deficiencies noted in the Companys Form 10-K for 2002, the Board of Directors
has adopted and the Company has implemented a code of conduct for the
Company, including its CEO, CFO, principal accounting officer or controller, and other persons
performing similar functions for us and has published the code of conduct on
our website. In addition, our Board has adopted and approved a whistleblower
policy to protect our employees in accordance with the requirements of Section
806 of the Sarbanes-Oxley Act.

An
internal control system is designed to provide reasonable, but not
absolute, assurance that the objectives of our control system are
met, including, but not limited to, ensuring that our transactions
are properly authorized, our assets are safeguarded against
unauthorized or improper use and our transactions are properly
recorded and reported.

Changes in internal controls.

Other
than what has been described above, there have been no significant
changes in our internal controls during the Companys most recent
quarter, or in
other factors that could significantly affect these controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

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PART II OTHER INFORMATION




Item 1. Legal Proceedings

Legal proceedings

On November 22, 1999, Kenneth Fisher filed a complaint alleging violations
of the False Claims Act, 31 U.S.C. § 3729 et seq., against us, and our
affiliates Network Software Associates, Inc. (NSA), and NetSoft Inc.
(NetSoft), in the United States District Court of the District of Columbia.
Fisher purported to file the action on behalf of himself and the Government.
NetManage acquired NSA and NetSoft in 1997. The United States government
declined to pursue the action on its own behalf and, therefore, the action was
pursued by Kenneth Fisher, as relator, on behalf of himself and the Government.
NetManage, and its affiliates, first learned of the action when NetManage was
served with the amended complaint in May 2001. On September 5, 2001, Mr. Fisher
agreed to voluntarily dismiss NetManage from this action, without prejudice, in
exchange for an agreement to suspend applicable statutes of limitation as to
Mr. Fishers claims.

On January 31, 2002, on an order of the court granting in part and denying
in part defendants motion to dismiss the May 2001 amended complaint, Mr.
Fisher filed a Second Amended Complaint, or Second Complaint, in the United
States District Court of the District of Columbia against NSA and NetSoft among
numerous other defendants. On May 13, 2002, on an order of the court following
defendants successful motion to strike the Second Complaint, Mr. Fisher filed
a Third Amended Complaint, or Complaint, in the United States District Court of
the District of Columbia against NSA and NetSoft among numerous other
defendants. The Complaint alleges that NSA, NetSoft and the other defendants
made false claims to the government to obtain government contracts set aside
for entities owned and controlled by disadvantaged persons admitted to the
Section 8(a) Minority Small Business Development Program. Specifically, the
Complaint alleges that from 1993 to 1997, NSA, NetSoft, and the other
defendants presented false or fraudulent claims for payment or approval to the
government in violation of 31 U.S.C. § 3729 (a)(1), and used false records or
statements to get claims paid or approved by the government in violation of 31
U.S.C. § 3729 (a) (2). In addition, the Complaint alleges that NSA, NetSoft
and the other defendants conspired to defraud the government by working to
fraudulently continue NSAs certification as a Section 8 (a) entity for alleged
use by NSAs Federal Systems Division and by getting fraudulent claims allowed
and paid by virtue of the alleged fraudulent Section 8(a) status, in violation
of 31 U.S.C. § 3729 (a) (3). NetManage did not acquire NSA until July 1997 and
had no involvement with the events alleged by Mr. Fisher. According to the
earlier amended complaint (although not alleged in the current Complaint), Mr.
Fishers theory was that the liabilities of NSA and NetSoft, including alleged
liability in this suit, passed to NetManage. Discovery is presently continuing
in this matter. On May 31, 2002, NSA and NetSoft
and the other defendants answered the complaint. NetManage, and its affiliates,
vigorously dispute Mr. Fishers allegations. The Company has insufficient
information at this time to estimate the possible loss, if any, which might
result from this lawsuit.

In addition, NetManage may be contingently liable with respect to certain
asserted and unasserted claims that arise during the normal course of business.
Management believes the impact, if any, resulting from these matters would not
have a material impact on the Companys financial statements.




Item 2. Changes in Securities

On May 16, 2003 the Company announced a voluntary stock option exchange
program for certain of its employees. The offer to exchange options, or Offer,
was open to eligible option holders, excluding non-employee members of the
board of directors and non-exempt employees, holding options to purchase shares
of the Companys common stock with an exercise price per share of $1.50 or
greater. In accordance with the terms of the Offer, participating employees
tendered eligible options in exchange for replacement options. These
replacement options will then be granted to employees at least six months and
one day following the date their original options were exchanged and cancelled.
Under the terms of the Offer, replacement options will vest and become
exercisable for the balance of the option shares in accordance with the same
type of installment vesting schedule that was in effect for the cancelled options,
but measured from the grant date of the replacement options, and no vesting
credit will accordingly be provided for the period between the date the
original options were tendered and the date the replacement options are
granted.

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On June 13, 2003, employees tendered options to purchase a total of
542,150 shares in connection with the Offer, which were cancelled under our
1992 Stock Option Plan as amended, and our 1999 Non-statutory Stock Option Plan
following their exchange. Subject to the continued employment of the employees
who exchanged options, replacement options to purchase a total of 542,150
shares are expected to be granted on or around December 16, 2003.

The exercise price of the replacement options will be based on the fair
market value of the Companys common stock on the date the replacement options
are
granted. The fair market value of the Companys common stock will be equal
to the last reported sale price of its common stock on the Nasdaq National
Market on the date it grants the replacement options.

The exchange program is being accounted for in accordance with FIN 44,
Accounting for Certain Transactions Involving Stock Compensationan
Interpretation of APB Opinion No. 25and results in no compensation expense.




Item 3. Defaults upon Senior Securities

Not applicable




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

NetManages 2003 Annual Meeting of Stockholders was held at our offices at
10725 N. DeAnza Boulevard, Cupertino, California on Wednesday, May 28, 2003 at
9:00 a.m. Pacific Daylight Time, for the following purposes:



| | 1. |  | To elect two directors to hold office until the Annual Meeting of
Stockholders in the year 2006;                          
| | -- |  | --------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | To ratify the selection of Deloitte & Touche LLP as our independent
auditors for the fiscal year ending December 31, 2003;
|
| | 3. |  | To approve an amendment and restatement to our 1993 Non-Employee
Directors Stock Option Plan; and                        
|
| | 4. |  | To conduct such other business as may properly come before the
meeting or any adjournment or postponement thereof.        

Stockholders of record at the close of business on April 15, 2003 were entitled
to vote at the meeting.



|a. |  | Regarding the vote for the election of directors, the following
individuals received the number of votes indicated:
|-- |  | -------------------------------------------------------------------------------------------------------------------

|                                   |  |     |                     |          |  |  |                 | 
|---------------------------------- |  | --- | ------------------- | -------- |  |  | --------------- | 
|                                   |  | For |                     | Withheld
|Mr. Zvi Alon
Mr. Abraham Ostrovsky |  |     | 6,832,360
6,740,022 |          |  |  | 573,236
663,574 | 



|b. |  | Regarding the ratification of the selection of Deloitte & Touche LLP as
our independent auditors, participating stockholders voted as follows:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|          |  |         |         |         |  |  |        | 
|--------- |  | ------- | ------- | ------- |  |  | ------ | 
|For       |  | Against |         | Abstain
|7,217,692 |  |         | 160,141 |         |  |  | 27,795 | 



|c. |  | Regarding the approval of the amendment and restatement of our 1993
Non-Employee Directors Stock Option Plan, participating stockholders voted as follows:
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|          |  |         |         |         |  |  |        | 
|--------- |  | ------- | ------- | ------- |  |  | ------ | 
|For       |  | Against |         | Abstain
|6,530,806 |  |         | 850,502 |         |  |  | 24,287 | 




Item 5. Other Information

We file electronically with the Securities and Exchange Commission (SEC)
our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K pursuant to Section 13(a) or 15(d) of the 1934 Act. The
public may read or copy any materials we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may
obtain

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information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information statements,
and other information regarding issuers that file electronically with the SEC.
The address of that site is http:// www.sec.gov.




Item 6. Exhibits and Reports on Form 8-K

a. Exhibits



| | 10.19. |  | Independent contractor services
agreement by and between NetManage, Inc. and Dr. Shelley Harrison dated May 28, 2003.                                                     
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 31.1   |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                                                      
| |        | 
| | 31.2   |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                      
| |        | 
| | 32.1   |  | Chief Executive Officer and Chief
Financial Officer Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.

b. Reports on Form 8-K.



| |  | On April 30, 2003, the Company filed a current report on Form 8-K,
announcing its first quarter fiscal 2003 financial results for the three
months ended March 31, 2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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, 2003 |  | By:                          |  | /s/ Michael Peckham                                                                                                              
|                      |  |                              |  |                                                                                                                                  
|                      |  |                              |  | Chief Financial Officer and Senior Vice President
(On behalf of the registrant and as Principal Financial and
Accounting Officer)

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EXHIBIT INDEX

|        |  |                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                               
|        |  |                                                                                                                                                                           
|10.19   |  | Independent contractor services agreement by and between NetManage
and Dr. Shelley Harrison dated May 28, 2003.                                                           
|        |  |                                                                                                                                                                           
|31.1    |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a).                                                                                                      
|        |  |                                                                                                                                                                           
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a).                                                                                                      
|        |  |                                                                                                                                                                           
|32.1    |  | Chief Executive Officer and Chief
Financial Officer Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.

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