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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2002

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.

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 [  ] NO [X]

Number of shares of registrant’s common stock outstanding as of November 15, 2002: 8,882,231

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NETMANAGE, INC.
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NETMANAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

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)

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)

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)

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 Net Manage, 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 2002 could differ materially from those reported in this Form 10-Q. The Company believe the results of operations for interim periods are subject to fluctuation and may not be an indicator of future financial performance. In the accompanying notes to the condensed consolidated financial statements the Company is also referred to as “Management”, “We”, or “Our”.

2. Consolidation

         The interim unaudited condensed consolidated financial statements include our accounts and those of our 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 accounting principles generally accepted in the United States of America 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 our 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.

         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.

Cash and cash equivalents

         We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Short-term investments

         We account for our 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, our investments are currently classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses, net of tax, reported in our consolidated statement of other comprehensive income. Held-to-maturity securities are valued using the amortized cost method. At June 30, 2002 and 2001, the fair value of the time deposit investments 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.

         Our investment in KANA Software Inc. is included in Short-term investments. (See Note 12.)

Prepaid expenses and other current assets

         Prepaid expenses and other current assets as of June 30, 2002 include a $275,000 convertible bridge financing loan receivable, due on December 31, 2002, from easyBASE, Ltd.

Other investments

         Other investments mainly consist of equity interests in private companies with less than 20% ownership interests. These investments are accounted for under the cost method.

         On May 4, 2000 we invested $1.5 million in 2,822 shares of Series B Preferred stock in easyBASE, Ltd. which is approximately 12% of the total ownership of easyBASE, Ltd. Our Chairman and Chief Executive Officer, Zvi Alon, also has a personal investment in easyBASE, Ltd. He is also a member of the easyBASE, Ltd. Board of Directors.

         In May, June and December 1999, we invested a total of $275,000 in pcFirst, Inc. On April 28, 2001, pcFirst, Inc. was purchased by fusionOne, Inc., a development stage company, and we received 13,625 shares of common stock of fusionOne, Inc. Our investment represents less than 1% of the total ownership of fusionOne, Inc.

Property and equipment

         Property and equipment are recorded at cost. Improvements, renewals and extraordinary repairs that extend the lives of the asset are capitalized, other repairs and maintenance are expensed. Depreciation is computed using the straight-line method over the following estimated useful lives:

Accrued liabilities and restructuring

         We account for restructuring charges under the provisions of Emerging Issues Task Force (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) and Staff Accounting Bulletin (SAB) No. 100 regarding the accounting for and disclosure of certain expenses commonly reported in connection with exit activities and business combinations.

Software development costs

         Software development costs are accounted for in accordance with SFAS No. 86, Accounting for Computer Software to be Sold, Leased or Otherwise Marketed, under which capitalization of software development costs begins upon the establishment of technological feasibility of the product, which we define as the development of a working model and further define as the development of a beta version of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in technology. Such costs are reported at the lower of amortized cost or net realizable value. Amortization of purchased software is generally computed on a straight-line basis over one to five years or, if less, the estimated remaining economic life of the underlying products. To date, software development costs that were eligible for capitalization have not been significant, and we charged all software development costs to research and development as incurred.

Concentrations of credit risk

         Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash investments and trade receivables. We have 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 credit worthy. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base and their dispersion across many different industries and geographies.

         We currently do not enter into financial instruments for either trading or speculative purposes.

Income taxes

         As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from different 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 our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or our allowance in a period changes, the amount recognized as provision for income taxes in the statement of operations could change.

Revenue recognition

         We derive revenue primarily from two sources; (1) product revenue, which includes software license and royalty revenue, and (2) services and support revenue which includes software license maintenance and consulting.

         We license our software products on a one and two-year term basis or on a perpetual basis. Our two year term licenses include the first year of maintenance and support. To date such licenses have been insignificant.

         We apply the provisions of Statement of Position 97-2, Software Revenue Recognition, and related amendments and interpretations to all transactions involving the sale of software products and to hardware transactions where the software is not incidental.

         We recognize revenue from the sale of software licenses to end users and resellers when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. Delivery generally occurs when product is delivered to a common carrier.

         Product is sold without the right of return, except for defective product that may be returned for replacement. To date, such returns have been insignificant. Certain of our sales are made to domestic distributors under agreements allowing rights 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, provided all other revenue recognition criteria have been met.

         At the time of the transaction, we assess whether the fee associated with our revenue transactions is fixed and determinable and whether or not collection is reasonably assured. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after our normal payment terms, we account for the fee as not being fixed and determinable. In these cases, we recognize revenue as the fees become due.

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

         For all sales, except those completed over the Internet, we use either a binding purchase order or signed license agreement as evidence of an arrangement. For sales over the Internet, we use a credit card authorization as evidence of an arrangement. Sales through our distributors are evidenced by a master agreement governing the relationship together with binding purchase orders on a transaction-by-transaction basis.

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

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

         Service 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 such services are included in the initial licensing fee, the value of the services determined based on vendor specific objective evidence is deferred 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 collectibility is deemed probable. To date, consulting revenue has not been significant.

Cost of revenues

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

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4. Recent accounting pronouncements

         In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies 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 a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost as defined in EITF Issue No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and we do not expect that adoption will have a material impact on our historical results of operations, our financial position or our liquidity. SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

         In August 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the long-lived assets to be held and used, and disposed of. The statement will be effective for financial statements issued for fiscal years beginning after December 15, 2001. Although we do not currently expect the adoption of SFAS No. 144 to have a material impact on our financial statements, we will continue to assess any impairment of long-lived assets.

         In June 2001, the FASB issued SFAS No.’s 141 and 142, Business Combinations and Goodwill and Other Intangible Assets, respectively. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, effective January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so.

5. Goodwill and other intangible assets, net

         We adopted SFAS No. 142 beginning January 1, 2002 and discontinued amortization of all goodwill and assembled workforce recorded in our books as of that date. The following table presents net loss had SFAS No. 142 been applied at the beginning of fiscal 2001 (In thousands, except net per share):

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Goodwill includes both the carrying amount of goodwill and assembled workforce, less accumulated amortization, as follows (In thousands):

The following table provides a summary of the carrying amounts of other intangible assets that will continue to be amortized (In thousands):

         SFAS No. 142 also requires companies to perform an impairment test within six months of adopting the statement. We conducted an impairment analysis of goodwill and other intangible assets and determined that no impairment existed at January 1, 2002, nor have there been any events or circumstances that would have created an impairment during the six months ended June 30, 2002.

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6. Net loss per share

         On August 28, 2002, our stockholders approved a one-for-seven reverse stock split of our common stock. The reverse stock split became effective at the close of business on September 3, 2002. All share and per share information in the accompanying financial statements has been adjusted to retroactively give effect to the reverse stock split.

         Basic net loss per share data has been computed using the weighted-average number of shares of common stock outstanding during the applicable 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, 2002 and 2001, the number of shares used in the computation of diluted loss per share were the same as those used for the computation of basic loss per share. For the three and six month periods ended June 30, 2002, potentially dilutive securities of 75,306 and 134,927 shares, respectively, were not included in the computation of diluted net loss per common share as they would be anti-dilutive. For the three and six month periods ended June 30, 2001, potentially dilutive securities of 130,272 and 165,292 shares, respectively, were not included in the computation of diluted net loss per common share as they would be anti-dilutive.

7. Restructuring of operations

         On August 3, 2000, we announced a restructuring of our operations, which was designed to re-focus our core business functions and reduce operating expenses. In connection with the restructuring, we reduced our workforce by approximately 17% 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 which primarily consisted of 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 Systems, Inc. for a software license that we no longer planned to use. As of June 30, 2002, our total cash expenditures incurred were $4.9 million. In June 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 $566,000 and an increase in estimate for other charges of approximately $267,000. As of June 30, 2002, our total cash expenditures incurred were $4.9 million. The remaining reserve related to this restructuring was approximately $0.4 million, and is included in accrued liabilities as of June 30, 2002.

         The following table lists the components of our August 2000 restructuring reserve for the six month period ended June 30, 2002 (In thousands):

         In the fourth quarter of 1999, following the acquisitions of Wall Data, Inc., or Wall Data, and Simware, Inc., or Simware, we initiated a plan to restructure our worldwide operations in order to integrate the operations of the two acquired companies. In connection with this plan, we recorded a $3.8 million charge to operating expenses in 1999. The restructuring charge includes 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. We anticipated that the execution of the restructuring actions would require total cash expenditures of approximately $3.8 million, which we expected to be funded from internal operations. As of June 30, 2002, our total cash expenditures incurred were approximately $2.9 million. In June 2002, based on a review of our continuing obligations associated with the original restructuring reserve, we recorded a reduction in estimate for facilities of approximately $348,000. The remaining reserve related to this restructuring is approximately $0.6 million, and is included in accrued liabilities as of June 30, 2002.

         The following table lists the change in our restructuring reserve for the six month period ended June 30, 2002 (In thousands):

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         Prior to the acquisition by us, Wall Data had initiated a plan to restructure their worldwide operations to re-focus Wall Data on their core business functions and to reduce operating expenses. In conjunction with the acquisition, we recorded the remaining restructuring accrual of approximately $0.7 million for facilities-related expenses as an accrued liability. As of June 30, 2002, we had incurred costs of approximately $0.5 million. In June 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 $193,000. The remaining reserve related to this restructuring was approximately $7,000 and is included in accrued liabilities as of June 30, 2002.

         The following table lists the change in the Wall Data restructuring reserve for the six month period ended June 30, 2002 (In thousands):

         In August 1998, following the acquisition of FTP Software, Inc., or FTP we initiated a plan to restructure our worldwide operations as a result of business conditions and in connection with the integration of the operations of FTP. In connection with this plan, we recorded a $7.0 million charge to operating expenses in 1998. In addition, prior to our acquisition of FTP, FTP had recorded a restructuring charge. We assumed the remaining restructuring liability of $9.7 million as of the date of acquisition for a total restructuring liability of $16.7 million. We completed the majority of these restructuring actions by the end of 1998. We anticipated that these restructuring actions would require total cash expenditures of approximately $13.7 million. In June 2002, based on a review of our continuing obligations associated with the original restructuring charge, we recorded an increase in the estimate for facilities of approximately $0.8 million. This increase relates to lease obligations for facilities located in the United Kingdom that we were not able to sublet as originally planned. The remaining reserve related to this restructuring is approximately $1.0 million and is included in accrued liabilities as of June 30, 2002.

         The following table lists the change in the FTP restructuring charge for the six month period ended June 30, 2002 (In thousands):

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8. Treasury stock

         During the first six months of 2002, we repurchased 279,855 shares of our outstanding common shares on the open market at an average purchase price of $5.87 per share for a total cost of approximately $1.6 million. In the second quarter of 2002, we purchased 166,583 shares of our outstanding common shares on the open market at an average purchase price of $5.79 per share for a total cost of approximately $1.0 million

9. 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 us, and our affiliates Network Software Associates, Inc. or NSA, and NetSoft Inc., or NetSoft, in the United States District Court of the District of Columbia. The United States government declined to pursue the action on its own behalf and, therefore, the action is pursued by Kenneth Fisher. We, and our affiliates, first learned of the action when we were served with the amended complaint in May 2001. On September 5, 2001, Mr. Fisher agreed to voluntarily dismiss us from this action in exchange for our agreement to toll, or forego, applicable statutes of limitation as to Mr. Fisher’s claims.

         On May 13, 2002, on an order of the court following defendants’ successful motion to strike the second amended complaint filed by Mr. Fisher on January 31, 2002, 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 1987 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 connection with NSA’s application and certification as a Section 8 (a) minority owned and controlled company. In addition, the Complaint alleges that NSA, NetSoft and the other defendants conspired to defraud the government by fraudulently obtaining NSA’s certification as a Section 8 (a) entity for alleged use by NSA’s Federal Systems Division, in violation of 31 U.S.C. § 3729 (a) (3). Mr. Fisher alleges damages in excess of $30,000,000.

         We did not acquire NSA until July 1997 and had no involvement with the events alleged by Mr. Fisher. However, Mr. Fisher alleges that any liabilities of NSA and NetSoft passed to us. On May 31, 2002, NSA and NetSoft and the other defendants answered the complaint. We, and our affiliates, vigorously dispute Mr. Fisher’s allegations.

         We may be contingently liable with respect to certain asserted and unasserted claims that arise during the normal course of business.

10. Correspondence from the Nasdaq Stock Market

         We received a letter from the staff of the Nasdaq National Market, or Nasdaq, dated June 20, 2002 notifying us that we no longer complied with the minimum $1.00 per share bid price requirement for continued listing, as set forth in Marketplace Rule 4450(a)(5), and that our stock was therefore subject to delisting from the Nasdaq National Market.

         On August 21, 2002, we received a letter from Nasdaq Market, Inc. notifying us of our failure to timely file our Form 10-Q for the quarter ended June 30, 2002 as required by Nasdaq under Nasdaq Marketplace Rule 4310(c)(14). This failure subjected our common stock to delisting by Nasdaq. Nasdaq indicated that it would consider this additional delinquency in determining whether continued listing of our common stock on the Nasdaq National Market was appropriate.

         On September 12, 2002, we communicated with the Nasdaq Listing Qualification Panel or Panel, with an update as to the implementation of our reverse stock split and the re-audit of our financial results for the years ended December 31, 2001 and 2000. In the correspondence, we mentioned that stockholders representing a majority of outstanding common stock at the Special Meeting of the Stockholders held on August 28, 2002 had approved our reverse stock split. Given the additional time needed to complete the re-audit, we requested an extension to our September 13, 2002 compliance date.

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         On September 18, 2002, we received a letter from Nasdaq acknowledging that on September 4, 2002, we implemented a reverse stock split at a ratio of one-for-seven that resulted, as of September 17, 2002, in our regaining compliance with the minimum bid price of $1.00 per share by trading at or above the $1.00 per share minimum bid price for ten consecutive trading days. The Panel determined to continue the listing of our common stock on Nasdaq on the condition that on or before November 1, 2002 we file our delinquent Form 10-Q for the period ended June 30, 2002 and all amended public reports required to be filed with the Securities and Exchange Commission or Commission, and that we otherwise continue to comply with all other continued listing requirements of Nasdaq.

         On November 5, 2002, we received additional correspondence from the Panel extending to November 14, 2002 the date by which we are required to comply with the continued listing requirements of Nasdaq by filing our Forms 10-Q for the quarters ending June 30, 2002 and September 30, 2002 and all amended public reports required to be filed with the Commission.

         On November 14, 2002, we communicated with the Panel with respect to our failure to file our Forms 10-Q for the quarters ended June 30, 2002 and September 30, 2002 and all amended public reports required to be filed with the Commission, as required by the November 5, 2002 correspondence from the Panel, and requested an extension of our November 14, 2002 target date. As of the date of this report, the Panel has not responded to our request. In the even that the Panel does not grant our request for an extension or, if granted, we fail to comply with any terms of the Panel's decision, our securities may be delisted from Nasdaq and may be traded over-the-counter or on the “Pink Sheets,” assuming we meet the qualification requirements for either or both of these markets.

          Since regaining compliance with Nasdaq’s $1.00 minimum bid price listing requirement, the bid price for our common stock has, at times, fallen below $1.00. Even if we regain compliance with Nasdaq rules, if our common stock trades below $1.00 for thirty consecutive days, we may again be subject to delisting by Nasdaq.

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Restatement of financial statements