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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004o
    
    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 000-24677 BINDVIEW DEVELOPMENT CORPORATION  TEXAS
    
    76-0306721(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)5151 SAN FELIPE, 25th FLOOR, HOUSTON, TX
    
    77056(Address of principal executive offices)
    
    (Zip code)
 (713) 561-4000
(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 o  No þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o  No þ As of December 15, 2004, the Company had 47,807,758 shares of Common Stock, no par value,
outstanding.




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSITEM 6. EXHIBITSSIGNATUREEXHIBIT INDEXSublease AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands) SEPTEMBER 30,
    
    DECEMBER 31,2004
    
    2003(As Restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,250
    
    
    $
    35,449Cash  restricted
    
    
    2,250
    
    
    
    2,250Short-term investments
    
    
    8,541
    
    
    
    Accounts receivable, net of allowance of $673 and $1,040
    
    
    8,604
    
    
    
    14,066Other
    
    
    2,270
    
    
    
    2,180Total current assets
    
    
    43,915
    
    
    
    53,945Property and equipment, net
    
    
    6,567
    
    
    
    6,564Investments and other
    
    
    2,907
    
    
    
    2,498Total assets
    
    $
    53,389
    
    
    $
    63,007LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,680
    
    
    $
    2,066Accrued liabilities
    
    
    4,818
    
    
    
    4,879Accrued compensation
    
    
    3,542
    
    
    
    5,275Deferred revenues
    
    
    11,949
    
    
    
    13,253Total current liabilities
    
    
    21,989
    
    
    
    25,473Deferred revenues
    
    
    2,683
    
    
    
    1,477Other
    
    
    1,664
    
    
    
    2,087Commitments and contingenciesShareholders equity:Preferred stock, $0.01 par value, 20,000 shares authorized, none
issued
    
    
    
    
    
    
    Common stock, no par value, 100,000 shares authorized, 47,388 and
47,034 shares issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    105,125
    
    
    
    105,176Accumulated deficit
    
    
    (79,052
    )
    
    
    (72,207
    )Deferred stock compensation
    
    
    (145
    )
    
    
    Note receivable from shareholder
    
    
    (196
    )
    
    
    (392
    )Accumulated other comprehensive income
    
    
    1,320
    
    
    
    1,392Total shareholders equity
    
    
    27,053
    
    
    
    33,970Total liabilities and shareholders equity
    
    $
    53,389
    
    
    $
    63,007
 See notes to unaudited consolidated financial statements. 1




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BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts) THREE MONTHS
    
    NINE MONTHSENDED
    
    ENDEDSEPTEMBER 30,
    
    SEPTEMBER 30,2004
    
    2003
    
    2004
    
    2003Revenues:Licenses
    
    $
    7,849
    
    
    $
    7,352
    
    
    $
    22,409
    
    
    $
    19,942Services
    
    
    9,377
    
    
    
    8,199
    
    
    
    27,529
    
    
    
    23,97117,226
    
    
    
    15,551
    
    
    
    49,938
    
    
    
    43,913Cost of revenues:Licenses
    
    
    393
    
    
    
    138
    
    
    
    723
    
    
    
    349Services
    
    
    2,251
    
    
    
    1,955
    
    
    
    5,992
    
    
    
    5,0922,644
    
    
    
    2,093
    
    
    
    6,715
    
    
    
    5,441Gross profit
    
    
    14,582
    
    
    
    13,458
    
    
    
    43,223
    
    
    
    38,472Operating costs and expenses:Sales and marketing
    
    
    9,621
    
    
    
    8,269
    
    
    
    28,540
    
    
    
    25,296Research and development
    
    
    5,647
    
    
    
    4,563
    
    
    
    15,619
    
    
    
    13,365General and administrative
    
    
    1,922
    
    
    
    1,867
    
    
    
    5,844
    
    
    
    5,600Restructuring
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    549Operating loss
    
    
    (2,608
    )
    
    
    (1,241
    )
    
    
    (6,929
    )
    
    
    (6,338
    )Other income
    
    
    151
    
    
    
    95
    
    
    
    357
    
    
    
    348Loss before income taxes
    
    
    (2,457
    )
    
    
    (1,146
    )
    
    
    (6,572
    )
    
    
    (5,990
    )Provision for income taxes
    
    
    129
    
    
    
    
    
    
    
    273
    
    
    
    Net loss
    
    $
    (2,586
    )
    
    $
    (1,146
    )
    
    $
    (6,845
    )
    
    $
    (5,990
    )Loss per common share  basic and
diluted
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.14
    )
    
    $
    (0.13
    )Number of shares used to calculate per
share amounts, basic and diluted
    
    
    47,274
    
    
    
    46,816
    
    
    
    47,345
    
    
    
    46,623Reconciliation of net loss to comprehensive loss:Net loss
    
    $
    (2,586
    )
    
    $
    (1,146
    )
    
    $
    (6,845
    )
    
    $
    (5,990
    )Unrealized gain (loss) from currency translation
    
    
    58
    
    
    
    (29
    )
    
    
    (72
    )
    
    
    436Comprehensive loss
    
    $
    (2,528
    )
    
    $
    (1,175
    )
    
    $
    (6,917
    )
    
    $
    (5,554
    )
 See notes to unaudited consolidated financial statements. 2




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BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands) NINE MONTHS ENDEDSEPTEMBER 30,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (6,845
    )
    
    $
    (5,990
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    2,146
    
    
    
    2,759Accrued stock compensation
    
    
    189
    
    
    
    79Changes in operating assets and liabilities:Accounts receivable
    
    
    5,435
    
    
    
    3,498Other assets
    
    
    (321
    )
    
    
    (201
    )Accounts payable
    
    
    (382
    )
    
    
    (821
    )Accrued liabilities
    
    
    (2,160
    )
    
    
    (1,163
    )Deferred revenues
    
    
    (96
    )
    
    
    (277
    )Net cash used in operating activities
    
    
    (2,034
    )
    
    
    (2,116
    )Cash flows from investing activities:Capital expenditures
    
    
    (2,429
    )
    
    
    (1,506
    )Reimbursement of tenant improvements
    
    
    284
    
    
    
    Purchases of short term investments
    
    
    (9,166
    )
    
    
    Proceeds from maturity of investments
    
    
    625
    
    
    
    Restrictions on cash
    
    
    (194
    )
    
    
    Net cash used in investing activities
    
    
    (10,880
    )
    
    
    (1,506
    )Cash flows from financing activities:Repurchase of common stock
    
    
    (2,313
    )
    
    
    Net proceeds from sale of common stock
    
    
    2,060
    
    
    
    681Net cash
(used in) provided by financing activities
    
    
    (253
    )
    
    
    681Effect of exchange rate changes on cash
    
    
    (32
    )
    
    
    375Net decrease in cash and cash equivalents
    
    
    (13,199
    )
    
    
    (2,566
    )Cash and cash equivalents at beginning of year
    
    
    35,449
    
    
    
    37,760Cash and cash equivalents at end of period
    
    $
    22,250
    
    
    $
    35,194Non-cash financing and investing activities:Reduction of shareholder note in lieu of guaranteed bonus
    
    $
    196
    
    
    $
    292
 See notes to unaudited consolidated financial statements. 3




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BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying consolidated financial statements of BindView Development Corporation, a
Texas corporation (the Company or BindView), included herein have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. The Company believes
that the presentations and disclosures herein are adequate to make the information not misleading.
The consolidated financial statements reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the interim periods. Certain reclassifications
have been made to the prior years consolidated financial statements to conform with the current
year presentation. The results of operations for the interim periods are not necessarily indicative of the
results of operations to be expected for the full year. These consolidated financial statements
should be read in conjunction with the Companys audited consolidated financial statements included
in its Annual Report on Form 10-K/A, Amendment No. 1 for the year ended December 31, 2003. Recent Pronouncement In
March 2004, the FASB issued EITF Issue No. 03-1 (EITF
03-1), The Meaning of Other-Than-Temporary Impairment and
Its application to Certain Investments which provides new
guidance for assessing impairment losses on investments.
Additionally, EITF 03-1 includes new disclosure requirements for
investments that are deemed to be temporarily impaired. In September
2004, the FASB delayed the accounting provisions of EITF 03-1;
however, the disclosure requirements remain effective for annual
periods ending after June 15, 2004. We will evaluate the impact
of EITF 03-1 once final guidance is issued. In
December 2004, the FASB issued Statement No. 123R (revised
2004), Share-Based Payment, (FAS 123R) that addresses the
accounting for share-based payment transactions in which a company
receives employee services in exchange for either equity instruments
of the company or liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. FAS 123R eliminates the ability
to account for share-based compensation transactions using the
intrinsic method that the Company currently uses and requires that
such transactions be accounted for using a fair-value-based method
and recognized as expense in the consolidated statement of
operations. The effective date of FAS 123R is for interim and annual
periods beginning after June 15, 2005. The Company is currently
assessing the provisions of FAS 123R; however, the standard will have
a significant impact on the consolidated statement of operations as
the Company will be required to expense the fair value of stock
option grants and stock purchases under its employee stock purchase
plan. 2. LOSS PER SHARE Options to purchase 10.5 million shares of common stock for the three and nine
months ended September 30, 2004 and 9.7 million shares of common stock for the three and nine
months ended September 30, 2003 were outstanding, but were not included in the computation of
diluted loss per share as their inclusion would have been anti-dilutive. 3. STOCK BASED COMPENSATION The Company accounts for all stock-based employee compensation plans under the recognition and
measurement provisions of APB Opinion 25, Accounting for Stock Issued to Employees, (APB 25)
and related interpretations. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Companys common shares at the date of the grant
over the amount an employee must pay to acquire the common shares. The Company generally grants
options at prices equal to the market price of common shares on the date of the grant. However, if
options are granted at a price below fair market value, compensation expense is recorded in
accordance with the provisions of APB 25. Compensation expense may also be recognized for certain
options which are considered variable option grants. Statement of Financial Accounting Standards
(SFAS) No. 148, Accounting for Stock-Based Compensation  an Amendment to FAS 123, requires
companies that continue to account for stock-based compensation in accordance with APB 25 to
disclose the effect on net loss and loss per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation (in thousands, except per share amounts): THREE MONTHS
    
    NINE MONTHSENDED SEPTEMBER 30,
    
    ENDED SEPTEMBER 30,2004
    
    2003
    
    2004
    
    2003Net loss as reported
    
    $
    (2,586
    )
    
    $
    (1,146
    )
    
    $
    (6,845
    )
    
    $
    (5,990
    )Add: Stock-based
employee compensation
expense included in
reported net loss
    
    
    7
    
    
    
    79
    
    
    
    189
    
    
    
    79Deduct: Total
stock-based employee
compensation expense
determined under fair
value method for all
awards
    
    
    (1,549
    )
    
    
    (1,674
    )
    
    
    (4,291
    )
    
    
    (4,669
    )Pro forma net loss
    
    $
    (4,128
    )
    
    $
    (2,741
    )
    
    $
    (10,947
    )
    
    $
    (10,580
    )Loss per common share
(basic and diluted): As reported
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.14
    )
    
    $
    (0.13
    ) Pro forma
    
    $
    (0.09
    )
    
    $
    (0.06
    )
    
    $
    (0.23
    )
    
    $
    (0.23
    )
 4




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4. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS The Company recorded restructuring charges totaling $0.1 million and $0.5 million in the first
nine months of 2004 and 2003, respectively. The 2004 charge was primarily attributable to reserves
established against rent payments due from the Companys sublease tenant which occupied its excess
office space in Arlington, VA. The $0.5 million charge in 2003 was for the Companys sales and
marketing reorganization plan. In January 2003, the Company approved a sales and marketing reorganization plan (the 2003
Restructuring Plan). The cost of this plan totaled approximately $0.5 million and consisted
primarily of (i) involuntary employee separation for approximately 20 employees (a reduction in
workforce of approximately 4 percent), (ii) closing the Companys Netherlands sales office, and
(iii) reserves for leasehold abandonment. All actions under the 2003 Restructuring Plan were
completed by December 31, 2003. In July 2002, the Company approved a restructuring plan to improve operating efficiency and
improve sales and marketing productivity (the 2002 Restructuring Plan). The cost of this plan
totaled approximately $1.9 million and consisted primarily of (i) involuntary employee separation
for approximately 30 employees (a reduction in workforce of approximately 5 percent), (ii) closing
the Companys Boston development center and certain European sales offices, (iii) reserves for
leasehold abandonment, and (iv) various non-personnel related cuts. The remaining accrual for the 2002 Restructuring Plan at December 31, 2003 was comprised of
the estimated carrying costs for the Companys remaining excess space in Houston, Texas. During the
second quarter of 2004, the Company received letters of intent to sublease the remaining excess
space. The Company recorded a $0.1 million adjustment to its restructuring accrual as a result of
receiving these letters of intent. The remaining accrual at September 30, 2004 is comprised of
the Companys carrying costs for the remaining space in Houston that are in excess of anticipated
sublease payments. Adjustments could be required in future periods if there are significant
changes to the terms and conditions of the sublease arrangements. The 2002 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as
follows (in thousands): REMAINING
    
    RESTRUCTURING
    
    
    
    
    
    REMAININGACCRUAL
    
    CHARGE
    
    CASH
    
    ACCRUAL12/31/2003
    
    ADJUSTMENTS
    
    EXPENDITURES
    
    9/30/2004Lease commitments
    
    $
    1,538
    
    
    $
    33
    
    
    $
    (384
    )
    
    $
    1,187
 In 2001, the Company completed a corporate reorganization and implemented a number of
cost-cutting measures to improve operating efficiency and to accelerate our return to profitability
(the 2001 Restructuring Plan). The cost of this plan totaled approximately $6.6 million and
consisted primarily of: (i) involuntary employee separation expenses for approximately 160
employees (a reduction in workforce of approximately 21 percent), (ii) downsizing or closing of the
Companys Boston and Arlington development centers and certain European sales offices, (iii)
reserves for leasehold abandonment, and (iv) various non-personnel related costs. The restructuring
costs included a $1.2 million charge related to asset impairments of leasehold improvements,
equipment and other assets of the closed or downsized offices. The 2001 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as
follows (in thousands): REMAINING
    
    RESTRUCTURING
    
    
    
    
    
    REMAININGACCRUAL
    
    CHARGE
    
    CASH
    
    ACCRUAL12/31/2003
    
    ADJUSTMENTS
    
    EXPENDITURES
    
    9/30/2004Lease commitments
    
    $
    453
    
    
    $
    13
    
    
    $
    (445
    )
    
    $
    21
 5




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The remaining accrual for the 2001 Restructuring Plan consists of excess carrying costs
for the Companys Boston facility lease which expires in December 2004. 5. INVESTMENTS The Companys short-term investments include commercial paper, corporate bonds and
certificates of deposits that have original maturities of more than three months and less than one
year. These investments are intended to be held to maturity. 6. INCOME TAXES The Company continues to provide a full valuation allowance against its deferred tax assets in
accordance with Financial Accounting Standard No. 109, Accounting for Income Taxes. As in its
prior assessments, the Company considered current and previous performance and other relevant
factors in determining the sufficiency of its valuation allowance. Objective factors, such as
current and previous operating losses, were given substantially more weight than managements
outlook for future profitability. Until such time as a consistent pattern of sufficient
profitability is established, no tax benefit will be recognized associated with the Companys
pre-tax accounting losses and a full income tax provision will not be provided on any future
pre-tax accounting income. 7. SHAREHOLDERS EQUITY Under terms of share repurchase programs approved by the Board of Directors for the second and
third quarter of 2004, the Company has expended $2.3 million to purchase 0.8 million shares of
common stock during the nine months ended September 30, 2004, at an average price per share of
$2.87. The Company retired all of the 0.8 million shares of common stock held in treasury as of
September 30, 2004. 6




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Managements Discussion and Analysis of Financial Condition and Results of Operations contain
forward-looking statements which involve risks and uncertainties. The Companys actual results may
differ significantly from the results discussed in the forward-looking statements. Factors that
might cause such a difference include those discussed in the Cautionary Statements set forth in
the Companys Annual Report on Form 10-K/A, Amendment
No. 1 for the year ended December 31, 2003. The
following discussion should be read in conjunction with the Companys consolidated financial
statements included with this report and our consolidated financial statements and related
Managements Discussion and Analysis of Financial Condition and Results of Operations for the year
ended December 31, 2003 included in our Annual Report on
Form 10-K/A, Amendment No. 1. Overview See
discussion under Item 1, General in our Annual
Report on Form 10-K/A, Amendment No. 1 for the
year ended December 31, 2003 for an overview of our business. Critical Accounting
Policies and Estimates There have been no significant changes to our critical accounting policies and estimates
during the nine months ended September 30, 2004 compared with those disclosed in Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations included in
our Annual Report on Form 10-K/A, Amendment No. 1 for the year ended
December 31, 2003. Results of Operations Three Months Ended September 30, 2004 Compared with the Three Months Ended September 30, 2003 Revenues.Revenues for the current quarter were $17.2 million compared with $15.6 million for
the third quarter of 2003. The year-over-year improvement in revenues resulted from a stronger
working sales pipeline entering the quarter, improved sales execution and strong demand for our
products. License revenues for the third quarter of 2004 were $7.8 million, or 45.6 percent of
total revenues, up from $7.4 million, or 47.2 percent of total revenues, in the third quarter of
2003. Services revenues for the third quarter of 2004 were $9.4 million, or 54.4 percent of total
revenues, up from $8.2 million, or 52.8 percent of total revenues, in the third quarter of 2003.
Services revenues for the third quarter of 2004 were comprised of maintenance revenues of $7.7
million and professional services revenues of $1.7 million, up from $7.0 million in maintenance
revenues and $1.2 million in professional services revenues in the third quarter of 2003. The
increase in services revenues was primarily due to an increase in our installed customer base and
an increased focus on selling value-added consulting services. The average sales price for transactions in the third quarter of 2004 was $29 thousand,
compared with $27 thousand in the third quarter of 2003 and $28 and $33 thousand in the first and
second quarters of 2004, respectively. With respect to large transactions (sales greater than $130
thousand) we closed 25 during the current quarter having an average sales price of approximately
$255 thousand, compared with 19 in the third quarter of 2003 having an average sales price of $284
thousand. During the third quarter of 2004, revenues from our products for Microsoft-based platforms
totaled $11.1 million, an increase of 11 percent over the third quarter of 2003. Revenues from
these products accounted for approximately 65 percent of total revenues in the current quarter, up
slightly from 64 percent of total revenues for the same quarter in the prior year. License
revenues for our Microsoft-related products for the third quarter of 2004 were $5.8 million
compared with $5.6 million in the third quarter of 2003. Maintenance revenues for our
Microsoft-related products in the third quarter of 2004 were $5.3 million compared with $4.4
million in the third quarter of 2003. We expect revenues from our products and maintenance for
Microsoft-based platforms will continue to grow as a percentage of total revenues. Revenues from our products for Novell-based platforms for the current quarter were $2.6
million, or 15 percent of total revenues, compared with $3.0 million in the third quarter of 2003,
or 20 percent of total revenues. 7




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Consistent with the trend seen in past quarters, total revenues from these products were down
year-over-year, reflecting both the maturity and our penetration of the Novell market. License
revenues for Novell-based platforms were $0.8 million in the third quarter of 2004 compared with
$1.0 million in the third quarter of 2003. Maintenance revenues for Novell-based platforms in the
third quarter of 2004 were $1.7 million compared with $2.0 million in the third quarter of 2003.
While we expect our Novell revenues will continue to decline in the future, we expect the revenue
decline will be modest relative to the declines over the past two years and expect the decline will
be offset by higher revenues from our products and maintenance for other platforms. Sales of our security focused bv-Control product line accounted for approximately 83 percent
of our license revenue in the current quarter, down slightly from 84 percent in the third quarter
of 2003. Sales of our system administration focused bv-Admin product line accounted for
approximately 13 percent of our license revenue in the third quarter of 2004 compared with 16
percent in the third quarter of 2003. The increase in our bv-Control product line revenues as a
percentage of total revenue has increased year-over-year primarily due to the increased demand in
the market for software to assist customers with policy compliance and vulnerability management
requirements. No customer accounted for more than 10 percent of our revenues in the third quarter of 2004 or
2003. Revenues recognized from sales to customers outside North America, primarily in Europe,
accounted for approximately 10 percent of total revenues in the
current quarter, up from 8
percent in the third quarter of 2003. Gross Profit.Gross profit for the current quarter totaled $14.6 million, which was up from
$13.5 million in the third quarter of 2003 due to the increase in revenues. Gross margin for the
current quarter was 84.7 percent, down from 86.5 percent in the third quarter of 2003. This
decline primarily related to a shift in business mix toward services revenues, which have a lower
gross margin than license revenues, and an increase in technical support staff to improve the level
of support provided to our customer base. Gross profit generated from license revenues for the third quarter of 2004 was $7.5 million,
compared with $7.2 million for the third quarter of 2003. The gross margin from license revenues
for the third quarter of 2004 was 95.0 percent, compared with 98.1 percent for the third quarter of
2003. The decline in gross margin was primarily due to an increase in royalty expenses of $0.3
million over the third quarter of 2003 for royalties on sales of our patch deployment offering
under terms of a licensing agreement with the owner of the technology. Excluding these royalty
payments and associated license revenues, gross margin from license revenues were 98.6 percent,
which is comparable with the third quarter of 2003. Gross profit from services revenues for the third quarter of 2004 was $7.1 million, compared
with $6.2 million for the third quarter of 2003. Gross margin from services revenues for the third
quarter of 2004 was 76.0 percent compared with 76.2 percent for the third quarter of 2003. While
we do not track and measure costs of performing services (i.e., technical support, professional
services) by product platform (i.e., Microsoft, Novell, etc.), we do not believe there is a
material difference in the gross margin by product line. Operating Costs and Expenses.Operating costs and expenses for the current quarter totaled $17.2
million, up from $14.7 million for the third quarter of 2003. The increase in operating costs and
expenses is primarily due to (i) costs for the production of video-based training materials
necessary to augment our existing capabilities and to fulfill the requirements of a multi-million
dollar sales opportunity in the fourth quarter of 2004, (ii) severance costs for the elimination of
positions in our R&D group, (iii) significant investments in sales and marketing since the third
quarter of 2003, (iv) costs related to our planned expansion of our R&D operations in India and (v)
and expenses associated with Sarbanes-Oxley compliance. Sales and marketing expenses for the current quarter were $9.6 million (55.9 percent of
revenues), up from $8.3 million (53.2 percent of revenues) for the third quarter of 2003. The
increase in sales and marketing expenses primarily related to investments in areas where we see
long-term growth opportunities, specifically our Federal and European operations. We also added
personnel to our inside sales force and increased spending on marketing programs to grow our
working sales pipeline. As a result of these investments, our personnel related costs increased
approximately $0.8 million over the third quarter of 2003. In
addition, variable sales compensation
expense increased $0.2 million as a result of the increase in revenues in the third quarter of 2004
as compared to the third quarter of 2003. We expect sales and marketing expenses as a percentage
of revenues to be lower in the fourth quarter of 2004 as a result of anticipated revenue growth. 8




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Research and development expenses for the current quarter were $5.6 million (32.8 percent of
revenues), up from $4.6 million (29.3 percent of revenues) for the third quarter of 2003. This
increase related to (i) $0.9 million for the production of video-based training material necessary to augment our
existing capabilities and to fulfill the requirements of a multi-million dollar sales opportunity
in the fourth quarter of 2004; (ii) $0.2 million of severance costs for the elimination of positions in our R&D group;
and (iii) our actions taken to affect the planned expansion of our R&D operations in India to better
execute on our product strategy. The remaining costs of the video-based training materials
is approximately $0.8 million, which will be incurred in the fourth quarter of 2004. These production costs
are expensed as incurred. We estimate an annualized benefit on R&D expenses of
approximately $0.8 million as a result of the elimination of R&D positions. General and administrative expenses for the current quarter were $1.9 million in both the
third quarter of 2004 (11.2 percent of revenues) and 2003
(12.0 percent of revenues). We incurred approximately $0.4
million in external costs in connection with our efforts to comply with Sarbanes-Oxley
section 404 during the third quarter of 2004. We anticipate approximately $0.3 million in
additional external costs associated with our 404 efforts to be incurred during the fourth quarter of
2004. The increase in general and administrative expenses as a result of Sarbanes-Oxley compliance
costs were partially offset by a $0.3 million reduction in our sales tax reserves initially
established in 2001. We estimate professional service fees associated with our Latin
America investigation (See Item 4-Controls and Procedures) will total $1.0 million during the
fourth quarter of 2004, up from our initial estimate of
$0.5 million. We recorded restructuring charges totaling $0.1 million in the second quarter of 2004
primarily to establish a reserve in connection with our sublease for excess office space in
Arlington, VA. In January 2003, we approved a sales and marketing reorganization plan (the 2003
Restructuring Plan). The cost of this plan totaled approximately $0.5 million and consisted
primarily of (i) involuntary employee separation for approximately 20 employees (a reduction in
workforce of approximately 4 percent), (ii) closing the Companys Netherlands sales office, and
(iii) reserves for leasehold abandonment. All actions under the 2003 Restructuring Plan were
completed by December 31, 2003. In July 2002, we approved a restructuring plan to improve operating efficiency and improve
sales and marketing productivity (the 2002 Restructuring Plan). The cost of this plan totaled
approximately $1.9 million and consisted primarily of (i) involuntary employee separation for
approximately 30 employees (a reduction in workforce of approximately 5 percent), (ii) closing the
Companys Boston development center and certain European sales offices, (iii) reserves for
leasehold abandonment, and (iv) various non-personnel related cuts. The remaining accrual for the 2002 Restructuring Plan at December 31, 2003 was comprised of
the estimated carrying costs for our remaining excess space in Houston, Texas. During the second
quarter of 2004, we received letters of intent to sublease the remaining excess space. We recorded
a $0.1 million adjustment to our restructuring accrual as a result of receiving these letters of
intent. The remaining accrual at September 30, 2004 is comprised of our carrying costs for the
remaining space in Houston that are in excess of anticipated sublease payments. Adjustments could
be required in future periods if there are significant changes to the terms and conditions of the
sublease arrangements. The 2002 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as
follows (in thousands): REMAINING
    
    RESTRUCTURING
    
    
    
    
    
    REMAININGACCRUAL
    
    CHARGE
    
    CASH
    
    ACCRUAL12/31/2003
    
    ADJUSTMENTS
    
    EXPENDITURES
    
    9/30/2004Lease commitments
    
    $
    1,538
    
    
    $
    33
    
    
    $
    (384
    )
    
    $
    1,187
 In 2001, we completed a corporate reorganization and implemented a number of cost-cutting
measures to improve operating efficiency and to accelerate our return to profitability (the 2001
Restructuring Plan). The cost of this plan totaled approximately $6.6 million and consisted
primarily of: (i) involuntary employee separation expenses for approximately 160 employees (a
reduction in workforce of approximately 21 percent), (ii) downsizing 9




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##### Table of Contents



or closing of the Companys Boston and Arlington development centers and certain European
sales offices, (iii) reserves for leasehold abandonment, and (iv) various non-personnel related
costs. The restructuring costs included a $1.2 million charge related to asset impairments of
leasehold improvements, equipment and other assets of the closed or downsized offices. The 2001 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as
follows (in thousands): REMAINING
    
    RESTRUCTURING
    
    
    
    
    
    REMAININGACCRUAL
    
    CHARGE
    
    CASH
    
    ACCRUAL12/31/2003
    
    ADJUSTMENTS
    
    EXPENDITURES
    
    9/30/2004Lease commitments
    
    $
    453
    
    
    $
    13
    
    
    $
    (445
    )
    
    $
    21
 The remaining accrual for the 2001 Restructuring Plan consists of excess carrying costs
for the Companys Boston facility lease which expires in December 2004. Provision for Income Taxes.We did not record an income tax provision or benefit for our
domestic operations in either the third quarter of 2004 or 2003, as we continue to provide a full
valuation allowance against our deferred tax assets in accordance with Financial Accounting
Standards No. 109, Accounting for Income Taxes. As in our prior assessments, we considered
current and previous performance and other relevant factors in determining the sufficiency of our
valuation allowance. Objective factors, such as current and previous operating losses, were given
substantially more weight than our outlook for future profitability. Until such time as a
consistent pattern of sufficient profitability is established, no tax benefit will be recognized
associated with the Companys pre-tax accounting losses and a full income tax provision will not be
provided on any future pre-tax accounting income. A provision of $0.1 million was recorded for
taxes related to our foreign operations during the third quarter of 2004. Net Loss.Due to the factors described above, net loss for the quarter ended September 30,
2004 was $2.6 million compared with $1.1 million for the quarter ended September 30, 2003. Nine Months Ended September 30, 2004 Compared with the Nine Months Ended September 30, 2003 Revenues.Revenues for the first nine months of 2004 were $49.9 million compared with $43.9
million for the first nine months of 2003. The year-over-year improvement in revenues resulted
from a stronger working sales pipeline entering the year, improved sales execution and strong
demand for our products. License revenues for the first nine months of 2004 were $22.4 million,
or 44.9 percent of total revenues, up from $19.9 million, or 45.4 percent of total revenues, in the
first nine months of 2003. Service revenues for the first nine months of 2004 were $27.5 million,
or 55.1 percent of total revenues, up from $24.0 million, or 54.6 percent of total revenues, for
the first nine months of 2003. Services revenues for the first nine months of 2004 were comprised
of maintenance revenues of $23.0 million and professional services revenues of $4.5 million, up
from $20.9 million in maintenance revenues and $3.1 million in professional services revenues in
the first nine months of 2003. The increase in services revenues was primarily due to maintenance
renewals on an increasing base of licensed customers and an increase in professional services
revenues. With respect to large transactions (sales greater than $130 thousand) we closed 65 during the
first nine months of 2004 having an average sales price of approximately $300 thousand, compared
with 49 in the first nine months of 2003 having an average sales price of $280 thousand. During the first nine months of 2004, revenues from our products for Microsoft-based platforms
totaled $33.6 million, an increase of 15 percent over the first nine months of 2003. Revenues from
these products accounted for approximately 67 percent of total revenues in the first nine months of
2004, up from 66 percent of total revenues for the first nine months of the prior year. License
revenues for our Microsoft-related products for the first nine months of 2004 were $18.0 million
compared with $16.2 million in the first nine months of 2003. Maintenance revenues for our
Microsoft-related products in the first nine months of 2004 were $15.5 million compared with $12.9
million in the first nine months of 2003. We expect revenues from our products and maintenance for
Microsoft-based platforms will continue to grow as a percentage of total revenues. 10




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Revenues from our products for Novell-based platforms for the first nine months of 2004 were
$7.7 million, or 15 percent of total revenues, compared with $8.6 million, or 20 percent of total
revenues, in the first nine months of 2003. Consistent with the trend seen in past quarters, total
revenues from these products were down year-over-year, reflecting both the maturity and our
penetration of the Novell market. License revenues for Novell-based platforms were $2.3 million in
both the first nine months of 2004 and 2003. Maintenance revenues for Novell-based platforms in
the first nine months of 2004 were $5.4 million compared with $6.3 million in the first nine months
of 2003. While we expect our Novell revenues will continue to decline in the future, we expect the
revenue decline will be modest relative to the declines over the past two years and expect the
decline will be offset by higher revenues from our products and maintenance for other platforms. Sales of our security focused bv-Control product line accounted for approximately 85 percent
of our license revenue in the first nine months of 2004 compared with 80 percent in the first nine
months of 2003. Sales of our system administration focused bv-Admin product line accounted for
approximately 14 percent of our license revenue in the first nine months of 2004 compared with 20
percent in the first nine months of 2004. The increase in our bv-Control product line revenues as
a percentage of total revenue has increased year-over-year primarily due to the increased demand in
the market for software to assist customers with policy compliance and vulnerability management
requirements. No customer accounted for more than 10 percent of our revenues in the first nine months of
2004 or 2003. Revenues recognized from sales to customers outside North America, primarily in
Europe, accounted for approximately 11 percent of total revenues in the first nine months of 2004
up from 10 percent in the first nine months of 2003. Gross Profit.Gross profit for the first nine months of 2004 totaled $43.2 million, which was
up from $38.5 million in the first nine months of 2003. Gross margin for the first nine months of
2004 was 86.6 percent, down from 87.6 percent in the first nine months of 2003. This decline
primarily related to a shift in business mix toward services revenues, which have a lower gross
margin than license revenues and an increase in technical support staff to improve the level of
support provided to our customer base. Operating Costs and Expenses.Operating costs and expenses for the first nine months of 2004
totaled $50.2 million, up from $44.8 million for the first nine months of 2003. Operating costs
included restructuring and severance charges of approximately $0.8 million in the first nine months
of 2004 and $0.5 million in the first nine months of 2003. Excluding these charges, operating
costs and expenses were approximately $4.8 million, or 10.9 percent, higher in the first nine
months of 2004 due to significant investments in sales and marketing since the first nine months of
2003, costs related to our planned expansion of our R&D operations in India, production of
video-based training material, higher wage and health care costs and expenses associated with
Sarbanes-Oxley compliance. Sales and marketing expenses for the nine months ended September 30, 2004 were $28.5 million
(57.2 percent of revenues), up from $25.3 million (57.6 percent of revenues) for the nine months
ended September 30, 2003. The increase in sales and marketing expenses primarily related to
investments in areas where we see long-term growth opportunities, specifically our Federal and
European operations. We also added personnel to our inside sales force and increased spending on
marketing programs to grow our working sales pipeline. As a result of these investments, our
personnel related costs increased approximately $2.1 million over the first nine months of 2003.
In addition, variable sales compensation expense increased $0.7 million as a result of the increase in
revenues for the first nine months of 2004 as compared to the first nine months of 2003. We expect
sales and marketing expenses as a percentage of revenues to be lower in the last quarter of 2004 as
a result of anticipated revenue growth. Research and development expenses for the nine months ended September 30, 2004 were $15.6
million (31.3 percent of revenues), up from $13.4 million (30.4 percent of revenues) for the nine
months ended September 30, 2003. This increase related to (i) our actions taken to affect the planned
expansion of our R&D operations in India to better execute on
our product strategy; (ii) $0.9 million in expense for the
production of video-based training materials necessary to augment our existing capabilities and to
fulfill the requirements of a multi-million dollar sales opportunity
in the fourth quarter of 2004; and (iii) $0.2 million in severance costs related to management changes within R&D. We have incurred $0.7 million in
expenses related to our planned expansion of our R&D operations in India for the first nine months
of 11




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2004. The
remaining costs of the video-based training materials is
approximately $0.8
million, which will be incurred in the fourth quarter of 2004. These production costs are expensed as
incurred. We incurred $0.5 million in severance costs during the first nine months of 2004 in
connection with the elimination of positions in our R&D group. We estimate an annualized benefit
on R&D expenses of approximately $1.1 million as a result of the elimination of these positions. General and administrative expenses for the nine months ended September 30, 2004 were $5.8
million (11.7 percent of revenues), up from $5.6 million (12.8 percent of revenues) for the nine
months ended September 30, 2003. The increase is primarily related to a $0.5 million increase in
external costs incurred in connection with our efforts to comply with Sarbanes-Oxley section 404. We
anticipate approximately $0.3 million in additional external costs associated with our 404 efforts to
be incurred during the fourth quarter of 2004. The increase in general and administrative expenses
incurred during the first nine months of 2004 for our Sarbanes-Oxley compliance was partially
offset by a $0.3 million reduction in our sales tax reserves initially established in 2001. We
estimate professional services fees associated with our Latin America investigation
(See Item 4-Controls and Procedures) will total $1.0 million during the fourth quarter of
2004, up from our initial estimate of $0.5 million. Provision for Income Taxes.We did not record an income tax provision for our domestic
operations in either the first nine months of 2004 or 2003, as we continue to provide a full
valuation allowance against our deferred tax assets in accordance with Financial Accounting
Standards No. 109, Accounting for Income Taxes. As in our prior assessments, we considered
current and previous performance and other relevant factors in determining the sufficiency of our
valuation allowance. Objective factors, such as current and previous operating losses, were given
substantially more weight than our outlook for future profitability. Until such time as a
consistent pattern of sufficient profitability is established, no tax benefit will be recognized
associated with the Companys pre-tax accounting losses and a full income tax provision will not be
provided on any future pre-tax accounting income. A provision of $0.3 million was recorded for
taxes related to our foreign operations during the first nine months of 2004. Net Loss.Due to the factors described above, net loss for the nine months ended September
30, 2004 was $6.8 million compared with $6.0 million for the nine months ended September 30, 2003. Liquidity and Capital Resources Our capital requirements have principally related to working capital needs and capital
expenditures. These requirements have been met through a combination of issuances of securities
and internally generated funds. We had cash, cash equivalents and short-term investments of $30.8 million at September 30,
2004 compared with $35.4 million at December 31, 2003. Cash flows used in operating activities were $2.0 million in the first nine months of 2004
compared with $2.1 million in the first nine months of 2003. The
use of cash in operating activities during the first nine months of
2004 primarily related to $0.8 million in severance costs paid
in connection with the elimination of certain positions and $0.7 million
paid for video-based training materials. Cash flows used in investing activities were $10.9 million in the first nine months of 2004
compared with $1.5 million in the first nine months of 2003. The increase in cash used in
investing activities was primarily due to net purchases of $8.5 million in short-term investments
during the first nine months of 2004. Capital expenditures for the first nine months of 2004 were
$2.4 million compared with $1.5 million for the first nine months of 2003. The increase in capital
expenditures primarily relates to approximately $0.8 million in capital expenditures related to our planned
expansion of our R&D operations in India. Cash flows (used in) provided by financing activities were $(0.2) million in the first nine
months of 2004 compared with $0.7 million in the first nine months of 2003. During the first nine
months of 2004, we generated proceeds of approximately $2.1 million from the issuance of common
stock through our Employee Stock Purchase Plan and employee stock option exercises. We also used
$2.3 million in cash to repurchase 0.8 million shares of our common stock at an average price of
$2.98 per share. The $0.7 million in cash provided by financing activities during the first nine
months of 2003 was primarily from issuances of common stock under our Employee Stock Purchase Plan. 12




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We conduct operations in leased facilities under operating leases expiring at various dates
through 2011. The contractual obligations under these lease commitments were comprised of the
following as of September 30, 2004: CONTRACTUAL
    
    
    
    
    
    REMAINDEROBLIGATION
    
    TOTAL
    
    OF 2004
    
    2005 - 2007
    
    2008  2009
    
    2010  2011Operating leases
    
    $
    22,048
    
    
    $
    1,161
    
    
    $
    11,388
    
    
    $
    7,100
    
    
    $
    2,399Sub-leasing
arrangements*
    
    
    (851
    )
    
    
    (55
    )
    
    
    (357
    )
    
    
    (251
    )
    
    
    (188
    )$
    21,197
    
    
    $
    1,106
    
    
    $
    11,031
    
    
    $
    6,849
    
    
    $
    2,211
 *
    
    We have sub-leased portions of these facilities under operating leases. Anticipated cash
receipts from these sub-lease arrangements have been taken into account when deriving expected cash
outflow on operating lease commitments in the preceding table. Our expected principal uses of cash for the remainder of 2004 are: (i) capital expenditures
between $0.2 million and $0.4 million, primarily for computer and software equipment, (ii) working
capital requirements, (iii) net payments on operating leases of approximately $1.1 million, and
(iv) $1.1 million for payments related to the production of our video-based training materials. We
believe there is sufficient cash on hand to meet these cash requirements, as well as our cash
requirements for the foreseeable future. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes since December 31, 2003. See the Companys Annual
Report on Form 10-K/A, Amendment No. 1. 
 ITEM 4. CONTROLS AND PROCEDURES The management of the Company, including the Chief Executive Officer and the Chief Financial
Officer, conducted an evaluation of the effectiveness of the Companys disclosure controls and
procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of September 30,
2004 (the Evaluation Date). Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that, as of the Evaluation Date, the Companys disclosure controls and
procedures were effective in ensuring that all material information relating to the Company,
including its consolidated subsidiaries, required to be filed in this quarterly report have been
made known to them in a timely manner. However, as more fully described below in Revenue
Recognition Issues in BindViews Latin American Operations, management later determined that the
Companys disclosure controls and procedures were not effective as of September 30, 2004, because
the Company had a material weakness in revenue reporting for its Latin American operations. There have been no significant changes made during the fiscal quarter ended September 30,
2004 in the Companys internal controls over financial reporting or in other factors that could
significantly affect internal controls over financial reporting. As discussed below, however, we
have implemented additional measures to improve our internal controls over financial reporting.
These measures took effect after the period covered by this report. Revenue Recognition Issues in BindViews Latin American Operations In October 2004, as a result of information obtained by the Company in its efforts to collect
certain receivables from Latin American resellers, the Companys Audit Committee commenced an
investigation of the Companys Latin American operations. The Audit Committee retained independent
legal counsel and consultants to assist with the investigation. On December 6, 2004, with the
investigation substantially complete, the Audit Committee concluded that due to errors with the
transactions described below, the Company would restate its financial statements for the year ended
December 31, 2003 and the first two quarters of 2004, and also concluded that previously issued
financial statements for those periods should no longer be relied upon. These conclusions were set
forth in the Form 8-K dated December 6, 2004, and were also discussed with the Companys
independent registered public accounting firm. The Audit Committee investigation was completed on
December 8, 2004. 13




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The Companys previously issued financial statements for the periods referenced above have
been restated to correct for an overstatement of approximately $1.0 million in revenues, involving
six transactions in Latin America. As a result, the Companys reported revenues were overstated by
$173,000 in the fourth quarter of 2003; $131,000
in the first quarter of 2004; and $698,000 in the
second quarter of 2004. Revenues for the fourth quarter of 2003 were overstated by $173,000 related to a product
return, which certain Company personnel in Latin America knew to have occurred within the
contractually allowable return period, but which they did not report to the Companys accounting
department. If this return had been reported in a timely manner to the Companys accounting
department, revenues from this transaction would not have been recognized in the fourth quarter of
2003. Certain personnel in Latin America who knew of the product return also made inaccurate
representations as to status of the receivable in response to the on-going collection efforts of
the Companys accounting department. Revenues
for the first quarter of 2004 were overstated by $131,000. This was comprised of (i)
two separate transactions with a single reseller and an end-user customer for which professional
services revenues were overstated by $122,000; and
(ii) maintenance revenue of $9,000 on the
fourth quarter 2003 transaction referred to above. The overstatement of professional services revenues
resulted from the recording of revenues based on invalid contracts and statements of work that had
been submitted to the Companys accounting department by certain personnel in Latin America. These
documents, certain of which the Company believes were falsified prior to being submitted to its
accounting department, purported to show that the Company had entered into an arrangement with a
subsidiary of the reseller to provide services to the end-user customer on behalf of the Company. Revenues for the second quarter of 2004 were overstated by $698,000, resulting from the
recording of three transactions based on invalid documents that had been submitted to the Companys
accounting department by certain personnel in its Latin American operations. These documents,
which the Company believes were falsified prior to being submitted to its accounting department,
included contracts and professional services statements of work and time sheets that purported to
show that valid arrangements supporting the underlying transactions had been entered into with
third parties. Certain personnel in Latin America also made inaccurate representations as to
status of these receivables in response to the on-going collection efforts of the Companys
accounting department. Individuals who the Company believes were culpably involved in these transactions are no
longer employed by the Company. The Company has terminated relationships with resellers that it
believes may have been culpably involved in these transactions. As a result of the investigation into the above matters, the Company has determined that it
has a material weakness with respect to the reporting of revenues from its Latin American
operations. In addition to the actions taken with respect to personnel and resellers, as mentioned
above, the Company has also designed and implemented new procedures to improve controls to better
ensure revenues are recognized only on transactions that are based on valid arrangements,
which meet the Companys revenue recognition criteria. The significant enhancements to our
procedures and controls that have been implemented include:  
    
    We will obtain signed written representations from each sales and professional
services representative, manager, director and vice president prior to finalizing
results for a quarterly or annual period and prior to payment of sales commissions
or any incentive-based compensation for that period. Generally
speaking, these representations state that to the best of the
individual's knowledge, (i) he
or she has complied with the Companys Code of Conduct, (ii) the documentation
supporting the sales transactions with which he or she was involved
is valid, appropriately authorized and complete
and (iii) no conditions to any sales transaction have been agreed to with the customer that have
not been explicitly stated in the documentation supporting that sales transaction.  
    
    In geographies where the Company has a limited operating history (e.g. Latin
America or any other new geography the Company may enter), payment of commissions
will be deferred until collection of accounts receivable has occurred. 14




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##### Table of Contents




    
    We are assigning non-sales personnel to communicate directly with foreign
resellers and end-user customers regarding past due accounts receivable.  
    
    We have made changes to our reporting structure to provide for more direct communication. These changes include sales operations now reports to
our chief operating officer and the head of professional services now reports
directly to non-sales management.  
    
    We have implemented more extensive background and reference checks to be
performed on all prospective employees.  
    
    We have expanded the Companys disclosure committee to include representations
from a broader cross section of departments.  
    
    We are implementing enhanced pre-close analytical review procedures to identify
emerging changes in our business. By implementing its planned internal control improvements, the Company expects to remediate
this material weakness. However, if the Company is unable
to (i) demonstrate that its internal
controls over financial reporting are designed appropriately and operating effectively for a
sufficient period of time, (ii) assert that its internal controls over financial reporting are
effective as of December 31, 2004, and (iii) complete its evaluation on a timely enough basis for its
independent registered public accounting firm to complete their assessment of the Companys
internal controls over financial reporting by the due date for the Companys 2004 Annual Report on
Form 10-K, the Company will have to report the material weakness in such Form 10-K. 
 PART II. OTHER INFORMATION 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Total Number ofShares Purchased as
    
    Maximum Dollarpart of Publicly
    
    Value that canTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Still be SpentPeriod
    
    Shares Purchased
    
    per Share
    
    Programs
    
    Under the ProgramJuly 1, 2004 to
July 30, 2004August 1, 2004 to
August 31, 2004
    
    
    361,800
    
    
    $
    2.98
    
    
    
    361,800
    
    
    $
    0.00September 1, 2004
to September 30,
2004
   **The Company announced on July 29, 2004 that its Board of Directors had approved a stock repurchase program. The Company
could spend up to $2.0 million during the third quarter of 2004 under this program. 15




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ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements other than statements of historical facts included in this
Report, including without limitation, statements regarding the Companys future financial position,
revenue and expense projections, business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for future operations, are forward-looking
statements. Although we believe that the expectations reflected in these forward-looking statements
are reasonable, we cannot assure you that those expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the Companys
expectations are disclosed in statements set forth under
Cautionary Statements in our Annual Report on Form 10-K/A, Amendment No. 1. 
 ITEM 6. EXHIBITS (a) Exhibits: The following exhibits are filed with this Quarterly Report of Form 10-Q. Exhibits designated by the symbol * are filed with this Quarterly Report on Form
10-Q. Exhibit 10.1*
    
    Sublease agreement dated September 30, 2004 between BindView and Nationwide Life
Insurance Company of AmericaExhibit 31.1*
    
    Certification of the Companys Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002Exhibit 31.2*
    
    Certification of the Companys Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002Exhibit 32.1*
    
    Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2*
    
    Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 16




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SIGNATURE 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. BINDVIEW DEVELOPMENT CORPORATIONDecember 20, 2004
    By:
    /s/    Kevin P. CohnKevin P. CohnVice President, Controller and Chief
Accounting Officer (Principal Accounting
Officer) 17




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EXHIBIT INDEX Exhibits designated by the
symbol * are filed with this Quarterly Report on
Form 10-Q Exhibit 10.1*
    
    Sublease agreement dated September 30, 2004 between BindView and Nationwide Life
Insurance Company of AmericaExhibit 31.1*
    
    Certification of the Companys Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002Exhibit 31.2*
    
    Certification of the Companys Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002Exhibit 32.1*
    
    Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2*
    
    Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 18