<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

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

                   For the Fiscal Year Ended December 31, 1998

                        Commission File Number 000-24677

                        BINDVIEW DEVELOPMENT CORPORATION
             (Exact name of registrant as specified in its charter)

           TEXAS                                           76-0306721
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

3355 WEST ALABAMA, SUITE 1200 HOUSTON, TX                     77098
(Address of principal executive offices)                    (Zip code)

                                 (713) 843-1799
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

                                                     Name of each exchange on
          Title of each class                            which registered
          -------------------                            ----------------
Common Stock, no par value per share                  NASDAQ National Market

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant on January 28, 1998 (assuming all officers and directors are
affiliates and based on the last sale price on the NASDAQ Stock Exchange as of
such date) was approximately $260 million.

The number of shares of the registrant's common stock, no par value per share,
outstanding as of January 28, 1999, was 20,612,905.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.

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



<PAGE>   2



PART I

Item 1.  Business

Overview

     We develop, market and support a suite of systems management software
products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments. Our primary product line, BindView EMS, provides software
solutions for systems administration, security management, enterprise inventory
of local area network ("LAN") assets and Year 2000 assessment of PC hardware and
software. BindView EMS can be used by network administrators, security auditors
and other information technology ("IT") personnel to proactively identify,
diagnose and, in many cases, fix a wide range of systems management problems,
allowing organizations to reduce the Total Cost of Ownership of enterprise
computing.

The BindView Solution

     BindView EMS can be used proactively to diagnose, and in many cases fix, a
wide range of specific problems occurring in Windows NT and NetWare
environments. In addition, BindView EMS is built to scale with networks as they
grow enterprise-wide. BindView EMS provides customers with products which are
both easy to use and easy to deploy enterprise-wide.

Proactive, Query-based Systems Management

     We offer a query-based approach to systems management for Windows NT and
NetWare environments. The query-based approach provides systems administrators,
security auditors and other IT professionals with a simple, graphical user
interface ("GUI") for asking questions, or "queries," about the configuration
and security of the network operating system ("NOS") environment. This approach
provides a framework for proactive management of the NOS environment. Rather
than waiting for an event or alarm to occur, the systems administrator can
locate, and in many cases fix, issues with the configuration and security of the
network before they turn into problems. For IT organizations with existing event
management systems, we provide a diagnostic tool to help find the root cause of
a NOS-related problem when an alarm is triggered. The query-based approach can
perform diagnostic and reporting tasks in a matter of minutes that previously
took hours or even days to complete. In addition, the modular architecture of
this query-based technology facilitates the development of new add-on products.
We believe this provides us with a competitive advantage in the development of
future applications.

Comprehensive in Scope

     BindView EMS covers a complete range of system administration and security
issues, including file server management, user and group administration, disk
space management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through the simple user interface of
BindView EMS. As a result, BindView EMS empowers a broader group of IT
personnel, rather than just a limited number of IT experts, to solve problems
quickly by providing a way to automate the labor-intensive tasks necessary to
ensure the integrity and security of enterprise servers, applications and users.

Architected to Scale

     BindView EMS has been designed to manage both workgroup LANs as well as
enterprise-wide networks that are frequently geographically dispersed. Customers
often purchase BindView EMS to manage one or two workgroups and then over time
purchase more products to manage their LAN as it grows to an enterprise-wide,
distributed network. BindView EMS is used routinely to manage networks ranging
from tens to tens of thousands of users. A Fortune 25 consumer goods company,
for example, uses BindView EMS to manage over 70,000 users on its global
NetWare-based network.



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<PAGE>   3
Native to Each Environment

     Our products for managing Windows NT and NetWare operating systems each
have a different agent architecture that works best for that particular
environment and can exploit the unique features of each platform. The
object-oriented architecture of our products separates the user interface from
the back-end data gathering modules. This approach allows us to build each of
these modules to be native to the specific platform it supports. Our products
are not programmed with a "least common denominator" approach across
heterogeneous platforms. We believe this enables us to build "best-of-breed"
products for managing and exploiting each operating environment.

Easy to Deploy, Maintain and Use

     Our products are built to be both easy to install and easy to use. In
addition to being easy to install on a single server or workstation, our
products can be rapidly deployed enterprise-wide. Our systems administration and
security products can typically be deployed enterprise-wide in a matter of days,
and our enterprise inventory and Year 2000 assessment products can typically be
deployed enterprise-wide in a matter of weeks. Our products are also designed to
be easy to upgrade and maintain on an ongoing basis following initial
deployment. As a result, customers can rapidly implement and utilize our
products with minimal training, thereby reducing their Total Cost of Ownership
without placing additional burdens on customer's IT personnel.

Strategy

     Our objective is to be the leading provider of systems management software
for enterprise networks. Key elements of our strategy to achieve these
objectives include:

     Enhance Leadership Position in Security Assessment Software. We believe we
are currently a leading vendor for Windows NT and NetWare-based security
assessment software, both in product sales and technology leadership. We will
continue our research and development efforts to maintain our technology
leadership in comprehensive security assessments of Windows NT and NetWare
networks.

     Enhance Systems Management Capabilities. We intend to add new capabilities
to our modules for managing Windows NT and NetWare-based networks. These
capabilities include new user interface components and analysis tools for
presenting information in more meaningful ways to BindView EMS users and new
features for managing the performance and availability of network components. We
also intend to continue to make enhancements allowing customers to proactively
fix more problems through the "ActiveAdmin" features of BindView EMS and
additional AddPack features specific to NOSadmin for Windows NT. 

     Apply Query-based Management to New Applications. We intend to apply our
query-based management approach to high-growth opportunities and to introduce
high value-added modules for managing a wide variety of critical applications
and services. We are evaluating opportunities to develop new BindView EMS
modules, including those for managing e-mail systems such as Microsoft
Exchange, other operating environments such as UNIX application servers and
other mission-critical, client/server applications such as electronic commerce
servers or SAP R/3.

     Expand Direct Telesales Model. We believe our direct telesales strategy
enables us to maintain a low cost sales model and most effectively track and
meet the needs of our customers. We intend to continue to expand our direct
telesales force, both in the United States and internationally. We also believe
we can continue to increase our success rate in achieving strategic,
enterprise-level sales by selling to higher levels of management of major 
enterprises.

      Leverage Existing Customer Base. Our products have been sold to over 4,000
customers worldwide, including over 70% of the Fortune 100. Although we have
already sold BindView EMS into some of these companies for deployment
enterprise-wide, the majority of these organizations have used BindView EMS only
on some of their departmental LANs and have many additional networks continuing
to represent large sales opportunities. We believe we can sell more deeply
within these existing customer sites and sell more products as we expand our
product line.



                                       3


<PAGE>   4



     Strengthen Strategic Relationships. We will continue to strengthen existing
relationships and pursue new relationships with key partners. Technology
partners (including Microsoft, Novell, Computer Associates and IBM/Tivoli)
provide us with product integration and marketing opportunities. Service
providers (including the Big Five accounting firms, systems integrators and Year
2000 audit firms) provide us with distribution opportunities, as well as
implementation and project management leverage.

Products and Technology

     Our primary product line is BindView EMS. BindView EMS is designed to
provide a wide range of systems management capabilities to our customers for use
with their heterogeneous, distributed networks. BindView EMS employs a
Windows-based console to provide scalable and comprehensive systems management
solutions. BindView EMS utilizes an object-oriented architecture enabling the
management of a wide variety of network operating systems and managed objects to
be supported through snap-in modules. These snap-in modules are sold either
separately or as a "suite". Each snap-in module to the Enterprise Console
increases the scope of BindView EMS to cover a new set of management issues for
a particular platform. Current snap-in modules for BindView EMS include the
NOSadmin series (for both Windows NT and NetWare) and NETinventory. The
Enterprise Console provides an effective set of tools that work across all
snap-in modules.

     Central to the BindView EMS architecture is the Universal Data Processing
Engine ("UDPE") which enables the query-processing capabilities of BindView EMS
by utilizing an object-oriented design separating the common components of the
Enterprise Console from the specific features and platforms of the snap-in
modules. The UDPE provides a querying engine that gathers the necessary data
from across the network and presents the query results to the user through the
Enterprise Console. Query results may be displayed in a variety of meaningful
ways, including tabular spreadsheets, printed reports, graphs and charts, or may
be exported to over a dozen popular formats, including those viewable through
e-mail or a web browser. The user can create queries from scratch, or can select
a predefined query from an initial set of over one hundred sample reports
supplied "out-of-the-box" with BindView EMS. Once queries have been created,
they can be saved to build a suite of management reports monitoring the
deployment of "best practices" and IT-mandated policies across the network.

     With this architecture, BindView EMS enables the management of
heterogeneous, distributed networks through a common GUI. Customers typically
purchase one Enterprise Console per administrator and one or more snap-in
modules to manage their particular network, often including both NOSadmin for
NetWare and NOSadmin for Windows NT.

     All components of BindView EMS have been developed using industry-standard
compilers, development tools and languages, including C, C++, Java and Assembly
for Intel hardware platforms.

Enterprise Console

     The Enterprise Console is the central component and user interface of
BindView EMS. It provides a common tool-set used by security auditors and
network administrators for the analysis, reporting, policy management and
automated administration of enterprise resources and assets. The Enterprise
Console's query-based approach provides the ability to ask questions,
automatically collect the data necessary to answer those questions, present the
answers in meaningful ways and, in some instances (where ActiveAdmin and AddPack
features are available), make necessary corrections while documenting any
required changes. We are working to add and expand ActiveAdmin and AddPack
capabilities to future versions of all BindView EMS modules, increasing the
user's ability to both diagnose and fix problems from the Enterprise Console.

NOSadmin Series

     The NOSadmin series of products provides comprehensive security assessment
and systems management across heterogeneous environments. The NOSadmin series
addresses a complete range of systems administration and security issues,
including file server management, user and group administration, disk space
management and management of directory services. All of the critical
configuration parameters and security settings of Windows NT and NetWare network
operating systems are made available through a simple user interface, without
requiring an agent to be placed on every managed server and workstation. As a
result, the NOSadmin series empowers a broader group of IT personnel, rather
than just a limited number of IT experts, to solve problems quickly by providing
them with a way to automate the labor-intensive tasks necessary to ensure the
integrity and security of enterprise servers, applications and users.




                                       4


<PAGE>   5
     o    NOSadmin for Windows NT enables IT professionals to view and analyze
          multi-domain Windows NT networks enterprise-wide from a single
          administrative console. The product includes the capability to
          pinpoint a variety of potential security risks for Windows NT servers
          and workstations. In addition, AddPack for NOSadmin for Windows NT
          enables users to make changes to the Windows NT NOS configuration and
          fix problems from the Enterprise Console. The current version of
          AddPack supports managing Windows NT services. In subsequent AddPack
          updates, we plan to include support for managing additional aspects of
          the NOS, including Windows NT domain user account information.

     o    NOSadmin for NetWare 3 and NOSadmin for NetWare 4 and 5 provide
          comprehensive security and configuration management of NetWare servers
          enterprise-wide from a single administrative console. These include
          the capability to make changes to the NOS configuration and fix
          problems enterprise-wide through a feature called "ActiveAdmin". In
          addition, NOSadmin for NetWare 4 and 5 enables management of Novell
          Directory Services ("NDS") for a variety of platforms (including
          NetWare 4 and 5, Windows NT and UNIX servers).

     All NOSadmin modules "snap in" to the Enterprise Console through a
Windows-based Dynamic Link Library ("DLL") that interfaces the snap-in module to
the UDPE. In addition to this snap-in DLL, each NOSadmin module utilizes a
distributed agent architecture that is particular to the native environment that
it supports. The distributed agents for the NOSadmin for Windows NT run as
Windows NT services in each Windows NT domain. The distributed agents for the
NOSadmin for NetWare products run as NetWare Loadable Modules on one or more
NetWare file servers.

NETinventory

     NETinventory is a scalable, fast and accurate asset management and
inventory analysis tool for large multi-site networks. It extends the
capabilities of BindView EMS to include comprehensive network inventory and
asset tracking for an entire enterprise. As a result, the user can discover,
document and evaluate PC assets throughout the entire enterprise and make
better-informed strategic technology decisions. NETinventory also reduces help
desk costs and response times by providing immediate access to any end-user's
hardware and software configuration changes. NETinventory also provides powerful
Year 2000 auditing capabilities allowing the execution and automation of Year
2000 compliance testing and reporting for PC hardware and software in a fraction
of the time it would take to do manually.

bv-Web

     bv-Web is a Java-based software solution that provides a summary view of
risks to network integrity and assets. bv-Web enables faster escalation of
issues through easily customizable warning-level indicators and a summary format
for network security, asset, and operational data.  This product allows system
administrators to quickly and efficiently identify and respond to network
security and operational risks using email and paging --
dramatically reducing the time needed to escalate and fix risks to
business-critical operations.  It also enables executive-level management to
quickly see a summary of the health of the network from their Web browsers
through easily customizable warning-level indicators and a summary format for
network security, asset, and operational data.

bv-LifeLine

      The bv-LifeLine series of products provides event notification and
response software into the company's feature-rich BindView EMS family of systems
management products. bv-LifeLine products provide fully integrated event
notification and response solutions for scheduling, notification, dispatch,
escalation, and response, giving IT personnel the tools they need to respond to
critical events almost immediately. 
                                       5
<PAGE>   6
     The following table describes the BindView EMS product family.

<TABLE>
<CAPTION>


-----------------------------------------------------------------------------------------
      BindViewEMS            
        Product                               Features/Benefits
      ---------------------   -----------------------------------------------------------
<S>                           <C>
                              o The Desktop Manager allows for the delegation of tasks to
      Enterprise                individuals filling special roles (for example, security 
      Console                   auditors or help desk personnel) by giving them customized 
                                desktops focused on the tasks they perform 
                              o A Query Builder to ask questions about the state of the
                                network through an easy-to-use GUI 
                              o Spreadsheet and graphics/charting interfaces to
                                view query results 
                              o A Report Writer to generate presentation-quality 
                                reports 
                              o An export function to export data to over a 
                                dozen popular file formats

      NOSadmin                o Comprehensive security assessments
      for Windows             o Configuration analysis of both servers and workstations,
      NT                        including services, sessions, shares and device drivers
                              o Network integrity analysis of domain infrastructure, users,
                                groups, policies and trust relationships between domains 
                              o A single report can span multiple Windows NT domains for
                                enterprise-wide analysis of all Windows NT servers and
                                workstations
                              o Documentation and analysis of the values of any registry
                                keys across all servers and workstations enterprise-wide 
                              o File system and disk space management

      NOSadmin                o Comprehensive security assessments
      for NetWare 4 and 5     o Management of file server configuration, NetWare Loadable
                                Modules and "Set" variables
                              o User and group administration
                              o File system and disk space management
                              o Documentation of organizational policies throughout the
                                enterprise
                              o ActiveAdmin for making global changes to system
                                configuration
                              o Management of NDS and ActiveAdmin for making global changes
                                to NDS

      NOSadmin for            o See features/benefits for NOSadmin for NetWare 4 and 5 above, 
      NetWare 3                 except that it supports NetWare binding services instead of NDS

      NETinventory            o Integrated Year 2000 compliance testing and reporting for PC
                                hardware and software
                              o Automated discovery and tracking of hardware assets
                              o Automated detection of over 4,000 software packages
                              o A three-tiered architecture providing central
                                administration and synchronization services, with
                                fault-tolerant collection and distribution of asset
                                management information
                              o Management of database integrity across all segments of the
                                distributed inventory database enterprise-wide
                              o Generation of complete reports for all PC hardware and
                                software assets across the enterprise

      bv-Web                  o Provides a summary view of risks to network integrity and
                                assets
                              o E-mail, paging, and custom response capabilities that 
                                dramatically reduces the time needed to escalate and fix 
                                risks to business-critical operations
                              o Capability to review a summary on the health of the
                                network through a Web browser
                              o Easily customizable warning-level indicators
                              o Summary format for network security, asset, and
                                operational data

      bv-LifeLine             o Complete rule-based engine for event routing
                              o Robust scheduling engine for resource scheduling,
                                down-time scheduling and delivery method scheduling
                              o Filtering capabilities to prioritize critical events
                              o Automatic event escalation
                              o Remote response capabilities
                              o Fault-tolerant, multi-tier architecture
                              o Follow-the-sun capabilities for global organization
                                that requires 24x7 support
</TABLE>

Customers

     Our products have been sold to over 4,000 customers worldwide, including
over 70% of the Fortune 100. No customer accounted for more than 5% of revenues
in 1998, 1997 or 1996. Our five largest customers represented less than 10% of
our 1998 revenues.

Sales and Marketing

     We sell our products primarily through its direct telesales force, and, to
a lesser extent, through value-added resellers ("VARs"), distributors and
systems integrators. In addition, we have strategic marketing relationships with
professional service organizations and software vendors that provide us with
increased visibility as well as sales leads.

Direct Telesales

     We sell our products primarily through a direct telesales force. We utilize
a direct telesales model that minimizes the number of remote sales offices and
customer site visits and focuses on effective use of the telephone and Internet
communications for product demonstrations and product sales. When necessary, our
sales force will also travel to customer locations. We believe our direct
telesales approach allows us to achieve control of the sales process and respond
rapidly to customer needs, while maintaining an efficient, low-cost sales model.
Sales cycles typically range between as little as three months for departmental
sales and up to 12 months for enterprise-wide contracts.

     As of December 31, 1998, our worldwide direct telesales organization
consisted of 125 employees which is comprised of approximately two-thirds quota
carrying sales personnel and one-third sales support staff. The direct
telesales force for North America is based in Houston and accounts for a
substantial majority of our revenues. During 1998, we established direct
telesales offices in Frankfurt, Germany and Paris, France. We have increased the
size of our direct telesales organization from 62 to 125 individuals over the
last year and expect to continue hiring sales personnel, both domestically and
internationally, over the next 12 months.

VARs and Distributors

     In addition to its direct telesales strategy, we have established indirect
distribution channels through VARs and distributors. Outside North America,
where we are in the process of developing our direct telesales presence, we rely
heavily on our reseller channel. We have established a network of VARs and
distributors in Europe, Latin America and the Pacific Rim, with the
concentration of such distributors being located in European markets.



                                       6


<PAGE>   7
     Our international VARs and distributors typically perform marketing, sales
and technical support functions in their country or region. Each one may
distribute direct to the customer, via other resellers or through a mixture of
both channels. We actively train our international VARs and distributors in both
product and sales methodology.

Systems Integrators and Service Providers

     In addition to more traditional resellers, we market our products through
service organizations that help customers install, manage and secure large
Windows NT and NetWare networks. Such organizations include large systems
integrators, outsourcing companies, security auditing groups in the Big Five
accounting firms and service companies performing Year 2000 compliance work.
Some of these companies sell our products directly to their end-users, while
others license the products from us and include these products in their standard
toolkits used at their clients' sites.

Marketing Partnerships and Programs

     To support our growing sales organization and channel, we have in the last
year devoted significant resources to building a series of marketing
partnerships and programs. We have developed a partnership with IBM/Tivoli for
marketing BindView EMS as a companion product to Tivoli TME 10, as well as
partnerships with other key vendors, including Microsoft, Novell and Computer
Associates. We are a Microsoft Solution Provider, and holds "Microsoft Back
Office" certification for our products. We also partner with many of the Big
Five accounting firms to increase awareness of network security issues. Results
of these partnerships in the past year include a seminar series with Ernst &
Young entitled "Issues in Windows NT Security" given in over 25 cities in the
United States and Europe, and a white paper published by the former Coopers &
Lybrand entitled "Evaluating Novell NetWare 4.X Security Using BindView EMS".

     In addition to the above partnerships, our marketing efforts have resulted
in a number of programs, such as seminars, industry trade shows, vendor
executive briefings, analyst and press tours, advertising and public relations.

Customer Support and Professional Services

     We believe that high quality customer support and professional services are
requirements for continued growth and increased sales of our products. We have
made a significant investment in increasing the size of our support and services
organization in the past and plan to continue to do so in the future. As of
December 31, 1998, our customer support and professional services organization
consisted of 30 employees. Customer support personnel provide technical support
by telephone, e-mail and fax, and maintain our Web site and bulletin boards to
complement these services. Technical support for customers is provided at no
charge for 30 days after the product's sale and on a subscription basis
thereafter. Future versions of our products are provided at no extra charge as
part of the subscription service. International offices and resellers extend
this service for overseas customers.

     Our professional services group provides product training, consulting and
implementation services for a fee in order to assist customers in maximizing the
benefits of BindView products. In addition, we periodically offer training to
our channel partners and employees.

Product Development

     We have been an innovator and leader in the development of systems
management tools for the LAN marketplace. We believe that a technically skilled,
quality oriented and highly productive software development organization is the
key to the continued success of new product offerings. The software development
staff is also responsible for enhancing our existing products and expanding our
product line. Our product development staff consisted of 54 and 27 employees as
of December 31, 1998 and 1997, respectively. We expect that it will continue to
invest substantial resources in product development expenditures.

     We are currently developing enhancements to existing products as well as
working to develop new products for managing additional applications and
platforms not currently within the scope of BindView EMS. Potential future
applications include a product to manage e-mail applications such as Microsoft
Exchange, other operating system platforms such as UNIX application servers and
products to manage mission critical, client/server applications such as
electronic commerce servers or SAP R/3. 





                                       7

<PAGE>   8
We are also currently developing the next generation of the BindView EMS
product family which we expect to deliver over the next 24 months. We cannot
assure you that these development efforts will be completed within our
anticipated schedules or that, if completed, they will have the features
necessary to make them successful in the marketplace. Moreover, products as
complex as ours may contain undetected errors when first introduced or as new
versions are released. Such undetected errors in new products may be found
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance. Future delays in the development or marketing of product
enhancements or new products could result in a material adverse effect on our
business, financial condition and results of operations.

Competition

     The market in which we compete is intensely competitive and characterized
by rapidly changing technology and evolving standards. Companies offering
competitive products vary in the scope and breadth of the products and services
offered and include: (i) providers of security analysis and audit products,
such as Axent Technologies, Inc., Security Dynamics Technologies, Inc., ISS
Group, Inc. and Network Associates, Inc. (ii) providers of standalone inventory
and asset management products such as Tally Systems Corp.; (iii) providers of
LAN desktop management suites, such as Intel Corporation, Hewlett-Packard
Company and Microsoft Corporation; (iv) providers of Year 2000 assessment 
products such as Greenwich Mean Time -- UTA, L.C. and (v) providers of event
notification and response technology such as Attention Software, Inc. In
addition, the native tools provided by Novell, Inc. and third-party tools
provided by certain vendors, such as Computer Associates, Inc., Tivoli Systems,
Inc. and other companies, may compete with certain management features of our
products. We have experienced, and expect to continue to experience, increased
competition from current and potential competitors, many of whom have greater
name recognition, a larger installed customer base and significantly greater
financial, technical, marketing, and other resources than us. Such competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or devote greater resources to the development,
promotion and sale of their products than us. We expect additional competition
as other established and emerging companies enter into the systems management
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles and loss of market share, any of which would
materially adversely affect our business, operating results and financial
condition.

     In addition, vendors of operating system software, particularly Microsoft
and Novell, may in the future enhance their products to include functionality
that is currently provided by our products. The widespread inclusion of the
functionality of our software as standard features of operating system software
could render our products obsolete and unmarketable, particularly if the quality
of such functionality were comparable to that of our products. Even if the
functionality provided as standard features by operating system software is more
limited than that of our software, we cannot assure you that a significant
number of customers would not elect to accept more limited functionality in lieu
of purchasing additional software.

     Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of our current or
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect our
ability to obtain new licenses or to obtain maintenance and support renewals for
existing licenses on terms favorable to us. We cannot assure you that we will be
able to compete successfully against current and future competitors, and the
failure to do so would materially adversely affect our business, operating
results and financial condition.

     We believe that significant competitive factors affecting the markets
described above are depth of product functionality, breadth of platform support,
product quality and performance, conformance to industry standards, product
price and customer support. In addition the ability to rapidly develop and
implement new products and features for these markets is critical.

Proprietary Rights

     We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. However, we believe that such measures afford only limited
protection. We cannot assure you that others will not develop technologies that
are similar or superior to our technology or design around our copyrights and
trade secrets. We license our software products primarily under "shrink wrap"
licenses (i.e., licenses included as part of the product packaging). Shrink
wrap licenses are not negotiated with or signed by individual licensees, and
purport to take effect upon the opening of the product package. We believe,
however, that these measures afford only limited protection. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is difficult and we are
unable to determine the extent to which piracy of its software products exists.
In addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States. We cannot assure you that
our means of protecting our proprietary rights will be adequate or that
competition will not independently develop similar or superior technology.



                                       8

<PAGE>   9

     We are not aware that we are infringing any proprietary rights of third
parties. We cannot assure you, however, that third parties will not claim that
we have infringed on their intellectual property rights. We expect that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to either license the
infringed or similar technology or develop alternative technology on a timely
basis, our business, operating results and financial condition could be
materially adversely affected.

Employees

     As of December 31, 1998, we employed 296 full-time employees, including 165
in sales and marketing, 66 in research and development, 30 in technical support
and professional services and 35 in general and administrative. We believe that
our future success will depend in large part upon our continuing ability to
attract and retain highly skilled managerial, sales, marketing, customer support
and research and development personnel. Like other software companies, we face
intense competition for such personnel, and we have at times experienced and
continue to experience difficulty in recruiting qualified personnel. We cannot
assure you that we will be successful in attracting, assimilating and retaining
other qualified personnel in the future. We are not subject to any collective
bargaining agreement and we believe that our relationships with our employees
are good.

Special Note Regarding Forward-Looking Statements

     This Annual Report on Form 10-K 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 Annual Report on Form
10-K, including without limitation, statements regarding our financial position,
business strategy, 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 such
forward-looking statements are reasonable, we cannot assure you that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations ("Cautionary
Statements") are disclosed under "- Risk Factors" and elsewhere in this Annual
Report on Form 10-K, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written and
oral forward-looking statements attributable to us, or persons on our behalf,
are expressly qualified in their entirety by the Cautionary Statements.

Risk Factors

     In addition to the other information in this Annual Report on Form 10-K,
the following factors should be considered carefully in evaluating the Company.
See also "- Special Note Regarding Forward-Looking Statements".

     We Have a Limited Operating History. Although BindView was founded in 1990,
we have derived substantially all of our revenues since 1995 from sales of
BindView NCS, replaced in 1996 by BindView EMS. We therefore have a limited
operating history based on our primary products. An investor in our Company
must consider the risks and uncertainties frequently encountered by software
companies in the early stages of development, particularly those faced by
companies in the highly competitive and rapidly evolving systems management
software market. To compete in this market, we believe that we must devote
substantial resources to expanding our sales and marketing organization and to
continue product development. As a result, we will need to recognize
significant quarterly revenues to remain profitable. Our revenues have
increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter for the prior year. However, we cannot be certain
that we can sustain these growth rates or that we will remain profitable on a
quarterly or annual basis in the future.







                                       9


<PAGE>   10
     Our Markets are Highly Competitive. We face competition from different
sources. Currently, we compete principally with providers of the following
products:

     -    security analysis and audit products from Axent Technologies, Inc. 
          Security Dynamics Technologies, Inc., ISS Group, Inc. and Network
          Associates Inc. 

     -    stand-alone inventory and asset management products from Tally Systems
          Corp.;

     -    LAN desktop management suites from Intel Corporation, Hewlett-Packard
          Company and Microsoft Corporation; and

     -    Year 2000 assessment products from Greenwich Mean Time--UTA, L.C.

     -    event notification and response technology such as Attention Software,
          Inc.

     -    In addition, certain management features included in our products 
          compete with the native tools from Novell, Inc. and third-party tools
          from certain vendors, such as Computer Associates, Inc. and other
          companies.
        
     We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are likely
to enjoy substantial competitive advantages, including:

     -    greater resources that can be devoted to the development, promotion
          and sale of their products;

     -    more established sales channels;

     -    greater software development experience; and

     -    greater name recognition.

     We also believe that operating system software vendors, particularly
Microsoft and Novell, could enhance their products to include functionality that
we currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours, there is a
substantial risk that a significant number of customers would elect to keep this
limited functionality rather than purchase additional software.

     To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products, services and sales channels.
Any pricing pressures, reduced margins or loss of market share resulting from
our failure to compete effectively could materially adversely affect our
business.

     Our Products are Subject to Rapid Technological Change. The market for our
products is characterized by rapid technological change, frequent new product
introductions and enhancements, uncertain product life cycles, changes in
customer demands and evolving industry standards. Our products could be rendered
obsolete if new products based on new technologies are introduced or new
industry standards emerge. We rely heavily on our relationships with Microsoft
and Novell and attempt to coordinate our product offerings with the future
releases of their operating systems. These companies may not notify us of
feature enhancements prior to new releases of their operating systems in the
future. In that case, we may not be able to introduce products on a timely
basis that capitalize on new operating system releases and feature
enhancements.





                                       10


<PAGE>   11

     Client/server computing environments are inherently complex. As a result,
we cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.

     Our future success will depend, in part, upon our ability to enhance
existing products, develop and introduce new products, satisfy customer
requirements and achieve market acceptance. We cannot be certain that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner. Further, the products,
capabilities or technologies developed by others may render our products or
technologies obsolete or shorten their life cycles.

     We are Dependent upon Continued Growth of the Market for Windows NT and
Novell NetWare Operating Systems. We depend upon the success of Microsoft's
Windows NT and Novell's NetWare operating systems. In particular, market
acceptance of our products depends on the increasing complexity of these
operating systems and the lack of effective tools to simplify system
administration and security management for these environments. Although demand
for Windows NT and NetWare operating systems has grown in recent years, this
market is still emerging and we cannot be certain that it will continue to grow.
If the market does continue to grow, we cannot be certain that the market for
our products will continue to develop or that our products will be widely
accepted. If the markets for our products fail to develop or develop more slowly
than we anticipate, our business could be materially adversely affected.

     The percentages of our revenues attributable to software licenses for
particular operating system platforms can change from time to time. A number of
factors outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms.

     Product Concentration. Substantially all of our revenues are from the sale
of our NOSadmin and NETinventory products. We anticipate that these products
will account for majority all of our revenues for the foreseeable future.
Our future operating results will depend on continued market acceptance of
NOSadmin and NETinventory, enhancements to these products and the continued
development of additional snap-in modules for our Enterprise Console product.
Competition, technological change or other factors could reduce demand for, or
market acceptance of, the NOSadmin and NETinventory products and could
substantially damage our business. Although we currently plan to broaden our
product line, we cannot be certain that we will be able to reduce our product
concentration.

     Risks Associated with Length of Sales Cycle. We have sold our products to
customer workgroups and corporate divisions. As a result, our sales cycle has
ranged from three to six months. Recently, we have focused more of our selling
effort on products for the customer's entire enterprise and have found that our
sales cycle to enterprises has ranged from six to twelve months. The sales cycle
to enterprises is typically longer for a number of reasons, including:

     -    the significant resources committed to an evaluation of network
          management software by an enterprise require us to expend substantial
          time, effort and money educating them on the value of our products and
          services; and

     -    decisions to license and deploy enterprise-wide software generally
          involve an evaluation of our software by a significant number of
          personnel of the enterprise in various functional and geographic
          areas, each often having specific and conflicting requirements.

     As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and  could
cause our operating results to vary significantly from quarter to quarter. For
more information, see "-- Our Quarterly Financial Results are Subject to
Significant Fluctuations".





                                       11


<PAGE>   12
     Need to Manage Changing Operations. We have expanded our operations rapidly
in recent years. We intend to continue to expand in the foreseeable future to
pursue existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
growth effectively, we must implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems, our business, operating results and financial condition will be
materially adversely affected. In addition, we are moving a portion of our
operations to new facilities in Houston, Texas in the first half of 1999, which
we expect will be a disruptive, time consuming and expensive process.

     Dependence on Key Personnel. Our success depends largely on the efforts of
our executive officers, particularly Eric J. Pulaski, the President and Chief
Executive Officer of BindView. We do not have an employment contract requiring
Mr. Pulaski to continue his employment for any period of time. We do not
maintain key man life insurance policies on any of our executive officers.

     We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled research and development, technical
support and sales and marketing personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or more of our key individuals or the failure to attract and
retain additional qualified personnel could substantially damage our business.

     Risks Associated with International Sales and Operations. During 1998, 1997
and 1996, we derived approximately 10%, 13% and 10% of our revenues,
respectively, from sales outside North America. We only recently opened direct
telesales offices outside the United States. We have historically generated
revenues outside North America through indirect channels, including VARs and
other distributors. We are in the early stages of developing our indirect
distribution channels in certain markets outside the United States. We cannot be
certain that we will be able to attract third parties that will be able to
market our products effectively or to provide timely and cost-effective customer
support and service. Our reseller arrangements generally provide that resellers
may carry competing product offerings. We cannot be certain that any distributor
or reseller will continue to represent our products. The inability to recruit,
or the loss of, important sales personnel, distributors or resellers could
materially and adversely affect our business.

     As we expand our sales and support operations internationally, we
anticipate that international revenues will grow as a percentage of our total
revenues. To successfully expand international sales, we must:

     -    establish additional international direct telesales offices;

     -    expand the management and support organizations for our international
          sales channel;

     -    hire additional personnel;

     -    customize our products for local markets;

     -    recruit additional international resellers where appropriate; and

     -    expand the use of our direct telesales model.

     If we are unable to generate increased sales through a direct telesales
model, we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able
to successfully expand our international operations, we cannot be certain that
we will be able to maintain or increase international market demand for our
products.






                                       12


<PAGE>   13
     Limited Protection of Proprietary Technology; Risks of Infringement. Our
success depends to a significant degree upon our software and other proprietary
technology. The software industry has experienced widespread unauthorized
reproduction of software products. We rely on a combination of trademark, trade
secret, and copyright law and contractual restrictions to protect our
technology. These legal protections provide only limited protection. The steps
we have taken may deter competitors from misappropriating our proprietary
information. However, we may not be able to detect unauthorized use or take
appropriate steps to enforce our intellectual property rights. If we litigated
to enforce our rights, litigation would be expensive, would divert management
resources and may not be adequate to protect our business. We also could be
subject to claims alleging infringement of third-party intellectual property
rights. In addition, we may be required to indemnify our distribution partners
and end-users for similar claims made against them. Any claims against us could
require us to spend significant time and money in litigation, pay damages,
develop non-infringing intellectual property or acquire licenses to intellectual
property that is the subject of the infringement claims. As a result, claims
against us could materially adversely affect our business.

     Risks Associated with Potential Acquisitions. We may make investments in
complementary companies, technologies, services or products if we find
appropriate opportunities. If we buy a company, we could have difficulty
assimilating the personnel and operations of the acquired company. If we make
other types of acquisitions, assimilating the technology, services or products
into our operations could be difficult. Acquisitions can disrupt our ongoing
business, distract management and other resources and make it difficult to
maintain our standards, controls and procedures. We may not succeed in
overcoming these risks or in any other problems we might encounter in connection
with any future acquisitions. In addition, we may be required to incur debt or
issue equity securities to pay for any future acquisitions.

     Risks of Undetected Software Errors. Our software products are complex and
may contain certain undetected errors, particularly when first introduced or
when new versions or enhancements are released. We have previously discovered
software errors in certain of our new products after their introduction. We
cannot be certain that, despite our testing, such errors will not be found in
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Such undetected errors could result in
adverse publicity, loss of revenues, delay in market acceptance or claims
against us by customers, all of which could materially adversely affect our
business.

     Year 2000 Risks. Background. Some computers, software and other equipment
include programming code in which calendar year data is abbreviated to only two
digits. As a result of this design decision, some of these systems could fail to
operate or fail to produce correct results if "00" is interpreted to mean 1900
or some other default condition, rather than 2000. These problems are widely
expected to increase in frequency and severity as the year 2000 approaches and
are commonly referred to as the "Millennium Bug" or "Year 2000 Problem".

     Assessment. The Year 2000 Problem could affect computers, software and
other equipment that we and our customers and suppliers use. Accordingly, we are
reviewing our internal computer programs and systems to ensure that they will be
Year 2000 compliant. We presently believe that our computer systems will be
Year 2000 compliant in a timely manner. However, while the estimated cost of
these efforts is not expected to be material to our financial position or any
year's results of operations, there can be no assurance to this effect.

     Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a have not been tested for Year 2000 compliance and/or are not Year 2000
compliant. In addition, we believe that it is not possible to determine with
complete accuracy that all Year 2000 Problems affecting our software products
have been identified or corrected due to the complexity of our products and the
fact that these products interact with other third party vendor products and
operate on computer systems that are not under our control.

     Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We have commenced the process of modifying, upgrading and replacing the two
systems that have been identified as potentially being adversely affected. We
expect to complete this process before the end of the first quarter of 1999 and
do not expect the associated costs to be significant.



                                       13


<PAGE>   14
     Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We are currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on our office and facilities equipment. We have recently replaced our
primary telephone switch with equipment that provides additional capacity to
meet the Company's growth needs and is believed to be Year 2000 compliant.

     We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.

     Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment used,
operated or maintained by us to identify and, to the extent possible, resolve
issues involving the Year 2000 Problem. However, we have limited or no control
over the actions of such third-party suppliers. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with such systems,
there can be no assurance that our suppliers will resolve any or all Year 2000
Problems with such systems before the occurrence of a material disruption to our
business or any of our suppliers. Any failure of these third-parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition or results of operation.

     Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related to
the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:

     -    a significant number of operational inconveniences and inefficiencies
          for us and our customers that may divert our time and attention and
          financial and human resources from our ordinary business activities;
          and

     -    a lesser number of serious system failures that may require
          significant efforts by us or our customers to prevent or alleviate
          material business disruptions. 

     Should these possibilities actually occur, we could experience operating
expense levels higher then currently budgeted or reductions in our expected
growth rates.

     Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the first quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches. If
we are required to implement any of these contingency plans, such plans could
have a material adverse effect on our business, financial condition or results
of operations.

     Risk of Product Liability Claims. Because our product design provides
critical network management services, we may receive significant liability
claims. Our agreements with customers typically contain provisions intended to
limit our exposure to liability claims. These limitations may not, however,
preclude all potential claims. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages. As a
result, any such claims, whether or not successful, could seriously damage our
reputation and our business.



                                       14

<PAGE>   15



Anti-Takeover Provisions. Incumbent management and our Board of Directors could
use certain provisions of our certificate of incorporation to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could discourage
potential takeover attempts and could adversely affect the market price of our
common stock.

Item 2.  Properties

     Our principal administrative, marketing, support and research and
development facility is located in approximately 27,000 square feet of space in
Houston, Texas. Our sales force occupies approximately 20,000 square feet of
space at another location in Houston, Texas. We have leased an additional 80,000
square feet of office space at this new location and intend to relocate our
administrative, marketing and support facility to this other location during the
first half of 1999. We also currently have office space in Frankfurt, Germany
and Paris, France. However, anticipated expansions in international sales may
result in us moving to new facilities within the next 12 months. We believe
suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.

Item 3.  Legal Proceedings

     We are not aware of any current or pending litigation or proceedings that
could have a material adverse effect on our results of operations, cash flows or
financial condition.

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

     None.





                                       15


<PAGE>   16


PART II

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

Market for Common Stock

     Our common stock began trading on the Nasdaq Stock Exchange on July 24,
1998 under the symbol "BVEW". Before that time, there was no market for our
common stock. On December 31, 1998, the 20,541,196 shares of our common stock
outstanding were held by approximately 95 holders of record.

     As of February 19, 1999, the last sales price per share of the Company's
Common Stock, as reported by The Nasdaq Stock Market, was $19.50.

     The following table presents the range of high and low closing prices for
our common stock during the year ended December 31, 1998, our first year as a
public company, as reported by The Nasdaq Stock Market, Inc.

<TABLE>
<CAPTION>
                                                        1998
==============================================================================
                                                High              Low
                                            ----------------------------------

<S>                                         <C>                <C>    
First Quarter                               $     -            $     -
Second Quarter                                    -                  -
Third Quarter (1)                               20.13               9.75
Fourth Quarter                                  27.50              14.50
</TABLE>


(1)  From July 24, 1998 through September 30, 1998. The initial public offering
     price on July 23, 1998 was $10.00 per share.


Dividend Policy

     Prior to becoming a C Corporation in October 1997, we paid distributions to
our S Corporation shareholders in amounts generally consistent with their tax
liabilities arising from their allocable share of S Corporation earnings. Since
becoming a C Corporation, we have not declared or paid any cash dividends on its
capital stock and do not expect to do so in the foreseeable future. We
anticipate that all future earnings, if any, generated from operations will be
retained to develop and expand our business. Any future decision to pay cash
dividends will depend upon our growth, profitability, financial condition and
other factors the Board of Directors may deem relevant.

Recent Sales of Unregistered Securities

     In December 1998, we acquired Curasoft, Inc. The Company is committed to 
issue approximately 175,000 shares of our common stock for all of the
outstanding equity interests of Curasoft, Inc. in a transaction accounted for as
a purchase. The aggregate consideration in the transaction was valued at
approximately $3,350,000. Additional consideration may be issued if certain
future revenue results are achieved related to Curasoft. This transaction did
not involve underwriters. We consider the shares of common stock issued to
Curasoft, Inc. shareholders to have been offered and sold in transactions not
involving a public offering and, therefore, to be exempted from registration
under Section 4(2) or Regulation D of the Securities Act of 1933, as amended.

Item 6.  Selected Financial Data

     The following income statement and balance sheet data are derived from
consolidated financial statements audited by PricewaterhouseCoopers LLP and
Grant Thornton LLP, independent accountants. The information set forth below is
not necessarily indicative of the results of future operations and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.






                                       16

<PAGE>   17
<TABLE>
<CAPTION>
Year ended December 31, In thousands except per share amounts          1998        1997        1996          1995          1994
-----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

<S>                                                                  <C>         <C>         <C>          <C>            <C>
Revenues:
  Licenses                                                           $ 30,209    $ 17,821    $  9,720     $  7,005       $  5,171
  Services                                                              8,244       3,017       1,282          328           --
                                                                     --------    --------    --------     --------       --------
   Total revenues                                                      38,453      20,838      11,002        7,333          5,171
                                                                     --------    --------    --------     --------       --------

Cost of revenues:
  Cost of licenses                                                        958         644         465          693            564
  Cost of services                                                      1,120         624         362          139           --
                                                                     --------    --------    --------     --------       --------
   Total cost of revenues                                               2,078       1,268         827          832            564
                                                                     --------    --------    --------     --------       --------
Gross profit                                                           36,375      19,570      10,175        6,501          4,607
                                                                     --------    --------    --------     --------       --------

Costs and expenses:
  Sales and marketing                                                  17,095       9,088       4,197        3,234          2,256
  Research and development                                              8,385       3,573       2,088        1,249            820
  General and administrative                                            3,606       2,943       1,472        1,235          1,022
  Purchased in-process research and development (1)                     2,488        --          --           --             --
  Stock compensation expense (2)                                         --        15,262         436         --             --
                                                                     --------    --------    --------     --------       --------
Operating income (loss)(3)                                              4,801     (11,296)      1,982          783            509
Other income (expenses), net                                            1,400         118           8          (29)           (21)
                                                                     --------    --------    --------     --------       --------
Income (loss) before income tax provision                               6,201     (11,178)      1,990          754            488
Provision (benefit) for income tax                                      2,945      (3,150)       --           --             --
                                                                     --------    --------    --------     --------       --------
Net income (loss)                                                       3,256      (8,028)      1,990          754            488
Pro forma charge (benefit) in lieu of income taxes                       --          (765)        697          264            171
                                                                     --------    --------    --------     --------       --------
Pro forma net income (loss)(4),(5)                                   $  3,256    $ (7,263)   $  1,293     $    490       $    317
                                                                     ========    ========    ========     ========       ========

Earnings (loss) per common share:
   Basic(6)                                                          $   0.24    $  (0.88)   $   0.16     $   0.06       $   0.04
                                                                     ========    ========    ========     ========       ========
   Diluted(6)                                                        $   0.16    $  (0.88)   $   0.12     $   0.06       $   0.04
                                                                     ========    ========    ========     ========       ========

Shares used in computing earnings (loss) per common share:
   Basic                                                               13,538       8,232       8,228        8,228          8,228
                                                                     ========    ========    ========     ========       ========
   Diluted                                                             20,612       8,232      11,046        8,228          8,228
                                                                     ========    ========    ========     ========       ========

FINANCIAL POSITION
Working capital                                                      $ 58,182    $ 10,823    $  1,750     $    671       $    197
Total assets                                                           74,050      16,509       4,016        2,747          1,552
Long-term debt                                                           --          --          --             68           --
Shareholders' equity                                                   65,119      12,250       2,647        1,214            707
</TABLE>


(1)  Represents a $2,488 non-recurring, non-tax-deductible charge for purchased
     in-process research and development in connection with the acquisition of
     Curasoft, Inc. in 1998. 

(2)  Stock compensation expense of $15,262 and $436 in 1997 and 1996,
     respectively, was recognized in connection with the Company's terminated
     Phantom Stock Plan and a terminated provision of an employment agreement.

(3)  Operating income excluding purchased in-process research and development of
     $2,488 in 1998 and stock compensation expense of $15,262 and $436 in 1997
     and 1996, respectively, would have been $7,289, $3,966 and $2,418 in 1998,
     1997 and 1996, respectively.

(4)  Pro forma net income excluding purchased in-process research and
     development of $2,488 in 1998 and stock compensation expense of $15,262 and
     $436 in 1997 and 1996, respectively, would have been $5,744, $2,655 and 
     $1,577 in 1998, 1997 and 1996, respectively.

(5)  This represents net income (loss), adjusted for a pro forma charge in lieu 
     of income taxes as if BindView were a C Corporation for all periods.

(6)  Basic earnings per common share excluding purchased in-process research and
     development of $2,488 in 1998 and stock compensation expense of $15,262 and
     $436 in 1997 and 1996, respectively, would have been $0.42, $0.32 and $0.19
     in 1998, 1997 and 1996, respectively. Diluted earnings per share excluding
     these expenses would have been $0.28, $0.17 and $0.14 in 1998, 1997 and
     1996 respectively.

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

The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Annual Report
on Form 10-K. Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
See "Business -- Special Note Regarding Forward-Looking Statements".


                                       17

<PAGE>   18
Results of Operations

     The following table presents, as a percentage of total revenue, selected
consolidated financial data for each of the three years most recent years ended
December 31.

<TABLE>
<CAPTION>
                                                         1998        1997       1996
====================================================================================
<S>                                                   <C>              <C>        <C> 
Revenues:
   Licenses                                               78.6        85.5      88.3
   Services                                               21.4        14.5      11.7
                                                        ----------------------------
     Total revenues                                      100.0       100.0     100.0
                                                        ----------------------------

Cost of revenue:
   Cost of licenses                                        2.5         3.1       4.2
   Cost of services                                        2.9         3.0       3.3
                                                        ----------------------------
     Total cost of revenues                                5.4         6.1       7.5
                                                        ----------------------------
Gross profit                                              94.6        93.9      92.5
                                                        ----------------------------

Costs and expenses
   Sales and marketing                                    44.5        43.6      38.1
   Research and development                               21.8        17.1      19.0
   General and administrative                              9.4        14.1      13.4
   Purchases in-process research and development (1)       6.5          -         -
   Stock compensation expense (2)                           -         73.2       4.0
                                                        ----------------------------
Operating income (loss) (3)                               12.5       (54.1)     18.0
Other income, net                                          3.6         0.6       0.1
                                                        ----------------------------
Income (loss) before income tax provision                 16.1       (53.5)     18.1
Provision (benefit) for income tax                         7.7       (15.1)       -
                                                        ----------------------------
Net income (loss)                                          8.5       (38.4)     18.1
Pro forma charge (benefit) in lieu of income taxes          -         (3.6)      6.3
                                                        ----------------------------
Pro forma net income (loss) (4),(5)                        8.5       (34.8)     11.8
                                                        ============================
</TABLE>


(1) Represents a $2,488 non-recurring, non-tax deductible charge for purchased
    in-process research and development in connection with the acquisition of
    Curasoft, Inc. in 1998.

(2) Stock compensation expense of $15,262 and $436 in 1997 and 1996, 
    respectively, was recognized in connection with the Company's terminated 
    Phantom Stock Plan and a terminated provision of an employment agreement.

(3) Operating income as a percentage of total revenues excluding purchased
    in-process research and development of $2,488 in 1998 and stock compensation
    expense of $15,262 and $436 in 1997 and 1996, respectively, would have been
    19.0%, 19.0% and 22.0% in 1998, 1997 and 1996, respectively.

(4) Pro forma net income as a percentage of total revenues excluding purchased
    in-process research and development of $2,488 in 1998 and stock compensation
    expense of $15,262 and $436 in 1997 and 1996, respectively, would have been
    14.9%, 12.7% and 14.3% in 1998, 1997 and 1996, respectively.

(5) This represents net income (loss), adjusted for a pro forma charge in lieu 
    of income taxes as if BindView were a C Corporation for all periods.

Revenues

     Our revenues are derived from the sale of software products and related
services including subscription contracts. Total revenues were $38.5 million,
$20.8 million and $11.0 million in fiscal 1998, 1997 and 1996, respectively,
representing year-to-year increases of 89% between 1996 and 1997 and 85% between
1997 and 1998. We had no customers that accounted for more than 10% of our
revenues in 1998, 1997 or 1996. Revenues recognized from sales to customers
outside North America, primarily in the United Kingdom and Europe, represented
approximately 10%, 13% and 10% in 1998, 1997 and 1996, respectively.

     Licenses. License revenues were $30.2 million, $17.8 million and $9.7
million in fiscal 1998, 1997 and 1996, respectively, representing 79%, 86% and
88% of total revenues in the respective periods. The increase in license



                                       18


<PAGE>   19
revenues over these periods is a result of continued market acceptance of the
BindView EMS product family, increases in the average transaction size,
increases in the size and productivity of our sales force, more effective
corporate marketing programs and new product introductions and enhancements.

     Services. Service revenues were $8.2 million, $3.0 million and $1.3 million
in fiscal 1998, 1997 and 1996, respectively, representing 21%, 14% and 12% of
total revenues in the respective periods. The increase in service revenues over
these periods is a result of increased purchases and renewals of subscription
contracts by our growing installed customer base. As subscription contracts are
recognized ratably over the contract term, an increase in such revenues as a
percentage of total revenues would result in greater deferred revenue
recognition.

Cost of Revenues

     Cost of Licenses. Cost of licenses includes product manuals, packaging,
distribution and media costs for our software products. Cost of licenses were
$958,000, $644,000 and $465,000 in fiscal 1998, 1997 and 1996, respectively,
representing 3%, 4% and 5% of license revenues in the respective periods. Cost
of licenses has increased in absolute dollars primarily due to increases in
product shipments. We expect that these costs as a percentage of license revenue
will continue to be similar to the percentage recorded in 1998 for the
foreseeable future, although there will continue to be fluctuations due to the
timing of certain expenses.

     Cost of Services. Cost of services includes personnel and other costs
related to technical support and professional services. Cost of services were
$1.1 million, $624,000 and $362,000 in fiscal 1998, 1997 and 1996, respectively,
representing 14%, 21% and 28% of service revenues in the respective periods. The
increase in the absolute dollar cost of services is primarily from increases in
the cost of professional services staff providing customer training and
implementation services. The decrease in cost of services as a percentage of
service revenues over these periods is primarily due to service revenues
outpacing technical support staffing levels as we benefited from greater
efficiencies of scale. BindView believes services gross margin as a percentage
of service revenues in the foreseeable future will remain relatively consistent
with services gross margins realized in 1998. Professional service revenues
generally results in a lower gross margin than other types of revenues and in
the event that professional service revenues increase as a percentage of total
revenues, our overall gross margin may be adversely affected.

Costs and Expenses

     Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
general office expenses, travel and entertainment and promotional expenses.
Sales and marketing expenses were $17.1 million, $9.1 million and $4.2 million
in fiscal 1998, 1997 and 1996, respectively, representing 45%, 44% and 38% of
total revenues in the respective periods. The increase in sales and marketing
expenses as a percentage of total revenues is related to the growth in the size
and infrastructure of our domestic sales force and the start-up costs associated
with the launch of our direct telesales organizations in Germany and France 
during 1998. As we continue to devote resources to the expansion of our domestic
and international sales and marketing organization, BindView expects that the
annual sales and marketing expenses as a percentage of total revenue will
continue to be similar to the percentage recorded in 1998 for the foreseeable
future.

     Research and Development. Research and development expenses consist
primarily of salaries and benefits of product development, product management
and quality assurance personnel, payments to contract programmers and expendable
equipment purchases. Research and development expenses were $8.4 million, $3.6
million and $2.1 million in fiscal 1998, 1997 and 1996, respectively,
representing 22%, 17% and 19% of total revenues in the respective periods. The
increase in research and development expenses as a percentage of total revenues
is primarily due to the increase in the number of development and quality
assurance personnel to support the development of new products and enhancements
to existing products, an increase in compensation levels for such personnel and
the addition of product management staff to identify technical specifications
and market opportunities for new and existing products. We believe that the
investment in our research and development is essential for us to maintain
market leadership and continue to expand our product line. Accordingly, we
anticipate devoting substantial resources to product research and development
for the foreseeable future, and that research and development expenses as a
percentage of total revenue will continue to be similar to the percentage
recorded in 1998, but will increase in absolute dollars. Research and
development expenses as a percentage of total revenues could increase
substantially if there were unexpected delays in new product developments or
market acceptance of new products. BindView has adopted Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed". Research and development
expenditures generally have been charged to operations as incurred and any
capitalizable amounts have been insignificant.






                                       19


<PAGE>   20
     General and Administrative. General and administrative expenses consist
primarily of salaries, personnel and related costs for our executive,
administrative, finance and information services staff. General and
administrative expenses were $3.6 million, $2.9 million and $1.5 million in
fiscal 1998, 1997 and 1996, respectively, representing 9%, 14% and 13% of total
revenues in the respective periods. This decline in general and administrative
expenses as a percentage of total revenue is a result of our ongoing efforts to
manage operating expenses. We expect that general and administrative expenses as
a percentage of total revenue in the foreseeable future will continue to be
similar to the percentage recorded in 1998, but will increase in absolute
dollars.

     Purchased In-Process Research and Development. In December 1998, the
Company committed to deliver 175,000 shares of its common stock in exchange for
all of the outstanding equity interests in Curasoft, Inc. in a transaction
accounted for as a purchase. 

     The purchase price allocation resulted in an immediate write-off of 
approximately $2.5 million for purchased in-process research and development
costs related to a Curasoft product ("CuraSLAM") currently undergoing
development. CuraSLAM has been designed as a stand-alone product by Curasoft and
is not related to the Curasoft ENR product family. This product is currently
being designed to enable customers to improve the service levels of their
computing environments and will help customers better align business processes
with their IT functions. This product is expected to be integrated with current
and future BindView products. The Company determined that the purchased
in-process technology had not reached technological feasibility and had no
alternative future use based on the status of design and development activities.

     To determine the fair value of the purchased in-process research and
development activities, the Company utilized values determined by an independent
valuation firm, which applied the percentage of completion approach. Prior to
the acquisition, Curasoft conducted in-depth market research, designed the
product architecture, substantially completed the coding of the user interface
and began the coding of the other modules. The Company has estimated that the
development effort of this product was 50% complete at the date of acquisition.
The percentage completed of 50% was applied to the estimated fair value of the
completed product to determine the in-process research and development charge
upon acquisition. The estimated fair value of the completed product was
determined using the future revenue streams expected from the product, net of
related expenses, discounted at a rate based upon the specific level of risk
associated with achieving the forecasted revenues. 

     The Company estimates that in order for this product to be available for
general distribution during the fourth quarter of 1999, it will need to invest
between $2.0 and $2.5 million in development costs associated with its
operations in Fremont, California. The Company estimates that future revenues
related to this product will be between $40.0 million and $60.0 million between
2000 and 2006. The management of the Company has conducted due diligence and
performed an assessment of remaining tasks and risks to achieve completion. The
development activities required to complete the acquired in-process technologies
include additional design, coding, quality assurance procedures and customer
beta testing. The challenges facing the Company to complete the development of
this product on schedule include 1) the management of a development office away
from its principle offices in Houston, Texas, 2) the ability to adequately staff
this office, 3) the ability to effectively integrate the product with the
Company's existing products and 4) the validation of the product and its
features by potential customers. If the development of the product is delayed,
this could adversely impact its availability date and time-to-market and
therefore, its ability to market the product. If the product is available for
general distribution during the fourth quarter of 1999, the Company anticipates
generating material net cash inflows from this product in 2000.

     Stock Compensation Expense. Stock compensation expenses were $15.3 million
and $436,000 for 1997 and 1996, respectively. In 1996, such expenses resulted
from a lump sum cash payment to an employee in consideration of forfeiture of
certain phantom stock units under our Phantom Stock Plan. In 1997, $14.7 million
of such expense resulted from the non-recurring issuance of 4.9 million shares
of Common Stock in connection with the termination of our Phantom Stock Plan and
$550,000 of such expense resulted from the issuance of a warrant to purchase
437,500 shares of Common Stock to an officer in exchange for extinguishing a
bonus provision in his employment agreement.

Other Income, Net

     We had other income of $1.4 million, $118,000 and $8,000 in fiscal 1998,
1997 and 1996. This increase in other income over these periods is primarily due
to an increase in interest income related to higher cash and cash equivalent
balances.

Provision For Income Taxes

     Prior to October 16, 1997, BindView was treated as a Subchapter S
Corporation for federal income tax purposes. Accordingly, we recorded no federal
income tax expense for 1996 and the period from January 1, 1997 to October 16,
1997. The taxable income generated from results of our operations during this
period was reported in the income tax returns of the individual shareholders. A
pro forma charge in lieu of income taxes has been recognized in our Consolidated
Statement of Operations to reflect income taxes as if we had been a C
Corporation for all periods.

     As the purchased in-process research and development expenses recorded in
conjunction with the acquisition of Curasoft, Inc. are not deductible for
federal income tax purposes, the effective tax rate for 1998 increased to 47%
from 35% in 1997. We expect that in the foreseeable future our effective tax
rate will be similar to the percentage recorded in 1997.

Liquidity and Capital Resources

     Our working capital increased to $58.2 million at December 31, 1998 from
$10.8 million at December 31, 1997. Our cash and cash equivalent and short-term
investment balances increased to $56.7 million at December 31, 1998 from $7.2
million at December 31, 1997 due primarily to our initial public offering
completed in July, 1998, secondary offering completed in December, 1998,
positive cash flow from operating activities and the exercise of stock options
and warrants.



                                       20


<PAGE>   21
     In July 1998, we completed the initial public offering of our common stock,
which resulted in net proceeds to BindView of $30.0 million. In December 1998,
we completed a secondary offering of our common stock, which resulted in net
proceeds to BindView of $6.4 million.

     We believe that the net proceeds of our initial and secondary public
offerings, together with existing cash and cash equivalents and cash flow from
operations will be sufficient to meet our normal working capital requirements
for at least the next 12 months. Thereafter, we may require additional funds to
support our working capital requirements or for other purposes. We may seek to
raise such additional funds through public or private equity financing or from
other sources. There can be no assurance that additional financing will be
available at all or that, if available, such financing will be obtainable on
terms favorable to us or that any additional financing would not be dilutive.

     We currently intend to use the net proceeds of our initial and secondary
public offerings for working capital and general corporate purposes, including
financing accounts receivable and capital expenditures made in the ordinary
course of business, as well as for possible acquisitions of businesses, products
and technologies that are complementary to those of BindView. There can be no
assurance that we will be able to identify any acquisitions of businesses,
products or technology that are complimentary to those of BindView or are on
terms that are acceptable to us. Pending such uses, the net proceeds have been
invested in government securities and other short-term, investment-grade,
interest-bearing instruments.

     The Company may be obligated to make contingent payments to certain former 
owners of Curasoft based on the achievement of future revenue targets related to
an existing product and to an in-process technology, as well as their continued
employment with the Company. As of December 31, 1998, the maximum aggregate
amount of these contingent payments is approximately $4.8 million. In addition
to its normal research and development expenditures, the Company expects to
incur $2.0 to $2.5 million primarily in 1999 in connection with the completion
of in-process technology acquired from Curasoft.

Year 2000 Issues

     Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900 or some
other default condition, rather than 2000. These problems are widely expected to
increase in frequency and severity as the year 2000 approaches and are commonly
referred to as the "Millennium Bug" or "Year 2000 Problem".

     Assessment. The Year 2000 Problem could affect computers, software and
other equipment that we and our customers and suppliers use. Accordingly, we are
reviewing our internal computer programs and systems to ensure that they will be
Year 2000 compliant. We presently believe that our computer systems will be
Year 2000 compliant in a timely manner. However, while the estimated cost of
these efforts is not expected to be material to our financial position or any
year's results of operations, there can be no assurance to this effect.

     Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a have not been tested for Year 2000 compliance and/or are not Year 2000
compliant. In addition, we believe that it is not possible to determine with
complete accuracy that all Year 2000 Problems affecting our software products
have been identified or corrected due to the complexity of our products and the
fact that these products interact with other third party vendor products and
operate on computer systems that are not under our control.

     Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We have commenced the process of modifying, upgrading and replacing the two
systems that have been identified as potentially being adversely affected. 
We expect to complete this process before the end of the first quarter of 1999 
and do not expect the associated costs will be significant. 

     Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We are currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on our office and facilities equipment. We have recently replaced our
primary telephone switch with equipment that provides additional capacity to
meet the Company's growth needs and is believed to be Year 2000 compliant.


                                       21


<PAGE>   22



     We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.

     Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment used,
operated or maintained by us to identify and, to the extent possible, resolve
issues involving the Year 2000 Problem. However, we have limited or no control
over the actions of such third-party suppliers. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with such systems,
there can be no assurance that our suppliers will resolve any or all Year 2000
Problems with such systems before the occurrence of a material disruption to our
business or any of our suppliers. Any failure of these third-parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition or results of operation.

     Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related to
the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:

     -    a significant number of operational inconveniences and inefficiencies
          for us and our customers that may divert our time and attention and
          financial and human resources from our ordinary business activities;
          and

     -    a lesser number of serious system failures that may require
          significant efforts by us or our customers to prevent or alleviate
          material business disruptions. 

Should these possibilities actually occur, we could experience operating expense
levels higher then currently budgeted or reductions in our expected growth
rates.

     Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the first quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches. If
we are required to implement any of these contingency plans, such plans could
have a material adverse effect on our business, financial condition or results
of operations. However, based on the activities described above, the Company
does not believe that the Year 2000 Problem will have a material adverse effect
on the Company's business, financial condition or results of operations.

     The discussion of the Company's efforts and expectations relating to Year
2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software and unanticipated problems identified in the Company's
ongoing compliance review.

     The foregoing statements are intended to be and are hereby designated "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Act.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     Not applicable.




                                       22

<PAGE>   23
Item 8.  Financial Statements and Supplementary Data

     The financial statements and supplementary financial information required
to be filed under this Item are presented in Item 14 of this Annual
Report on Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure

     None.






                                       23


<PAGE>   24
PART III

Item 10. Directors and Executive Officers of the Registrant

     For information concerning this Item, see text under the captions "Election
of Directors", "Executive Officers and Compensation" and "Compliance With
Section 16(a) of the Securities Exchange Act of 1934" in our 1999 Proxy
Statement (the "Proxy Statement") to be filed subsequent to the filing of this
Annual Report on Form 10-K, which information is incorporated herein by
reference.

Item 11.  Executive Compensation

     For information concerning this Item, see text under the captions
"Executive Officers and Compensation" in the Proxy Statement, which information
is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     For information concerning this Item, see text under the captions "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement,
which information is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

     For information concerning this Item, see text under the caption "Certain
Relationships and Transactions" in the Proxy Statement, which information is
incorporated herein by reference.


PART IV

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

    (a) Documents included in this Annual Report on Form 10-K:

<TABLE>
<CAPTION>


        (1) Financial Statements                                                                    Page
                                                                                                    ----
<S>                                                                                                 <C>
        Report of PricewaterhouseCoopers LLP........................................................ 27

        Report of Grant Thornton LLP................................................................ 28

        Consolidated Balance Sheet at December 31, 1998 and 1997.................................... 29

        Consolidated Statement of Operations and Comprehensive Income (Loss) for the 
           years ended December 31, 1998, 1997 and 1996............................................. 30

        Consolidated Statement of Shareholders' Equity for each of the three years in the 
           period ended December 31, 1998........................................................... 31

        Consolidated Statement of Cash Flows for the years ended December 31, 
           1998, 1997 and 1996...................................................................... 32

        Notes to Consolidated Financial Statements.................................................. 33

</TABLE>

     Other financial schedules under the Act have been omitted because they are
either not required or are not material.

    (b) Reports of Form 8-K:

     On October 13, 1998, we filed a Current Report on Form 8-K disclosing our
press release reporting financial results for the third quarter of fiscal year
1998. A copy of such press release was filed as Exhibit 99.1 to such Current
Report on Form 8-K.



                                       24


<PAGE>   25
    (c)  Exhibits:

         Exhibits designated by the symbol * are filed with this Annual Report
on Form 10-K. All exhibits not so designated are incorporated by reference to a
prior filing as indicated.

         Exhibits designated by the symbol + are management contracts or
compensatory plans or arrangements that are required to be filed with this
report pursuant to this Item 14.

         We undertake to furnish to any stockholder so requesting a copy of any
of the following exhibits upon payment to us of the reasonable costs incurred by
us in furnishing any such exhibit.

  Exhibit      Description
  
     3.1    Amended and Restated Articles of Incorporation of the Registrant
            (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the
            Registration Statement on Form S-1 of the Registrant (Reg. No.
            333-52883), filed with the Commission on July 23, 1998 (the "Form
            S-1")).

     3.2    Bylaws of the Registrant (incorporated by reference to Exhibit 3.1
            to the Form S-1).

     4.1    Reference is hereby made to Exhibits 3.1 and 3.2 (incorporated by
            reference to Exhibit 4.1 to the Form S-1).

     10.1+  Incentive Stock Option Plan (incorporated by reference to Exhibit
            10.1 to the Form S-1).

     10.2+  Stock Option Plan (incorporated by reference to Exhibit 10.2 to the
            Form S-1).

     10.3+  1997 Incentive Plan (incorporated by reference to Exhibit 10.3 to
            the Form S-1).

     10.4+  Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4
            to the Form S-1).

     10.5+  1998 Non-Employee Director Stock Option Plan (incorporated by
            reference to Exhibit 10.5 to the Form S-1).  

     10.6   Letter Loan Agreement dated June 10, 1996 between Registrant and
            Southwest Bank of Texas, N.A. (incorporated by reference to 
            Exhibit 10.6 to the Form S-1).  

     10.7   Lease Agreement dated June 20, 1995 between the Registrant and
            School Employees Holding Corp., including all amendments thereto 
            (incorporated by reference to Exhibit 10.7 to the Form S-1).

     10.8   Agreement to Sublease dated June 25, 1998 between the Registrant
            and Halliburton Energy Services, Inc.

     10.9   Stock Ownership Agreement dated April 8, 1997 between the
            Registrant and Nadeem Ghias (incorporated by reference to Exhibit 
            10.9 to the Form S-1).

     10.10  Registration Rights Agreement dated October 16, 1997 among BindView
            Development Corporation, General Atlantic Partners 44 L.P., GAP 
            Coinvestment Partners, L.P., JMI Equity Fund III, L.P. and Eric J. 
            Pulaski (incorporated by reference to Exhibit 10.10 to the Form 
            S-1).  

     10.11  Registration Rights Agreement dated November 7, 1997 among BindView
            Development Corporation and Scott R. Plantowsky (incorporated by
            reference to Exhibit 10.11 to the Form S-1).  

     10.13+ Amended and Restated Employment Agreement dated April 15, 1997
            between the Registrant and Scott R. Plantowsky (incorporated by
            reference to Exhibit 10.13 to the Form S-1).  

     10.14+ Employee Agreement dated September 26, 1996 between the Registrant
            and David E. Pulaski (incorporated by reference to Exhibit 10.14 to
            the Form S-1).  

     10.15+ Employee Agreement dated December 20, 1993 between the Registrant
            and Nadeem Ghias, including all amendments thereto (incorporated by
            reference to Exhibit 10.15 to the Form S-1).  

     10.16  Form of Indemnification Agreement (incorporated by reference to 
            Exhibit 10.16 to the Form S-1).  

     23.1*  Consent of PricewaterhouseCoopers LLP.

     23.2*  Consent of Grant Thornton LLP.

     27.1*  Financial Data Schedule.


                                       25

<PAGE>   26
                        BINDVIEW DEVELOPMENT CORPORATION
                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>


                                                                                                    Page
                                                                                                    ----
<S>                                                                                                <C>
Report of PricewaterhouseCoopers LLP............................................................... 27

Report of Grant Thornton LLP....................................................................... 28

Consolidated Balance Sheet at December 31, 1998 and 1997........................................... 29

Consolidated Statement of Operations and Comprehensive Income (Loss) for the 
     years ended December 31, 1998, 1997 and 1996.................................................. 30

Consolidated Statement of Shareholders' Equity for each of the three years in the
     period ended December 31, 1998................................................................ 31

Consolidated Statement of Cash Flows for the years ended December 31, 1998, 
     1997 and 1996................................................................................. 32

Notes to Consolidated Financial Statements......................................................... 33
</TABLE>




                                       26

<PAGE>   27
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders 
of BindView Development Corporation


         In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and comprehensive income (loss),
of shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of BindView Development Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. 



PRICEWATERHOUSECOOPERS LLP
Houston, Texas

January 28, 1999



                                       27
<PAGE>   28
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
BindView Development Corporation

         We have audited the accompanying statements of operations and
comprehensive income (loss), shareholders' equity, and cash flows of BindView
Development Corporation for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

         We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
BindView Development Corporation for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.



GRANT THORNTON LLP

Houston, Texas
February 4, 1997



                                       28


<PAGE>   29
                        BINDVIEW DEVELOPMENT CORPORATION

                           CONSOLIDATED BALANCE SHEET
                        (in thousands, except par value)

                                     ASSETS


<TABLE>
<CAPTION>

                                                                               December 31,
                                                                        ----------------------
                                                                          1998          1997
                                                                        --------      --------

<S>                                                                     <C>           <C>     
Current assets:
  Cash and cash equivalents .......................................     $ 46,514      $  7,203
  Short-term Investments ..........................................       10,187            -- 
  Accounts receivable, net ........................................        5,711         4,729
  Deferred tax assets .............................................        3,245         3,150
  Other current assets ............................................        1,456            -- 
                                                                        --------      --------
          Total current assets ....................................       67,113        15,082
Property and equipment, net .......................................        5,123         1,370
Capitalized software, net .........................................        1,374            --
Other assets ......................................................          440            57
                                                                        --------      --------
          Total assets ............................................     $ 74,050      $ 16,509
                                                                        ========      ========

                               LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable ................................................     $  1,635      $    785
  Accrued liabilities .............................................        1,446           831
  Accrued compensation ............................................          856           614
  Deferred revenue ................................................        4,994         2,029
                                                                        --------      --------
          Total current liabilities ...............................        8,931         4,259
                                                                        --------      --------
Commitments and contingencies (Note 9) ............................           --            -- 
Shareholders' equity:
  Convertible preferred stock, $0.01 par value, 20,000 shares
     authorized, 0 and 2,528 shares issued and outstanding,
     respectively .................................................           --            25
  Common stock, no par value, 100,000 shares authorized,
     20,541 and 13,198 shares issued an outstanding, respectively .            1             1
  Additional paid-in capital ......................................       64,507        31,728
  Common Stock to be issued, 175 shares ...........................        3,352            --
  Common Stock Warrant to purchase 438 shares .....................           --           550
  Accumulated deficit .............................................       (2,781)       (6,037)
  Cumulative translation adjustment ...............................           40            --
  Treasury stock, 0 and 4,922 shares ..............................           --       (14,017)
                                                                        --------      --------
          Total shareholders' equity ..............................       65,119        12,250
                                                                        --------      --------
          Total liabilities and shareholders' equity ..............     $ 74,050      $ 16,509
                                                                        ========      ========

</TABLE>


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


                                       29

<PAGE>   30
                        BINDVIEW DEVELOPMENT CORPORATION

      CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>


                                                    Year ended December 31,
                                              ------------------------------------
                                                1998          1997          1996
                                              --------      --------      --------

<S>                                           <C>           <C>           <C>     
Revenues:
  Licenses ..............................     $ 30,209      $ 17,821      $  9,720
  Services ..............................        8,244         3,017         1,282
                                              --------      --------      --------
          Total revenues ................       38,453        20,838        11,002
                                              --------      --------      --------
Cost of revenues:
  Cost of licenses ......................          958           644           465
  Cost of services ......................        1,120           624           362
                                              --------      --------      --------
          Total cost of revenues ........        2,078         1,268           827
                                              --------      --------      --------
Gross profit ............................       36,375        19,570        10,175
                                              --------      --------      --------
Costs and expenses:
  Sales and marketing ...................       17,095         9,088         4,197
  Research and development ..............        8,385         3,573         2,088
  General and administrative ............        3,606         2,943         1,472
  Purchased in-process research and
        development .....................        2,488            --            --
  Stock compensation expense ............           --        15,262           436
                                              --------      --------      --------
Operating income (loss) .................        4,801       (11,296)        1,982
Other income, net .......................        1,400           118             8
                                              --------      --------      --------
Income (loss) before income tax provision        6,201       (11,178)        1,990
Provision (benefit) for income taxes ....        2,945        (3,150)           -- 
                                              --------      --------      --------
Net income (loss) .......................     $  3,256      $ (8,028)     $  1,990

Other comprehensive income, net of tax:
   Gain from foreign currency translation           40            --            --
                                              --------      --------      --------
   Comprehensive income (loss) ..........     $  3,296      $ (8,028)     $  1,990
                                              ========      ========      ========

Basic earnings per share ................     $   0.24
Diluted earnings per share ..............     $   0.16
Pro forma information:
  Net income (loss) as reported .........                   $ (8,028)     $  1,990
  Pro forma charge (benefit) in lieu of
     income taxes .......................                       (765)          697
                                                            --------      --------
Pro forma net income (loss) .............                   $ (7,263)     $  1,293
                                                            ========      ========
Pro forma basic net income (loss) per
  share .................................                   $  (0.88)     $   0.16
Pro forma diluted net income (loss) per
  share .................................                   $  (0.88)     $   0.12

</TABLE>


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


                                       30

<PAGE>   31
                        BINDVIEW DEVELOPMENT CORPORATION

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                                            
                                 Common stock     Common                            Retained
                               ----------------    Stock     Additional  Common     earnings     Cumulative                Total
                                                   to be      paid-in     Stock   (accumulated  Translation  Treasury  shareholders'
                                Shares   Amount  delivered    capital    Warrant    deficit)     Adjustment   stock       equity
                               --------  ------  ----------  ----------  -------  ------------  -----------  --------  -------------
<S>                            <C>       <C>     <C>         <C>           <C>      <C>           <C>          <C>       <C>
Balance at January 1, 1996 ....  7,740   $    1          --  $      14       --   $    1,199            --        --   $    1,214
  S Corporation
    distributions .............     --       --          --         --       --         (557)           --        --         (557)
  Net income ..................     --       --          --         --       --        1,990            --        --        1,990
                                ------   ------  ----------  ---------  -------   ----------    ----------  --------   ----------
Balance at December 31,
  1996 ........................  7,740        1          --         14       --        2,632            --        --        2,647
  S Corporation 
    distributions .............     --       --          --         --       --       (1,274)           --        --       (1,274)
  Issuance of common
    stock to satisfy 1993
    employment and
    acquisition liability .....    503       --          --        272       --           --            --        --          272
  Issuance of common
    stock pursuant to
    termination of
    Phantom Stock Plan ........  4,945       --          --     14,092       --           --            --        --       14,092
  Transfer of S
    Corporation accumulated
    deficit upon conversion
    to C Corporation ..........     --       --          --       (633)      --          633            --        --           --
  Issuance of convertible
    preferred stock
    (2,528 shares) ............     --       --          --     17,977       --           --            --        --       18,002
  Issuance of warrant to
    purchase common stock
    (438 shares) ..............     --       --          --         --      550           --            --        --          550
  Purchase of treasury 
    stock (4,922 shares) ......     --       --          --         --       --           --            --   (14,017)     (14,017)
  Exercise of stock options ...     10       --          --          6       --           --            --        --            6
  Net loss ....................     --       --          --         --       --       (8,028)           --        --       (8,028)
                                ------   ------   ---------  ---------  -------    ----------    ----------  --------   ----------
Balance at December 31,
  1997 ........................ 13,198        1          --     31,728      550       (6,037)           --   (14,017)      12,250
  Exercise of stock options ...  1,091       --          --      2,076       --           --            --        --        2,076
  Exercise of stock warrants...  1,188       --          --      4,796     (550)          --            --        --        4,246
  Tax benefit related to
    exercise of employee
    stock options .............     --       --          --      3,462       --           --            --        --        3,462
  Conversion of preferred
    stock .....................  6,320       --          --         25       --           --            --        --           --
  Initial public offering .....  3,321       --          --     30,025       --           --            --        --       30,025
  Secondary offering ..........    345       --          --      6,412       --           --            --        --        6,412
  Shares to be issued to
    acquire business 
    (175 shares)...............     --       --       3,352         --       --           --            --        --        3,352
  Retirement of treasury
    stock ..................... (4,922)      --          --    (14,017)      --           --            --    14,017           --
  Cumulative translation 
    adjustment ................     --       --          --         --       --           --            40        --           40
  Net income ..................     --       --          --         --       --        3,256            --        --        3,256
                                ------   ------  ----------  ---------  -------   ----------    ----------  --------   ----------
Balance at December 31, 1998... 20,541   $    1  $    3,352  $  64,507       --   $   (2,781)   $       40  $     --   $   65,119
                                ======   ======  ==========  =========  =======   ==========    ==========  ========   ==========
</TABLE>


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


                                       31

<PAGE>   32
                        BINDVIEW DEVELOPMENT CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>


                                                                 Year ended December 31,
                                                         ------------------------------------
                                                           1998          1997          1996
                                                         --------      --------      --------

<S>                                                      <C>           <C>           <C>     
Cash flows from operating activities:
  Net income (loss) ...................................  $  3,256      $ (8,028)     $  1,990
  Adjustments to reconcile net income (loss)
     to net cash provided by operating
     activities:
     Depreciation and amortization expense ............     1,099           815           427
     Stock compensation expense .......................        --        14,642            -- 
     Increase in provision for bad debts ..............         9           170            -- 
     Purchased in-process research and development ....     2,488            --            --
     Deferred income taxes ............................     2,798        (3,150)           -- 
     Changes in assets and liabilities, net of acquired
        business:
       (Increase) in accounts receivable ..............      (860)       (2,629)         (902)
       (Increase) decrease in other current assets ....    (1,349)           83           (49)
       Increase in accounts payable ...................       828           512            37
       Increase in accrued liabilities ................       609         1,191            51
       Increase in deferred revenue ...................     2,843         1,459            86
                                                         --------      --------      --------
          Net cash provided by operating activities ...    11,721         5,065         1,640
                                                         --------      --------      --------
Cash flows from investing activities:
  Purchase of property and equipment ..................    (4,990)       (1,250)         (583)
  Purchase of short-term investments ..................   (10,187)           --            --
  Disposal of property and equipment...................       186            --            --
  Cash acquired in business acquisition................       156            --            --
  Other ...............................................      (374)          (95)         (130)
                                                         --------      --------      --------
          Net cash used by investing activities .......   (15,209)       (1,345)         (713)
                                                         --------      --------      --------
Cash flows from financing activities:
  S Corporation distributions .........................        --        (1,274)         (557)
  Payments on notes payable and long-term debt ........        --            --          (226)
  Proceeds from issuance of convertible preferred  
    stock and common stock warrants....................        --        18,002            --
  Purchases of treasury stock .........................        --       (14,017)           -- 
  Proceeds from exercise of stock options .............     2,076             6            -- 
  Proceeds from exercise of stock warrants, net .......     4,246            --            -- 
  Proceeds from initial public offering ...............    30,025            --            --
  Proceeds from secondary offering ....................     6,412            --            -- 
                                                         --------      --------      --------
          Net cash provided (used) by
            financing activities ......................    42,759         2,717          (783)
Effect of exchange rate changes on cash ...............        40            --            --
                                                         --------      --------      --------
Net increase in cash and cash equivalents .............    39,311         6,437           144
Cash and cash equivalents at beginning of  period......     7,203           766           622
                                                         --------      --------      --------
Cash and cash equivalents at end of period ............  $ 46,514      $  7,203      $    766
                                                         ========      ========      ========
Supplemental disclosures for cash flow information:
  Cash paid during the year for interest ..............  $     --      $     --      $     15
  Cash paid during the year for income taxes ..........  $     --      $     --      $     --
Noncash financing and investing activities:
  Issuance of 503 shares of common stock in 1997
     to satisfy 1993 acquisition liability ............        --           272            -- 
  Issuance of warrant to purchase 438 shares of
     common stock in 1997 to satisfy bonus
     Obligation .......................................        --           550            --
</TABLE>


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


                                       32

<PAGE>   33



                        BINDVIEW DEVELOPMENT CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996
                    (in thousands, except per share amounts)

1. Description of Business and Summary of Significant Accounting Policies

Operations

    BindView Development Corporation (the Company), a Texas corporation, was
incorporated in May 1990. Previous to 1995, the Company was known as The LAN
Support Group, Inc. Pursuant to the sale of convertible preferred stock, the
Company's Subchapter S election terminated on October 16, 1997.

    The Company develops, markets and supports a suite of systems management
software products that manage the security and integrity of complex, distributed
client/server networks operating on Microsoft Windows NT and Novell NetWare
environments.

Principles of Consolidation

    The consolidated financial statements include the accounts of BindView
Development Corporation and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.

Revenue Recognition

    In October 1997 the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition," which the Company adopted effective as of January 1, 1997. Such
adoption had no effect on the Company's method of recognizing revenue from its
license and subscription contract activities. Prior to 1997, the Company
recognized revenue in accordance with SOP No. 91-1, "Software Revenue
Recognition". The Company sells its products under perpetual licenses and
recognizes its license revenue upon meeting each of the following criteria: (i)
execution of a written purchase order, license agreement or contract; (ii)
delivery of software or, if the customer has previously received evaluation
software, delivery of the software license code; and (iii) issuance of the
related license, with no significant vendor obligations or customer acceptance
rights outstanding; (iv) the license fee is fixed or determinable; and (v)
collectibility is assessed as being probable. Revenues from perpetual licenses
are recorded as license revenue in the Statements of Operations. Service
revenues include subscription contracts and professional services. Subscription
contracts are purchased separately by customers at their discretion and related
revenues are recognized ratably over the one year contract term. The portion of
subscription contract revenues that have not yet been recognized as revenues is
reported as deferred revenue in the accompanying balance sheet.

     In March 1998 the AICPA issued SOP No. 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition," to extend the
deferral of the application of certain passages of SOP 97-2. In December 1998
the AICPA issued SOP No. 98-9, "Modification of SOP 97-2, `Software Revenue
Recognition,' with Respect to Certain Transactions," to require recognition of
revenue by means of the `residual method' under certain conditions. These
Statements do not have any impact on the Company's revenue recognition based 
upon the Company's current business practices.

Postcontract Customer Support

    Prior to January 1, 1998, the Company provided postcontract customer
support, consisting solely of telephone technical support, to its customers. The
costs of providing this support was accrued and charged to expense at the
time the revenue was recognized. Accrued liabilities at December 31, 1997
included $78, related to providing this support.



                                       33

<PAGE>   34


Advertising Costs

    Advertising costs are expensed as incurred.

Research and Development

    Research and development costs are charged to operations when incurred. In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", the Company capitalizes costs incurred in the
development of software once technological feasibility has been determined. The
Company currently considers technological feasibility to have been established
once a working model of a product has been produced and tested. Amortization of
capitalized software development costs is based on the ratio of actual revenues
to expected revenues for a product or a straight line basis over the product's
useful life, whichever is greater. To date, costs incurred by the Company's
development staff and capitalizable subsequent to the establishment of
technological feasibility have not been material and are included in
Capitalized Software in the accompanying consolidated balance sheet.

    Capitalized Software also includes the cost of developed products obtained
by the Company as a result of its business combinations with other companies. In
December 1998, the Company completed its acquisition of Curasoft, Inc. and
recorded $1,381 in capitalized software development costs as part of its
purchase price allocation (Note 12).

Stock-Based Compensation

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period. The Company provides supplemental disclosure of
the effect on net income and earnings per share as if the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" had been applied in
measuring compensation expense.

Income Taxes

    Prior to October 16, 1997, the Company had elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, all federal income tax
liability prior to that date was the responsibility of the shareholders.

    The provision for income taxes is computed based on income earned from the
termination date of the Company's Subchapter S election on October 16, 1997. The
asset and liability approach is used to recognize deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of the assets and liabilities.

    The pro forma results of operations of the Company reflect a pro forma
charge in lieu of income taxes prior to October 16, 1997.

Earnings Per Share

    The Company's earnings per share data is presented in accordance with
SFAS No. 128, "Earnings Per Share". Basic earnings per share is computed using
the weighted average number of shares outstanding. Diluted earnings per share is
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding securities with a right to
purchase or convert into common stock (Note 11).

Cash and Cash Equivalents

    The Company considers investments with original maturity dates of three
months or less from the date of purchase to be cash equivalents.

Short-Term Investments

    Short term investments have original maturities of more than three months 
and a remaining maturity of less than one year. These investments are stated at 
cost, which approximates market, as it is the intent of the Company to hold 
these securities until maturity. At December 31, 1998, the Company had short 
term investments in Commercial Paper, Corporate and Euro dollar bonds and 
Medium and Short Term Notes of $3,917, $3,948 and $2,322, respectively.
 
Concentration of Credit Risk

    Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash equivalents, short-term investments and accounts
receivable. The Company maintains its cash equivalent balance in money market
funds invested in U.S. Treasury Certificates. The funds are not FDIC insured.
The Company has not experienced any losses in such funds and believes it is 



                                       34


<PAGE>   35


not exposed to any significant credit risk on cash equivalents. The Company's
investment policies restrict its investments to low risk, highly liquid
securities. The Company also performs periodic evaluations of its investment 
policies to review its investment credit risk.

    Management believes that concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographic regions. The Company performs ongoing credit
evaluations of its customers to minimize credit risk. Approximately 10%, 13% and
10% of the Company's sales were made on an export basis, primarily to customers
in Europe and the United Kingdom in 1998, 1997 and 1996, respectively.

Property and Equipment

    Property and equipment are stated at cost. Depreciation is computed by
applying the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.

Long-Lived Assets

    The Company reviews the impairment of long-lived assets and certain 
identifiable intangibles whenever events or changes in circumstances indicate 
that the carrying amount of an asset may not be recoverable. An impairment loss 
would be recognized when estimated future cash flows expected to result from 
the use of the asset and its eventual disposition is less than its carrying 
value amount. The Company has not identified any such impairment losses.


Use of Estimates

    In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, sales and expenses, and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.

Fair Value of Financial Instruments

    The fair value of cash equivalents, investments, accounts receivable,
accounts payable and deferred revenues reflected in the December 31, 1998 and
1997 Consolidated Balance Sheet approximate their carrying value due to their
short maturities.

Foreign Currency

     Assets and liabilities of the Company's foreign operations are translated
into United States dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at the average exchange rate for
the period. The functional currency of those subsidiaries is the primary
currency in which they operate. Cumulative Translation adjustments are reported
as a separate component of shareholders' equity. To date, all adjustments
resulting from the process of translating foreign subsidiaries financial
statements into U.S. dollars have not been significant.

Recent Pronouncements

     In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130 "Reporting Comprehensive Income". This standard requires the disclosure
of comprehensive income and its components for all years presented. The
Company's only component of other comprehensive income is foreign currency
translation adjustments. The Company's cumulative translation adjustments are
now characterized as accumulated other comprehensive income.

     In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information". This standard is effective for fiscal
years beginning after December 15, 1997. The Company currently operates in a
single industry and geographic segment and does not expect this standard to have
a material impact on disclosures with respect to the Company's financial
condition or results of operations.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This standard, which is effective for all
quarters of fiscal years beginning after June 15, 1999, addresses the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under this standard, entities are required to carry all
derivative instruments in the balance sheet at fair value. The accounting for
changes in the fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, the
reason for holding it. The Company must adopt this standard by October 1, 1999.
The Company does not anticipate that this standard will have an effect on its
financial statements as it conducts no hedging activities and does not hold or
issue any derivatives.




                                       35

<PAGE>   36
2. Accounts Receivable

Accounts receivable balances are summarized as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                       --------------------------
                                                           1998            1997
                                                       ----------      ----------

<S>                                                    <C>             <C>       
Trade accounts receivable ........................     $    5,915      $    4,911
Other accounts receivable ........................             --              13
                                                       ----------      ----------
                                                            5,915           4,924
                                                             (204)           (195)
                                                       ----------      ----------
Less -- allowance for doubtful accounts ..........     $    5,711      $    4,729
                                                       ==========      ==========
</TABLE>

Bad debt expense totaled $9, $170 and $0 in 1998, 1997 and 1996 respectively.

3. Property and Equipment

   Property and equipment balances are summarized as follows:

<TABLE>
<CAPTION>
                                                                     December 31,
                                                              ------------------------
                                             Estimated                           
                                            useful lives        1998           1997
                                            ------------      ---------     ----------
<S>                                         <C>               <C>           <C>
Computer equipment and software..........    3 years          $   5,855     $    2,296    
Office furniture and other equipment.....    3-7 years            1,108            378    
Leasehold improvements...................    lease terms            761            206    
                                                              ---------     ----------
                                                                  7,724          2,880    
Less -- accumulated depreciation.                                (2,601)        (1,510)   
                                                              ---------     ----------
                                                              $   5,123     $    1,370    
                                                              =========     ==========

</TABLE>

    Depreciation expense totaled $1,091, $685 and $326 in 1998, 1997 and 1996,
respectively.

4. Capitalized Software

   Capitalized software costs are summarized as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                           --------------------
                                                             1998         1997
                                                           -------      -------
<S>                                                        <C>          <C>    
Capitalized software  .................................    $ 1,669      $   288

Less -- accumulated amortization .....................        (295)        (288)
                                                           -------      -------

                                                           $ 1,374      $    -- 
                                                           =======      =======
</TABLE>
Capitalized software is being amortized on the basis of the estimated life
determined to be between three and seven years. Amortization expense totaled
$7, $130 and $101, in 1998, 1997 and 1996 respectively.

5. Credit Agreements and Financing Arrangements

On June 10, 1998, the Company secured a $2,000 line of credit and a $500 line of
credit. Any principal draws on the $2,000 line of credit mature on June 10,
1999. Any principal draws on the $500 line of credit mature 30 months after the
date of such advances. These lines of credit are collateralized by accounts 
receivable and property and equipment. There have been no borrowings under 
these facilities.

6. Income Taxes

    Effective October 16, 1997, the Company elected to be treated as a C
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded by the Company for the years ended December 31, 1996 and
from January 1, 1997 through October 16, 1997 because operating results are
reported in the individual income tax returns of the shareholders.


                                       36

<PAGE>   37
    The Company's income tax provision (benefit) was comprised of the following:

<TABLE>
<CAPTION>
                                                Period from
                                                October 16,
                                  Year ended      1997 to
                                 December 31,   December 31,
                                     1998        1997
                                 ---------      ----------
<S>                                <C>          <S>         
Current:
  Federal ....................     $    --      $      --
  State ......................          --             --
  International ..............          --             --
Deferred:
  Federal ....................       3,140         (3,060)
  State ......................         435            (90)
  International ..............        (630)            --
                                 ---------      ---------
          Total ..............     $ 2,945      $  (3,150)
                                 =========      =========

</TABLE>

    A reconciliation of the federal statutory tax rate and the Company's
provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                 ------------------------------------------
                                                                   1998            1997            1996
                                                                 ----------      ----------      ----------
<S>                                                              <C>             <C>             <C>       
Income taxes at the applicable federal statutory rates .....     $    2,170      $   (2,317)     $      677
State income taxes, net of federal benefit .................             50             (68)             20
Research and development credit ............................           (500)             --              --
Non-deductible purchased in-process research 
  and development ..........................................            870              --              --
Tax obligation allocated to S Corporation shareholders .....                           (765)           (697)
Valuation allowance for foreign losses .....................            630              --              --
Other ......................................................           (275)
                                                                 ----------      ----------      ----------
Provision (benefit) for income taxes .......................     $    2,945      $   (3,150)     $       --
                                                                 ==========      ==========      ==========
</TABLE>

    Deferred tax assets and liabilities at December 31, 1998 are comprised of
the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                           1998         1997
                                                       ------------  ------------
<S>                                                    <C>            <C>          
Assets:
  Net operating loss carryforward ................     $    3,675     $    2,849
  Research and development credit carryforward ...            500
  Allowance for bad debts ........................             70             68
  Other ..........................................                            61

Liabilities
  Accrued liabilities ............................             --            172
  Differences in basis for long-lived assets .....           (370)            --

                                                       ----------     ----------
Total ............................................     $    3,875     $    3,150

Less: Valuation allowance ........................           (630)            --
                                                       ----------     ----------
                                                            3,245          3,150
                                                       ==========     ==========
</TABLE>

    The Company's net operating loss carryforward at December 31, 1997 was 
primarily attributable to the stock compensation expense realized during the C
Corporation period related to the termination of the Company's phantom stock
plan (Note 7). The Company's net operating loss carryforward at December 31,
1998 of approximately $8,000 for federal income tax purposes expires in 2012 and
is primarily attributable to deductions generated by the exercise of employee
stock options. The Company's ability to utilize the net operating loss
carryforward may be limited if certain changes of ownership occur. Based on the
historical earnings generated by the Company, management believes it is more
likely than not that the tax benefits related to the net operating loss
carryforward will be realized and has, therefore, provided no valuation
allowance for the related deferred tax asset, with the exception of $630
provided at December 31, 1998 for the net operating loss generated from certain
foreign subsidiaries.

7. Stock Compensation Expense

Phantom Stock Plan Termination

    In 1996, the Company implemented a phantom stock plan which granted phantom
stock units to certain employees. Each phantom stock unit provided the
participant with the right to receive shares of Company common stock upon the
occurrence of a change in control of the Company, an initial public offering of
the Company's common stock, liquidation of the Company or a sale of
substantially all of the Company's assets (the "Events"). Since the number of
shares of Common Stock a participant might receive would not be known until one
of the Events occurred, the Company had treated the Phantom Stock Plan in
accordance with Financial Accounting Standards Board Interpretation No. 28 (FIN
28) and accordingly had not recognized stock compensation expense upon the grant
of the units. Stock compensation expense was recognized by the Company in
October 1997 when the plan participants voted to have the Company terminate the
Plan in connection with the sale of Convertible Preferred Stock and Warrants and
the number of shares to be issued under the Plan were known.



                                       37
<PAGE>   38
    The Company granted 6,598 phantom stock units during 1996. No grants were
made during 1997. The Company terminated the Phantom Stock Plan in October 1997
and issued 1,757 shares of common stock on October 13, 1997 and 3,188 shares of
common stock on October 16, 1997 to retire the Phantom Stock Plan. The Company
recognized a related stock compensation charge of $14,712 in October 1997.

    On October 16, 1997, the Company issued 1,304 common stock options under the
Company's 1997 Employee Stock Option Plan with an exercise price of $2.85 per
share to former participants in the Phantom Stock Plan (Note 8). No compensation
expense has been recorded related to these options as the exercise price is
equal to the fair market value of the Company's common stock on the date of
grant.

    Stock compensation expense of $436 was recognized in 1996 in connection with
cash payments made for the extinguishment of certain rights to receive Company
common stock which were held by a terminated employee.

Officer Warrants

    In November 1997 the Company issued a warrant to purchase 438 shares of
common stock at a price of $2.85 per share to an officer to terminate a
provision of the stock option agreement with that officer. The Company 
recognized compensation expense of $550 during the fourth quarter of 1997 based
upon the fair value of the warrant issued.

8. Shareholders' Equity

Issuance of Common Stock to Satisfy Acquisition Liability

In April 1997, the Company issued 503 shares to satisfy its 1993 obligation
incurred related to an employment agreement and the acquisition of certain
technology rights.

Issuance of Convertible Preferred Stock and Warrants

    In October 1997, the Company issued 2,528 shares of $0.01 par value
convertible preferred stock and warrants to purchase 750 shares of common stock,
at $4.00 per share in exchange for $18,002 of cash. The warrants were
immediately exercisable and had an expiration date of April 16, 2000. In the
event of a liquidation of the Company, the Company's preferred stock had a
liquidation preference over its common stock. The preferred stock had a
liquidation value of $7.12 per preferred share and was convertible at the option
of the holder into common stock on a 2.5-for-1 basis. As a result of the
Company's initial public offering in July of 1998, the Company's preferred stock
automatically converted into common stock.

Treasury Stock Transactions

    The Company repurchased 4,922 shares of common stock for $2.85 per share in
October 1997. These treasury shares were retired by the Company in September
1998.

Initial Public Offering

    On May 15, 1998, the Company filed a registration statement permitting the
Company to sell 2,759 shares of its common stock to the public, and 563
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 991 shares to the public.
The registration statement became effective on July 23, 1998. With the exercise
of the over-allotment, the initial public offering resulted in proceeds to the
Company of approximately $30,025, net of approximately $3,189 in underwriting
fees and offering expenses. The Company received no proceeds from the sale of
shares by selling stockholders in the initial public offering.

Secondary Offering

    On November 25, 1998, the Company filed a registration statement permitting
the Company to sell 300 shares of its common stock to the public, and 45
additional shares to cover over-allotments. The registration statement also
permitted certain stockholders of the Company to sell 2,700 shares to the
public, and 405 additional shares to cover over-allotments. The registration
statement became effective on December 4, 1998. With the exercise of the
over-allotment, the secondary offering resulted in proceeds to the Company of




                                       38


<PAGE>   39
approximately $6,412, net of approximately $833 in underwriting fees and
offering expenses. The Company received no proceeds from the sale of shares by
selling stockholders in the secondary public offering.

Incentive Stock Option Plan

     In 1996, the Company's Board of Directors adopted the Incentive Stock
Option Plan. At December 31, 1998, there were 1,753 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on
464, 262 and 170 shares were exercisable at December 31, 1998, 1997 and 1996
with a weighted average exercise price per share of $1.06, $0.80 and $0.78,
respectively.

Nonqualified Stock Option Plan

     In 1996, the Company's Board of Directors adopted the Nonqualified Stock
Option Plan. At December 31, 1998, there were 976 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 517
and 219 shares were exercisable at December 31, 1998 and 1997, with a weighted
average exercise price per share of $2.23 and $1.34, respectively. There were
no options exercisable at December 31, 1996.

1997 Employee Stock Option Plan

     In 1997, the Company's Board of Directors adopted the 1997 Employee Stock
Option Plan. At December 31, 1998, there were 1,074 shares of common stock
reserved by the Board of Directors for issuance under this plan. Options on 565
shares were exercisable at December 31, 1998, with a weighted average exercise
price per share of $2.85. There were no options exercisable at December 31,
1997.

1998 Omnibus Incentive Plan

     In 1998, the Company's Board of Directors adopted the Omnibus Incentive
Plan. At December 31, 1998, there were 1,749 shares of common stock reserved by
the Board of Directors for issuance under this plan. Options on 29 shares were
exercisable at December 31, 1998, with a weighted average exercise price per
share of $4.88.

Non-Employee Director Plan

     In 1998, the Company's Board of Directors adopted the Non-Employee
Director Plan. At December 31, 1998, there were 250 shares of common stock
reserved by the Board of Directors for issuance under this plan. There were no
options exercisable at December 31, 1998.

All Stock-Based Compensation Plans 

    Substantially all options reserved under the Company's Incentive Stock
Option Plan, the Nonqualified Stock Option Plan and the 1997 Employee Stock
Option Plan have been issued. Options granted under the Incentive Stock Option
Plan, Nonqualified Stock Option Plan, 1998 Omnibus Incentive Plan and
Non-Employee Director Plan generally vest 20% per year over five years. Options
granted under the 1997 Employee Stock Option Plan vest at varying rates through
the year 2001. Options must be exercised no later than ten years from the date
of grant. Stock options have been granted at the fair market value of the
Company's stock at the date of grant.




                                       39

<PAGE>   40
    The following table summarizes combined activity under the stock option
plans for each of the three years ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                               Weighted
                                                                                average
                                                                Price per       price
                                                  Options        share         per share
                                                 ----------  ----------------  ---------
<S>                                              <C>         <C>               <C>
Options outstanding, December 31, 1995
  Options granted ...........................      1,529      $0.75 - $ 2.47     $ 1.50
  Options lapsed or canceled ................       (133)             $ 0.75     $ 0.75
  Options exercised .........................         --                  --         --
                                                  ------
Options outstanding, December 31, 1996 ......      1,396      $0.75 - $ 2.47     $ 1.57
  Options granted ...........................      3,391      $1.10 - $ 2.85     $ 2.01
  Options lapsed or canceled ................       (213)     $0.75 - $ 2.85     $ 0.97
  Options exercised .........................        (10)     $0.75 - $ 0.76     $ 0.75
                                                  ------
Options outstanding, December 31, 1997 ......      4,564      $0.75 - $ 2.85     $ 1.92
  Options granted ...........................      1,362      $3.85 - $27.50     $11.76
  Options lapsed or canceled ................       (103)     $0.95 - $10.00     $ 2.84
  Options exercised .........................     (1,091)     $0.75 - $10.00     $ 1.91
                                                  ------
Options outstanding, December 31, 1998 ......      4,732      $0.75 - $27.50     $ 4.73
                                                  ------
</TABLE>

    The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1998:

<TABLE>
<CAPTION>
                                Options outstanding            Options exercisable
                         ---------------------------------    ----------------------
                                       Weighted   Weighted                  Weighted
                                       average     average                  Average
                         Shares in    remaining   exercise    Shares in    Exercise
                         thousands  life in years   price     thousands      Price
                         ---------  ------------- --------    ---------    ---------

<S>                      <C>        <C>           <C>        <C>           <C>
under $5.00.......         3,882        7.9        $ 2.19       1,570       $ 2.13
$5.01 - $10.00....           478        9.5        $ 9.99           5       $10.00
$10.01 - $15.00...             3        9.6        $14.38          --       $   --
$15.01 - $20.00...            61        9.8        $18.00          --       $   --
$20.01 - $25.00...            85        9.8        $21.46          --       $   --
Over $25.01.......           223       10.0        $27.50          --       $   --
                         ---------                            ---------    
                           4,732                                1,575   
</TABLE>

Stock Based Compensation Disclosures

    For periods prior to the Company's initial public offering, the minimum
value of stock based compensation was calculated in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The following weighted average assumptions using the
Black-Scholes model were used the calculate stock based compensation for the
three years ended December 31, 1998 (the minimum value method does not include
volatility):

<TABLE>
<CAPTION>
                                            1998    1997    1996
                                           ------  ------  ------
<S>                                        <C>     <C>     <C>
 Expected life (in years)...............     4        4       4
 Interest rate..........................     5%       6%      6%
 Volatility.............................    77%     N/A     N/A
 Dividend yield.........................     0%       0%      0%
</TABLE>

    Stock based compensation costs would have reduced pretax income by $955,
$164 and $18 in 1998, 1997 and 1996, respectively ($659, $107 and $12 after tax
and $0.03, $0.01 and $0 per share in 1998, 1997 and 1996, respectively) if such
compensation in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant.

9. Commitments and Contingencies

Lease Commitments

    The Company conducts its operations in leased facilities under operating
leases expiring at various dates through 2001. The leases are cancelable upon
payment of six months rent and reimbursement of the unamortized balance of the
leasehold allowance. Total lease expense amounted to approximately $656, $575
and $279 at December 31, 1998, 1997 and 1996, respectively.


                                       40

<PAGE>   41
    The minimum rental commitments under operating leases at December 31, 1998
were: $1,816 in 1999, $2,111 in 2000, $1,804 in 2001, $1,791 in 2002 and $1,796
in 2003 and beyond.

10. 401(k) Plan

    Effective January 1, 1995, the Company adopted a 401(k) plan which is
available to all full-time employees. Employees contribute to the plan through
payroll deductions. The Company matches 50% of the participant's contribution up
to a maximum of 6% of a participant's compensation. Additionally, the Company
may make a discretionary contribution as determined by the Board of Directors.
Total Company contributions were $546, $174 and $165 in 1998, 1997 and 1996,
respectively.

11. Net Income per Share

     As a result of the Company's change from an S Corporation to a C
Corporation in October 1997, presentation of pro forma net income per share is
necessary for the years ended December 31, 1997 and 1996. Shares issued as a
result of the 503 shares issued in 1997 to satisfy a 1993 acquisition liability
have been treated as if they had been effective and outstanding as of January 1,
1996 and included in weighted average shares outstanding. Shares to be issued in
connection with the Curasoft acquisition (Note 12) are not material to the
weighted shares outstanding.

     The computation of basic and diluted net income (loss) per share and pro
forma basic and diluted net income (loss) per share follows:

<TABLE>
<CAPTION>


                                                              Year ended December 31,
                                                        ------------------------------------
                                                          1998          1997          1996
                                                        --------      --------      --------

<S>                                                     <C>           <C>           <C>      
Net income ........................................     $  3,256      $     --      $     -- 
Pro forma net income (loss) .......................     $     --      $ (7,263)     $  1,293
                                                        ========      ========      ========
Shares used in basic calculation (in thousands):
  Total basic shares ..............................       13,538         8,232         8,228
Additional shares for diluted computation:
  Effect of stock options .........................        3,136           593            70
  Effect of warrants ..............................          406            --            -- 
  Effect of convertible preferred stock ...........        3,532         1,318            -- 
  Effect of phantom stock .........................           --         5,075         2,748
  Exclusion of share equivalents that are
     anti-dilutive because a loss was incurred ....           --        (6,986)           -- 
                                                        --------      --------      --------
          Total diluted shares ....................       20,612         8,232        11,046
                                                        ========      ========      ========

Basic net income per share ........................     $   0.24
Diluted net income per share ......................     $   0.16
Pro forma basic net income (loss) per share .......                   $  (0.88)     $   0.16
Pro forma diluted net income (loss) per share .....                   $  (0.88)     $   0.12
</TABLE>


12.  Acquisition

     In December 1998, the Company committed to deliver 175 shares of its common
     stock in exchange for all of the outstanding equity interests in Curasoft,
     Inc. in a transaction accounted for as a purchase. The aggregate
     consideration in the transaction was valued at $3,352. Incremental costs
     incurred and capitalized in connection with the acquisition were $140. In
     addition, the Company may be obligated to make contingent payments to
     certain former owners of Curasoft based on the achievement of 
     future revenue targets related to an existing product and to an in-process
     technology, as well as their continued employment with the Company. As of
     December 31, 1998, the maximum aggregate amount of these contingent
     payments is approximately $4,800. When it is determined that the payment of
     any of these contingent payments is probable, the Company expects to record
     a corresponding charge to compensation expense related to these payments.

     The Company allocated the purchase price to assets and liabilities acquired
     in the transaction based on their relative fair values as determined by an
     independent valuation firm. These acquired assets will be amortized over
     their estimated useful lives not exceeding 7 years. The Company has
     allocated $1,381 of the purchase price to the existing Curasoft ENR product
     family which provides fully integrated event notification and response
     solutions for scheduling, notification, dispatch, escalation, and response.
     To determine the fair market value of the acquired net assets, the Company
     relied primarily on the income approach, whereupon fair market value is a
     function of the future revenues expected to be generated by an asset, net
     of all related expenses. The future net revenue stream was discounted to
     the present value at an 18% rate based on the estimated level of risk
     associated with achieving the forecasted revenues. The income approach
     focuses on the income producing capability of the acquired assets and 
     represents the present value of the future economic benefits expected to be
     derived from these assets.

     The purchase price allocation resulted in an immediate write-off of $2,488
     for purchased in-process research and development costs related to a
     Curasoft product ("CuraSLAM") currently undergoing development. CuraSLAM
     has been designed as a stand-alone product by Curasoft and is not related
     to the Curasoft ENR product family. This product is currently being
     designed to enable customers to improve the service levels of their
     computing environments and will help customers better align business
     processes with their IT functions. This product is expected to be
     integrated with current and future BindView products. The Company 
     determined that the purchased in-process technology had not reached 
     technological feasibility and had no alternative future use based 
     on the status of design and development activities.

     To determine the fair value of the purchased in-process research and
     development activities, the Company utilized values determined by an
     independent valuation firm, which applied the percentage of completion
     approach. Prior to the acquisition, Curasoft conducted in-depth market
     research, designed the product architecture, substantially completed the
     coding of the user interface and began the coding of the other modules. The
     Company has estimated that the development effort of this product was 50%
     complete at the date of acquisition. The percentage completed of 50% was
     applied to the estimated fair value of the completed product to determine
     the in-process research and development charge upon acquisition. The
     estimated fair value of the completed product was determined using the
     future revenue streams expected from the product, net of related expenses,
     discounted at a


                                       41


<PAGE>   42
     rate based upon the specific level of risk associated with achieving the
     forecasted revenues. 

     The management of the Company has conducted due diligence and performed an
     assessment of remaining tasks and risks to achieve completion. The
     development activities required to complete the acquired in-process
     technologies include additional design, coding, quality assurance
     procedures and customer beta testing. The challenges facing the Company to
     complete the development of this product on schedule include 1) the
     management of a development office away from its principle offices in
     Houston, Texas, 2) the ability to adequately staff this office, 3) the
     ability to effectively integrate the product with the Company's existing
     products and 4) the validation of the product and its features by potential
     customers. If the development of the product is delayed, this could
     adversely impact its availability date and time-to-market and therefore,
     its ability to market the product. If the product is available for general
     distribution during the fourth quarter of 1999, the Company anticipates
     generating material net cash inflows from this product in 2000.


     Allocation of the purchase price in the transaction are as follows:

     Common stock to be issued          $3,352
     Transactions costs                    140
                                        ------
          Total to be allocated         $3,492
                                        ======
     Allocation:
       Cash acquired                    $  157
       Other current assets                239
       Capitalized software              1,381
       Other non-current assets             41
       Current liabilities                (394)
       Deferred taxes                     (420)
       Purchased in-process technology   2,488
                                        ------
          Total allocated               $3,492
                                        ======

     The Company's results of operations include the operating results of
     Curasoft from the date of the acquisition. The unaudited pro forma results
     of operations, as if Curasoft had been acquired by the Company from January
     1, 1997, is for illustrative purposes only and is not necessarily
     indicative of the combined results of operations of future periods or the
     results that would have actually occurred had the companies been combined
     during the specified periods, are as follows:

<TABLE>
<CAPTION>
                                                  December 31,
                                             --------------------
                                               1998         1997
                                              -------     -------
<S>                                           <C>         <C>          
Total revenues ............................   $39,382     $21,339
Pro forma net income (loss) ...............   $ 3,070     $(7,458)
                                              =======     ========
Diluted earnings per share ................   $  0.15     $ (0.89)
Total diluted shares ......................    20,770       8,379
</TABLE>

13.  Subsequent Event (Unaudited)

     On January 29, 1999 the Company entered into a definitive agreement to
merge with Netect, Ltd. an Israeli corporation, in a transaction expected to be
accounted for as a pooling of interests. Under the terms of the agreement, the
Company will issue 1,381 shares of common stock, based upon an exchange ratio of
0.40026 shares of the Company's common stock for each share or right to a share
of Netect common stock. It is expected that the transaction would be consummated
before the end of the first quarter of 1999. Upon consummation as a pooling of
interests, the Company's consolidated financial statements would be
retroactively restated to combine the financial data of the Company and Netect
for all periods presented.




                                       42

<PAGE>   43
                                   SIGNATURES


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


                                          BINDVIEW DEVELOPMENT CORPORATION


                                                /s/ ERIC J. PULASKI            
                                        ---------------------------------------
                                        President and Chief Executive Officer

                                        February 22, 1999

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

<TABLE>


<S>                                       <C>                                         <C>
/s/ ERIC J.PULASKI                        Chairman of the Board, President            February 22, 1999
-----------------------------------         and Chief Executive Officer
Eric J. Pulaski                            (Principal Executive Officer)


/s/ SCOTT R. PLANTOWSKY                     Director, Vice President and              February 22, 1999
-----------------------------------           Chief Financial Officer
Scott R. Plantowsky                          (Principal Financial and
                                                 Accounting Officer)


/s/ PETER L. BLOOM                                    Director                        February 22, 1999
-----------------------------------
Peter L. Bloom


/s/ RICHARD A. HOSLEY III                             Director                        February 22, 1999
-----------------------------------
Richard A. Hosley III


/s/ JOHN J. MOORES                                    Director                        February 22, 1999
-----------------------------------
John J. Moores

</TABLE>

<PAGE>   44
                                 EXHIBIT INDEX

EXHIBIT
NUMBER                                      DESCRIPTION
-------                                     -----------

23.1                         CONSENT OF INDEPENDENT ACCOUNTANTS
23.2                         CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
27.1                         EDGAR FINANCIAL DATA SCHEDULE