##### Table of Contents





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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,
2003

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
    incorporation or organization)                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                    
|5151 San Felipe, 25th Floor, Houston, TX(Address of principal executive
    offices) |  | 77056(Zip Code)                         

(713) 561-4000

(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:

|                                     |  |                                          
|------------------------------------ |  | -----------------------------------------
|Title of each class                  |  | Name of each exchange on 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 þ  No o

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. þ

Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2). Yes o  No þ

The
aggregate market value of the common stock held by
non-affiliates of the registrant on June 30, 2003, the last
business day of the registrants most recently completed
second quarter, (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 $64 million.

The
number of shares of the registrants common stock, no par
value per share, outstanding as of March 26, 2004 was
47,481,005.

DOCUMENTS INCORPORATED BY REFERENCE

Specified
portions of the definitive Proxy Statement for the
Registrants 2004 Annual Meeting of Stockholders, to be
filed not later than 120 days after the end of the fiscal
year covered by this Report on Form 10-K
(Report), are incorporated by reference into Part
III hereof.



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BINDVIEW DEVELOPMENT CORPORATION

TABLE OF CONTENTS

|                                             |  |                                                                                           |  |  |    | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  |  | -- | 
|PART I.                                     
|1.                                           |  | Business                                                                                  |  |  | 2  | 
|2.                                           |  | Properties                                                                                |  |  | 7  | 
|3.                                           |  | Legal Proceedings                                                                         |  |  | 7  | 
|4.                                           |  | Submission of Matters to a
    Vote of Security Holders                                   |  |  | 7  | 
|                                            
|PART II.                                    
|5.                                           |  | Market for Registrants
    Common Stock and Related Stockholders Matters                |  |  | 7  | 
|6.                                           |  | Selected Financial Data                                                                   |  |  | 9  | 
|7.                                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |  | 10 | 
|7A.                                          |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |  | 27 | 
|8.                                           |  | Financial Statements and
    Supplementary Data                                           |  |  | 27 | 
|9.                                           |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |  |  | 28 | 
|9A.                                          |  | Controls and Procedures                                                                   |  |  | 28 | 
|                                            
|PART III.                                   
|10.                                          |  | Directors and Executive
    Officers of the Registrant                                    |  |  | 28 | 
|11.                                          |  | Executive Compensation                                                                    |  |  | 28 | 
|12.                                          |  | Security Ownership of
    Certain Beneficial Owners and Management                        |  |  | 28 | 
|13.                                          |  | Certain Relationships and
    Related Transactions                                        |  |  | 28 | 
|14.                                          |  | Principal Accounting Fees
    and Services                                                |  |  | 28 | 
|                                            
|PART IV.                                    
|15.                                          |  | Exhibits, Financial
    Statement Schedule and Reports on Form 8-K                        |  |  | 29 | 
|                                             |  | Signatures                                                                                |  |  | 55 | 
|                                             |  | Exhibit Index                                                                             |  |  | 56 | 
|Subsidiaries of the Company                 
|Consent of PricewaterhouseCoopers LLP       
|Certification of CEO Pursuant to Section 302
|Certification of CFO Pursuant to Section 302
|Certification of CEO Pursuant to Section 906
|Certification of CFO Pursuant to Section 906



1



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

Special Note Regarding Forward-Looking
Statements

This Report includes forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of
historical facts included in this Report, including, without
limitation, statements regarding our future financial position,
business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for
future operations, are forward-looking statements. Although we
believe that the expectations reflected in these forward-looking
statements are reasonable, we cannot assure you those
expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from our
expectations are disclosed in statements set forth under
Cautionary Statements and elsewhere in this Report,
including, without limitation, in conjunction with the
forward-looking statements included in this Report. All
subsequent written or oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the Cautionary
Statements and such other statements. References to the
Company, BindView, we,
us, and our refer to BindView
Development Corporation and, where appropriate, its subsidiaries.

General

BindView was founded in May 1990 as a Texas
corporation and conducted business as The LAN Support
Group, Inc. until 1995. We completed our initial public
offering (IPO) in July 1998 and a secondary offering in
December 1998. To increase the depth and breadth of our
solutions, we acquired CuraSoft, Inc. (December 1998),
Netect, Ltd. (March 1999), and Entevo Corporation (February
2000), following our IPO. To date, BindView has shipped more
than 20 million software licenses to approximately
5,000 companies worldwide, spanning all major business
segments and the public sector.

BindView Development Corporation is a leading
provider of software for proactively managing business
policy, IT security, and computer network directory
information. Our solutions help customers to centralize and
automate policy compliance, vulnerability management, and
directory administration functions across the enterprise.
BindView solutions combine (1) a broad-based knowledge of
the customer IT environment with (2) specific process
implementation around an IT risk management lifecycle and
(3) our policy/ vulnerability/ directory technology to help
customers safeguard their computer systems, applications and
networks from internal and external threats and vulnerabilities.
These threats and vulnerabilities emanate from myriad sources
throughout the customer IT environment (i.e., hackers,
employees, rogue users and systems, misconfigured and unpatched
systems, etc.).

Financial Information About Industry
Segments

Our global business is principally in a single
industry segment, as described above under the heading
General. For a discussion of our financial
information in this segment, see Note 13 of our
Consolidated Financial Statements included elsewhere in this
Report.

Narrative Description of Business

Market

Organizations have become highly dependent on
their IT infrastructures to conduct business. At the same time,
however, increased dependence on IT systems also means increased
risk to business operations as unplanned downtime or the
unavailability of IT systems for any reason leads to greater
business disruptions and, as a consequence, greater business
losses.

As a business risk, IT service interruptions
may occur for any number of reasons. More and more frequently,
such interruptions result from vulnerability breaches and
denial-of-service attacks caused by insidious outsiders,
mischievous or destructive insiders, misconfigured or
unauthorized systems, and so forth. In addition, organiza-

2



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tions also face issues related to information
theft, privacy protection and corporate governance, many of
which are now (or soon will be) mandated for audit and
compliance by federal, state and local governments and industry
associations. Compliance requirements can be found in, for
example, the Sarbanes-Oxley Act (SOX), the Graham-Leach-Bliley
Act (GLBA), the Health Insurance Portability and Accountability
Act (HIPAA), California Senate Bill 1386, Basel II, etc.




| |                        
| | -----------------------
| | Products and Technology

BindView builds, licenses, and provides technical
support for three main software-technology suites, in the areas
of policy compliance, vulnerability management, and directory
administration and migration. Each suite includes multiple
software products. Typically, different products from each suite
are combined to meet a customers specific business needs.



| |                           
| | --------------------------
| | Policy Compliance Products

Introduced mid-2002, BindViews
policy-compliance products deliver industry best practices to
help customers satisfy the general control
requirements of regulatory frameworks such as SOX, GLBA, HIPAA,
etc., as well as IT auditing frameworks such as ISO 17799 CIS
Level-1, and CobiT. Our products help organizations to
centralize and automate the creation and distribution of
security policies across the enterprise and to check that all
employees have access to and are aware of such policies.
Organizations can measure user awareness of security policies
and document when employees have read and accepted those
policies, providing important documentation for legal and
regulatory audits. Using industry-accepted benchmarks,
organizations can measure their IT systems to help ensure that
the IT infrastructure meets self-prescribed, government, or
industry standards. Products in this suite include:



| |  |                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | BindView Policy Operations Center 
     BindView Compliance Center 
     BindView Configuration Advisor 
     BindView Decision Support Center



| |                                  
| | ---------------------------------
| | Vulnerability Management Products

With its vulnerability-management suite, BindView
helps organizations to proactively audit, access and secure
their multi-platform environments from internal and external
attacks, including finding and fixing security holes before they
can be exploited. Our software provides in-depth assessment and
evaluation of systems, applications and networks; it also
provides capabilities for remediating portions of the IT
infrastructure that are found to be outside of acceptable IT or
operational compliance parameters. Our vulnerability-management
products can query and gather data across very large server and
user populations, and provide extensive results reporting on the
status of the network. Numerous out-of-the-box
queries and reports are available to detect vulnerabilities
within the network and to alert administrators to effect
corrective actions before system downtime or performance
problems occur. Products in this suite include:



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bv-Control for Windows® 200x and Active
    Directory® 
     bv-Control for UNIX® 
     bv-Control for NetWare® 
     bv-Control for NDS® eDirectory 
     bv-Control for OS/400 
     bv-Control for Microsoft® Exchange 
     bv-Control for Microsoft® SQL Server 
     bv-Control for Internet Security 
     bv-Control for Web Services 
     bv-Control for Check Point FireWall-1 
     bv-Control for SAP® Systems 
     bv-Control for Desktops 
     BindView NETinventory

3



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##### Table of Contents



| |  |                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------
| |  | BindView Smart Plug-In for HP OpenView 
     BindView Management Pack for Microsoft Operations Manager 
     BindView Patch Deployment

In 2001, 2002, and 2003, our
vulnerability-management products accounted for approximately
88%, 83%, and 81%, respectively, of our consolidated revenues.



| |                                                  
| | -------------------------------------------------
| | Directory Administration & Migration
    Products

With its directory administration and migration
suite, BindView helps organizations to significantly lower the
cost of deploying and managing users and their access rights
across the IT infrastructure. The software suite promotes
compliance with IT and operational policies for directory and
password management, roles-based administration of users,
migration between operating systems, and migration between email
systems. Our software helps organizations to centralize and
automate the day-to-day tasks associated with provisioning user
and machine accounts, and managing roles-based access controls
across the network. Additionally, products in this suite assist
organizations in efficiently migrating between or to latest
versions of Microsoft and Novell operating systems and directory
structures. Product scalability enables support across very
large distributed server and user populations, with secure
built-in workflow facilities for repetitive tasks such as
account creation, account maintenance, manager approvals and so
forth. Products in this suite also provide capabilities for user
self-service functions such password reset. A single management
console manages multiple directories and domains, and includes a
find-and-fix query facility. Products in this suite include:



| |  |                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bv-Admin for Windows® 
     bv-Admin for Windows® Migration 
     bv-Admin for Novell NDS® 
     bv-Admin for Novell® Migration 
     bv-Admin for Microsoft® Exchange 
     bv-Admin for Microsoft®) Exchange Migration 
     bv-Admin for .Net® Web Services 
     bv-Admin for Group Policy Objects

In 2001, 2002, and 2003, our directory
administration and migration products accounted for
approximately 10%, 13%, and 13%, respectively, of our
consolidated revenues.

Backlog

We normally do not operate with a backlog because
we ship our products shortly after orders are received.

Competition

Currently, our products compete with products
from a variety of organizations including but not necessarily
limited to providers of the following:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | security analysis and audit products;                                                                             
|
| |  | Windows NT management and migration tools;                                                                        
|
| |  | network security scanning technology;                                                                             
|
| |  | security-policy products and services;                                                                            
|
| |  | shareware/freeware software products that perform
    some of the same functions as our software;                 
|
| |  | enterprise resource planning application add-ons
    for SAP security administration and vulnerability assessment;
|
| |  | LAN desktop management suites; and                                                                                
|
| |  | stand-alone inventory and asset management
    products.                                                          

4



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Some examples of specific companies with whom we
compete in particular markets or submarkets are: Aelita
Corporation (whose proposed acquisition by Quest Software was
publicly announced in January 2004); BearingPoint;
ConfigureSoft, Inc.; CSI International; Ecora Corporation;
Hewlett-Packard Company; Intel Corporation; Intrusion.Com; ISS
Group, Inc.; Microsoft Corporation; NetIQ Corporation;
Network Associates Inc.; PoliVec, Inc.; Quest Software;
Symantec Inc.; and Tally Systems Corporation.

In addition, companies such as Novell and
Microsoft also offer native tools with their products that
provide a basic set of management tools. While the native tools
currently offered by these companies provide assistance in
certain administrative tasks for their own respective platforms,
we believe that they do not help IT administrators or security
professionals cope, to the same extent that our products do,
with the day-to-day management tasks with which they are
challenged or address the higher level processes associated with
policy creation and management. Our software solutions can be
scaled to the largest of the heterogeneous environments. We
believe we are in a unique position to help address the growing
demand for cross-platform security and administration solutions
in these installations.

Sales and Marketing

We sell our products through direct sales forces
(field and telesales) and through value-added resellers
(VARs), distributors, and original equipment
manufacturers (OEMs). In addition, we have strategic
marketing relationships with certain professional service
organizations and software vendors that provide us with
increased visibility, as well as sales leads. Sales cycles
typically range from three months for departmental sales and up
to twelve months or more for large, enterprise-wide deployments.



| |            
| | -----------
| | Sales Force

Direct Sales Force.Our direct sales force focuses on enterprise and large-market
customers, generally Fortune 1000-class public and private
companies and large governmental agencies. Direct sales
representatives are in communication with our largest
opportunities, using our staff of software engineers to help
customers with the technical aspects of our software. We have
direct sales representatives in North America and in Frankfurt,
Germany; Berkshire, England; and Sao Paolo, Brazil, as well as a
representative office in Mexico City, Mexico.

Telesales Force.Our
telesales organization, which is based in Houston, concentrates
on emerging and middle-market customers by utilizing our staff
of software engineers, as well as telephone and Internet
communications for product demonstrations and product sales.
When necessary, members of our telesales force also travel to
customer locations.



| |                      
| | ---------------------
| | VARs and Distributors

We have established indirect distribution
channels through relationships with VARs and distributors in the
United States, Europe, Latin America, and the Pacific Rim, with
the highest concentration of such relationships being located in
European markets.

Our international VARs and distributors typically
perform selected marketing, sales, and technical support
functions in their country or region. Each one might distribute
directly to the customer, via other resellers, or through a
mixture of both channels.



| |                 
| | ----------------
| | Channel Programs

To support our sales organization and channel
partners, we have devoted significant resources to building a
series of channel alliances and marketing programs. Currently,
we have developed relationships with companies including
Microsoft Corporation; Computer Sciences Corporation;
Hewlett-Packard Company; and IBM Corporation. We are a Microsoft
Solutions Provider and hold Windows 2000 Certified and Microsoft
Gold Partner status for several of our products. We also
collaborate with certain accounting firms to increase awareness
of network security issues.

We also market our products through certain
service organizations that help customers install, manage, and
secure large multi-platform networks (Microsoft, NetWare and
Unix). Such organizations include certain large

5



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systems integrators, outsourcing companies, and
certain security auditing groups within accounting firms. 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.


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

Customer Support and Professional
Services

We believe 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 our support and services organization in the past
and plan to continue to do so in the future. Customer support
personnel provide technical support by telephone, e-mail and
fax, and maintain our Web site and bulletin boards to complement
these services. Product upgrades and enhancements are provided
at no extra charge to our maintenance customers as part of their
maintenance subscriptions.

Our professional services group provides
fee-based product training, consulting, and implementation
services to help customers maximize the benefits of our
products. In addition, we periodically offer training to our
channel partners and employees.

Company-Sponsored Research &
Development Activities

We have been and continue to be an innovator and
leader in the development of IT administration and security
management solutions. We believe a technically skilled, quality
oriented and highly productive software development organization
is key to the continued success of new product offerings. Our
software development staff is also responsible for enhancing our
existing products and expanding our product line. We expect we
will continue to invest substantial resources in product
development expenditures. Tables showing financial data,
including our expenditures on research and development
activities are set forth in Item 6, Selected
Financial Data, and in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Results of
Operations  Operating Costs and Expenses.

Employees

As of December 31, 2003, we employed
approximately 524 full-time employees worldwide. We are not
subject to any collective bargaining agreement.

Patents, Trademarks, and Copyrights

We protect our software and other
intellectual-property assets under copyright law, trademark law,
trade-secret law, and patent law, as applicable. We have
obtained U.S. federal trademark registrations for certain
trademarks and U.S. copyright registrations for certain
works of authorship. For additional details, see the discussion
of Proprietary Rights in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Cautionary Statements, contained
elsewhere in this Report. The existence of legal protection for
our software and related assets under intellectual-property law
helps to dissuade unauthorized persons from using our technology
without our permission.

Seasonality

See the discussion of Seasonality in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Seasonal
Fluctuations, contained elsewhere in this Report.

Future Intentions

We intend to continue focusing on proactive
security management software and services to help customers
secure, automate, and lower costs of managing their IT
infrastructures. We anticipate that our future product
directions will focus on the security-policy life
cycle, i.e., on improving our customers ability to
develop,

6



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implement, and manage security policy. This
likely will include expanding the number of platforms supported
by our vulnerability management and directory administration
products; selectively expanding the features and functionality
of those products; increasing the scope and capabilities of our
new policy-compliance offerings; and possibly developing or
acquiring other products relating to security management. We
will focus especially on developing and/or acquiring products we
believe we can sell to our existing markets, and/or that we
believe will leverage our existing technologies and core
competencies.


Available Information

The public may read and copy any materials filed
with the SEC at the SECs Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. As an electronic
filer, BindViews reports, proxy and information
statements, and other information is available at the SECs
Internet site, http://www.sec.gov.

BindViews internet address is
http://www.bindview.com. BindViews filings with the
Securities and Exchange Commission (SEC), including
its Annual Report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments
to those reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, are accessible
free of charge at http://www.bindview.com as soon as reasonably
practicable after the company electronically files such material
with, or furnishes it to the SEC.






|        |           
|------- | ----------
|Item 2. | Properties

All offices we occupy are leased. Our corporate
headquarters, which house our principal administrative, sales
and marketing, support, and research and development operations,
are located in Houston, Texas. We or our international
subsidiaries currently have office space for sales personnel in
Frankfurt, Germany; Berkshire, England; Sao Paolo, Brazil; and a
representative office in Mexico City, Mexico. We also have
additional research and development offices in Pune, India.
We believe suitable additional or alternative space will be
available on commercially reasonable terms, if needed.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

From time to time we are a plaintiff or defendant
in various lawsuits and claims arising in the normal course of
business. There are no pending (or, to our knowledge,
threatened) lawsuits or claims whose outcomes, individually or
in the aggregate, are likely to have a material adverse effect
on our operations or results.






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

None.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity
    and Related Stockholder Matters

Market for Common Stock

Our common stock is traded on The NASDAQ National
Market under the symbol BVEW.

As of March 26, 2004, the last sales price
per share of the Companys common stock, as reported by The
NASDAQ National Market, was $3.60.

7



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##### Table of Contents



The following table presents the quarterly range
of high and low closing prices for our common stock from
January 1, 2002 through December 31, 2003, as reported
by The NASDAQ National Market.

|     |                |      |   |      |  |  |   |      | 
|---- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|     |                | High |   | Low 
|     |                |      |   |     
|2002 |                |      |   |      |  |  |   |     
|     | First Quarter  |      | $ | 2.94 |  |  | $ | 1.88 | 
|     | Second Quarter |      |   | 2.17 |  |  |   | 0.98 | 
|     | Third Quarter  |      |   | 1.07 |  |  |   | 0.79 | 
|     | Fourth Quarter |      |   | 1.45 |  |  |   | 0.75 | 
|2003 |                |      |   |      |  |  |   |     
|     | First Quarter  |      |   | 1.51 |  |  |   | 1.14 | 
|     | Second Quarter |      |   | 2.09 |  |  |   | 1.10 | 
|     | Third Quarter  |      |   | 2.99 |  |  |   | 2.00 | 
|     | Fourth Quarter |      |   | 3.90 |  |  |   | 2.13 | 

Holders

On March 26, 2004, there were 47,481,005
outstanding shares of our common stock held by approximately 304
holders of record. This does not include individual owners whose
shares are held by a clearing agency, such as a broker or bank.

Dividend Policy

We have not declared or paid any cash dividends
on our capital stock in the two most recent fiscal years and do
not expect to do so in the foreseeable future. We anticipate all
future earnings 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.

8



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected historical consolidated financial
data was derived from the Companys Consolidated Financial
Statements, which have been audited by PricewaterhouseCoopers
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 Companys Consolidated Financial
Statements and Notes thereto included elsewhere herein. In 1999
and 2000, BindView completed mergers with Netect, Ltd.
(Netect) and Entevo Corporation (Entevo)
that were accounted for as pooling of interests, and
accordingly, the selected financial data of BindView has been
restated to include the accounts of Netect and Entevo for all
periods prior to the mergers.

|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |        | 
|---------------------------------------------------------------------- | ----------------------------- | ---------------------------------------- | ------ | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                       |                               |                                         
|                                                                       |                               | Year Ended December 31,                 
|                                                                       |                               |                                         
|                                                                       |                               | 2003                                     |        | 2002   |  | 2001 |         | 2000   |  | 1999
|                                                                       |                               |                                          |        |        |  |      |         |        |  |     
|                                                                       |                               |                                         
|                                                                       |                               | (In thousands, except per share amounts)
|Statement of Operations Data:                                          |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|Revenues:                                                              |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|                                                                       | Licenses                      |                                          | $      | 35,530 |  |      | $       | 37,238 |  |      | $       | 42,532 |  |   | $      | 58,931 |  |   | $      | 53,200 | 
|                                                                       | Services                      |                                          |        | 32,315 |  |      |         | 29,740 |  |      |         | 28,356 |  |   |        | 27,125 |  |   |        | 18,539 | 
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|                                                                       |                               |                                          | 67,845 |        |  |      | 66,978  |        |  |      | 70,888  |        |  |   | 86,056 |        |  |   | 71,739 |       
|Cost of revenues:                                                      |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|                                                                       | Licenses                      |                                          |        | 527    |  |      |         | 500    |  |      |         | 1,059  |  |   |        | 2,410  |  |   |        | 1,497  | 
|                                                                       | Services                      |                                          |        | 6,954  |  |      |         | 5,782  |  |      |         | 6,407  |  |   |        | 4,049  |  |   |        | 2,357  | 
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|                                                                       |                               |                                          | 7,481  |        |  |      | 6,282   |        |  |      | 7,466   |        |  |   | 6,459  |        |  |   | 3,854  |       
|Gross profit                                                           |                               |                                          | 60,364 |        |  |      | 60,696  |        |  |      | 63,422  |        |  |   | 79,597 |        |  |   | 67,885 |       
|Operating costs and expenses:                                          |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|                                                                       | Sales and marketing           |                                          |        | 36,040 |  |      |         | 37,242 |  |      |         | 49,079 |  |   |        | 44,746 |  |   |        | 34,974 | 
|                                                                       | Research and development      |                                          |        | 18,423 |  |      |         | 19,219 |  |      |         | 22,668 |  |   |        | 26,500 |  |   |        | 19,298 | 
|                                                                       | General and administrative    |                                          |        | 7,750  |  |      |         | 7,932  |  |      |         | 14,600 |  |   |        | 9,780  |  |   |        | 7,294  | 
|                                                                       | Transaction and restructuring |                                          |        | 2,184  |  |      |         | 3,002  |  |      |         | 6,594  |  |   |        | 6,357  |  |   |        | 2,524  | 
|                                                                       | Asset impairment              |                                          |        |       |  |      |         | 276    |  |      |         | 1,979  |  |   |        | 1,284  |  |   |        |       | 
|                                                                       | Acquisition related earnout   |                                          |        |       |  |      |         |       |  |      |         |       |  |   |        |       |  |   |        | 1,200  | 
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|Operating income (loss)                                                |                               |                                          | (4,033 | )      |  |      | (6,975  | )      |  |      | (31,498 | )      |  |   | (9,070 | )      |  |   | 2,595  |       
|Other income (expense), net                                            |                               |                                          | 447    |        |  |      | 2,104   |        |  |      | (2,859  | )      |  |   | 4,443  |        |  |   | 3,263  |       
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|Income (loss) before income taxes                                      |                               |                                          | (3,586 | )      |  |      | (4,871  | )      |  |      | (34,357 | )      |  |   | (4,627 | )      |  |   | 5,858  |       
|Provision (benefit) for income taxes                                   |                               |                                          | 50     |        |  |      | 19,562  |        |  |      | (10,211 | )      |  |   | (783   | )      |  |   | 6,299  |       
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|Net loss                                                               |                               | $                                        | (3,636 | )      |  | $    | (24,433 | )      |  | $    | (24,146 | )      |  | $ | (3,844 | )      |  | $ | (441   | )     
|                                                                       |                               |                                          |        |        |  |      |         |        |  |      |         |        |  |   |        |        |  |   |        |       
|Loss per common share  basic and
    diluted                          |                               | $                                        | (0.08  | )      |  | $    | (0.49   | )      |  | $    | (0.47   | )      |  | $ | (0.07  | )      |  | $ | (0.01  | )     
|Shares used in computing loss per common
    share  basic and diluted |                               |                                          | 46,714 |        |  |      | 50,319  |        |  |      | 51,438  |        |  |   | 51,810 |        |  |   | 48,095 |       

|                     |  |                |        |      |  |      |        |      |  |      |        |  |  |   |         |  |  |   |         | 
|-------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                     |  |               
|                     |  | December 31,  
|                     |  |               
|                     |  | 2003           |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                     |  |                |        |      |  |      |        |      |  |     
|                     |  |               
|                     |  | (In thousands)
|Balance Sheet Data:  |  |                |        |      |  |      |        |      |  |      |        |  |  |   |         |  |  |   |         | 
|Working capital      |  | $              | 29,145 |      |  | $    | 26,309 |      |  | $    | 33,450 |  |  | $ | 64,483  |  |  | $ | 73,785  | 
|Total assets         |  |                | 63,278 |      |  |      | 63,556 |      |  |      | 88,121 |  |  |   | 113,034 |  |  |   | 113,242 | 
|Long-term debt       |  |                |       |      |  |      |       |      |  |      |       |  |  |   |        |  |  |   | 144     | 
|Shareholders equity |  |                | 34,143 |      |  |      | 35,426 |      |  |      | 63,809 |  |  |   | 92,261  |  |  |   | 93,056  | 

9



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 Companys Consolidated
Financial Statements and Notes thereto included elsewhere
herein. 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 contained elsewhere
herein.

Overview

See the discussion above under Item 1,
General, for an overview of our business.

Critical Accounting Policies

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to select accounting policies and to make
estimates and assumptions that affect the amounts reported in
our Consolidated Financial Statements and Notes thereto. Actual
results could differ from those estimates and assumptions. We
believe the following critical accounting policies affect our
more significant estimates and assumptions used in the
preparation of our Consolidated Financial Statements and Notes
thereto.



| |                    
| | -------------------
| | Revenue Recognition

We follow American Institute of Certified Public
Accountants (AICPA) Statement of Position 97-2,
Software Revenue Recognition
(SOP 97-2) and Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue
Recognition With Respect to Certain Transactions
(SOP 98-9), with respect to revenue
recognition. We license our software products primarily under
perpetual licenses. We recognize revenues under these
arrangements once the following criteria are met: (i) a
written purchase order, license agreement or contract has been
executed; (ii) software, or a software license
authorization code in situations where the customer previously
received evaluation software, has been delivered to the
customer; (iii) license agreements with no significant
vendor obligations or customer acceptance rights outstanding
have been issued to the customer; (iv) the license fee is
fixed and determinable and collection of the fee is probable;
and (v) vendor-specific objective evidence exists to
allocate the total fee. Vendor-specific objective evidence is
based on the price generally charged when an element is sold
separately or at the renewal rate for maintenance agreements in
subsequent years. In situations where vendor-specific objective
evidence does not exist, and all other revenue recognition
criteria have been met, revenue is recognized ratably over the
term of the agreement. We do not develop new products under
contractual arrangements with customers and do not substantially
modify our products and their functionality for specific
customers and therefore do not use contract accounting in
determining our revenue recognition. In rare situations when
installation is essential to the functionality of the software,
revenue is deferred until completion of the installation.
Certain of these items may require the application of judgment
when evaluating specific business arrangements in a changing
environment against our normal business practices.

We do not provide price protection in our
customer agreements and generally do not provide conditions of
acceptance in sales agreements. If conditions of acceptance
exist, we defer revenue recognition until such acceptance
clauses lapse. If a right of return is granted on a sales
transaction, it is generally for a period of 10 days and
related return experience has been nominal. In situations where
we grant a 10-day right of return period, revenue recognition is
not precluded. In the few situations were return rights exceed
10 days, revenue recognition is deferred as appropriate. We
have experienced de minimis warranty claims. We provide
customary software warranties indicating the software will
conform to published specifications, does not include viruses,
back doors, etc., and does not infringe third-party intellectual
property rights. To date, we have experienced di minimus
warranty claims.

When we make sales through distributors,
value-added resellers (VARs), and original equipment
manufacturers (OEMs), we recognize revenue after all
revenue recognition criteria set forth above are met and after
execution of a written purchase order, license agreement or
contract with either the reseller or end user . We perform
ongoing credit evaluations and assessments of the financial
viability of our customers, including

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distributors, VARs and OEMs, as we deem necessary
in determining whether or not revenue recognition is appropriate.


Our service revenues are comprised primarily of
maintenance revenue, with much smaller components of revenue
from training and consulting services. Maintenance revenue
represented approximately 87%, 88% and 92% of total service
revenue in 2003, 2002 and 2001, respectively. Customers
generally elect to purchase a one to three year maintenance
agreement in conjunction with their licensing of our products,
which is renewable, at the customers discretion, upon
expiration of the original maintenance contract.

Maintenance revenues are recognized ratably over
the contract term. Training and consulting service revenues are
recognized when the training or consulting activities are
performed, generally within a few weeks of product installation
by the customer. Services, other than maintenance, are of a
short-term nature and are not provided under multi-year
contracts.

Deferred revenue is comprised primarily of
maintenance revenue and revenue from training and consulting
services. The portion of maintenance contract revenues that have
not yet been recognized as revenues are reported as deferred
revenue in the accompanying consolidated balance sheet. Deferred
maintenance revenue which has not been collected is not
recognized.

Alternative accounting methods are not available
for us to select from, however, certain changes in our
transaction structures could significantly affect our accounting
and minor changes could result in the use of subscription
accounting, whereby all revenue related to a transaction would
be recognized ratably over an extended time.



| |              
| | -------------
| | Stock Options

We follow Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees,
(APB 25) in accounting for our employee stock
options, which generally provides that no compensation expense
is recognized when options are granted with an exercise price
equal to fair market value on the date of grant. We use this
method in order to enhance the comparability of our financial
statements because it has been used by the majority of
technology companies. An alternative accounting policy available
under GAAP would be to recognize stock compensation expense
based upon the fair value method, which would result in our
recognizing significant compensation expense each period. The
FASB has indicated its intention to require use of the fair
value method beginning in 2005. Legislation has recently been
introduced to limit the effect of this change.



| |             
| | ------------
| | Income Taxes

We follow the liability method of accounting for
income taxes. Under this method, we determine deferred income
tax assets and liabilities based on differences between the
financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. We may also
provide valuation allowances based upon subjective evaluations
of facts, circumstances and expectations, which may change over
the course of time and may result in significant changes in our
tax provision.



| |                                                            
| | -----------------------------------------------------------
| | Accounts Receivable and Provision for
    Doubtful Accounts

We provide an allowance for doubtful accounts
when collection is considered doubtful. We perform ongoing
credit evaluations of our customers as we deem appropriate,
review our collection efforts, and analyze our payment
experience with specific customers, in order to determine
whether or not collection is doubtful. There may be a
significant fluctuation in our provision for doubtful accounts
to the extent facts and circumstances change and to our
subjective evaluation of the facts, circumstances and
expectations change.



| |                      
| | ---------------------
| | Restructuring Charges

Restructuring costs are based on our best
estimates utilizing information available at the time we commit
to the restructuring plans. We perform ongoing evaluations of
our assumptions and estimates utilized in determining

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costs associated with our restructuring plans.
Historically, we have made cost estimates of lease terminations,
leasehold abandonments, involuntary employee separations, asset
impairments and third party professional fees incurred in
connection with restructuring plans. There may be a significant
fluctuation in our estimated restructuring costs to the extent
our subjective evaluation of the facts, circumstances and
expectations change. We have made adjustments to our assumptions
historically as a result of the deteriorating sublease
commercial real estate markets in which we have abandoned
leaseholds. In the fourth quarter of 2003, we revised our
estimate of the carrying costs of our abandoned lease space and
took a $1.6 million restructuring charge. This charge
reflected a $1.9 million payment made to our landlord in
December 2003 to cancel our lease on two of the three abandoned
floors (the maximum cancelable under the lease agreement) and an
increase in our accrual for estimated carrying costs (i.e.,
estimated future lease expense less estimated sublease income
over the remaining term of the leases) associated with the
remaining excess floor and other excess office space held by the
Company. The estimated carrying costs of the abandoned lease
space were determined with the assistance of our leasing agent
and were based on an assessment of applicable commercial real
estate markets. The principal variables in estimating the
carrying costs are the length of time required to sublease the
space, the sublease rate and expense for inducements (e.g., rent
abatement, tenant improvement allowance) that may be offered to
a prospective sublease tenant. The accrual at December 31,
2003, for carrying costs of the abandoned lease space totaled
$2.0 million. While we believe this accrual is adequate, it
is subject to adjustment as conditions change. We will continue
to evaluate the adequacy of the accrual and will make the
necessary changes to the accrual as conditions warrant


Results of Operations



| |                                                                                
| | -------------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    with the Year Ended December 31, 2002

Revenues.Revenues
for 2003 were $67.8 million compared with
$67.0 million in 2002. The year-over-year increase related
to a $2.6 million increase in services revenues, partially
offset by a $1.7 million decrease in license revenues.
License revenues for 2003 were $35.5 million, or
52 percent of total revenues, down from $37.2 million,
or 56 percent of total revenues, in 2002. The decline in
license revenues primarily related to a $1.6 million
decrease in license revenues from our products for Novell-based
platforms. The decline in license revenues from our
Novell-related products reflected the maturity, and our high
penetration, of the Novell market. We expect revenues from our
Novell-related products will continue to decline in the future
and as a result these revenues will become a smaller percent of
our overall revenues. We also expect that the decline in our
Novell-related revenues will be offset by growth in revenues
from our other product platforms. Services revenues for 2003
were $32.3 million, or 48 percent of total revenues,
up from $29.7 million, or 44 percent of total revenues, in
2002. The increase in services revenues was primarily due to an
increase in our installed customer base and a higher focus on
consulting services. We expect our service revenues to increase
in the future as a result of our increased install base.

During 2003, revenues from our products for
Microsoft-based platforms totaled $46.6 million, an
increase of 6 percent over 2002. Revenues from these
products accounted for approximately 69 percent of total
revenues in 2003, up from 65 percent of total revenues for
2002. License revenues for our Microsoft-related products for
2003 were $29.1 million compared with $29.5 million in
2002. Service revenues for our Microsoft-related products in
2003 were $17.5 million compared with $14.4 million in
2002. We expect revenues from our products and services for
Microsoft-based platforms will continue to grow as a percentage
of total revenues.

Revenues from our products for Novell-based
platforms for the current year were $11.6 million, or
17 percent of total revenues, compared with
$15.1 million in 2002, or 23 percent of total
revenues. Revenues from these products have continued their
decline over the past year, reflecting both the maturity and our
penetration of the Novell market. Licenses revenues for
Novell-based platforms for 2003 were $3.4 million compared
with $5.0 million in 2002. Service revenues for
Novell-based platforms in 2003 were $8.2 million compared
with $10.1 million in 2002. While we expect our Novell
revenues will continue to decline in the future, we expect the
revenue decline will be modest relative to the declines over the
past two years and expect the decline will be offset by higher
revenues from our products and services for other platforms.

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Sales of our security focused bv-Control product
line accounted for approximately 83 percent of our license
revenue in both 2003 and 2002. Sales of our system
administration focused bv-Admin product line accounted for
approximately 17 percent of our license revenue in both
2003 and 2002.

No customer accounted for more than
10 percent of our revenues in 2003 and 2002. Revenues
recognized from sales to customers outside North America,
primarily in Europe, accounted for approximately 13 percent
of total revenues in 2003 compared with 11 percent in 2002.

Gross Profit.Gross
profit for 2003 was $60.4 million, compared with
$60.7 million for 2002. The decline in gross profit
resulted from the year-over-year decrease in license revenues
and the slight decline in gross margin. The gross margin for
2003 was 89.0 percent, compared with 90.6 percent for
2002. The decline in gross margin reflected a shift in business
mix toward services revenues, which have a lower gross margin
than license revenues. Because resources used to provide
services are not segregated by product line, the costs of
revenues (shipping, technical support, professional services)
are not tracked and segregated by revenue stream and
consequently we do not measure gross profit by product platform
(i.e., Microsoft, Novell, etc). We believe there is no material
difference in the gross margin by product line.

Gross profit generated from license revenue for
2003 was $35.0 million, compared with $36.7 million
for 2002. The gross margin from license revenue for 2003 was
98.5 percent, compared with 98.7 percent for 2002. The
modest decline in gross margin was primarily the result of the
decrease in license revenues in 2003.

Gross profit from services revenue for 2003 was
$25.4 million, compared with $24.0 million for 2002.
Gross margin from services revenue for 2003 was
78.5 percent compared with 80.6 percent for 2002. The
decline in gross margin reflected higher personnel costs
associated with our technical-support and professional-services
units.

Operating Costs and
Expenses.Operating costs and expenses
for 2003 totaled $64.4 million, down from
$67.7 million for 2002. These costs include restructuring
and asset impairment charges of $2.2 million in 2003 and
$3.3 million in 2002, related to restructuring plans to
improve operating efficiency, improve sales and marketing
effectiveness, and accelerate our return to profitability.
Excluding these charges from both years, our operating costs and
expenses were $2.2 million lower in 2003 than the preceding
year.

Sales and marketing expenses for 2003 were
$36.0 million (53.1 percent of revenues), down from
$37.2 million (55.6 percent of revenues) for 2002,
primarily related to actions we took to improve sales efficiency
and marketing effectiveness. Because of declining revenues and a
weak economic outlook, we completed a major corporate
reorganization and implemented a number of cost cutting measures
to improve operating efficiency, accelerate our return to
profitability and generate positive cash flows from operating
activities. These actions included a downsizing of the sales and
marketing departments, which included the closing or downsizing
of a number of our foreign sales offices and a reduction in the
size of our enterprise sales force, which was focused
exclusively on large enterprise transactions. We also redirected
our marketing efforts on enhancing our product marketing
capabilities and improving our sales opportunity generation
capabilities. As a result of these efforts and expected future
revenue growth, we expect sales and marketing expenses as a
percentage of revenues to be lower in 2004 as a result of our
initiatives to date to improve operating leverage and sales and
marketing effectiveness and anticipated revenue growth.

Research and development expenses for 2003 were
$18.4 million (27.1 percent of revenues), down from
$19.2 million (28.7 percent of revenues) in 2002. The
year-over-year decrease in R&D expenses primarily related to
the closing or downsizing of our development offices in Boston,
Massachusetts and Arlington, Virginia and transferring those
activities to our lower-cost development centers in Houston,
Texas and Pune, India. We also transferred development
responsibilities for certain of our legacy products from
Houston, Texas to Pune, India and expect to continue
leveraging that development center in the future. As a result of
these initiatives and anticipated revenue growth, we expect
future research and development expenses to decrease as a
percentage of revenues.

General and administrative expenses for 2003 were
$7.8 million (11.4 percent of revenues), down from
$7.9 million (11.8 percent of revenues) for 2002. We
expect future general and administrative expenses to decrease as
a percentage of revenues due to anticipated revenue growth.

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Restructuring costs were $2.2 million in
2003, $3.0 million in 2002 and $6.6 million in 2001.
Restructuring costs in 2003 consisted of a $1.6 million
increase in the accrual for carrying costs of abandoned lease
space (which were accrued as part of our restructuring plans in
2001 and 2002) and a $0.6 million charge related to our
sales and marketing reorganization plan (the 2003
Restructuring Plan). The $1.6 million increase in the
accrual reflected our decision to (i) cancel our lease on
two of the three abandoned floors (the maximum cancelable under
the lease agreement), which resulted in a $1.9 million
payment to our landlord in December and (ii) an assessment
of the estimated remaining carrying costs (i.e., estimated
future lease expense, less estimated sublease income over the
remaining term of the leases) associated with the remaining
excess floor in Houston and our other excess office space. The
cancellation of two floors resulted in an upward adjustment to
our 2001 Restructuring Plan accrual of $0.9 million, which
was partially offset with a reduction to deferred rent expense
associated with the canceled space of approximately
$0.4 million. The assessment of the carrying costs with the
remaining excess floor in Houston resulted in an upward
adjustment to the 2002 Restructuring Plan of $1.1 million.
Restructuring costs in 2002 consisted of a $1.9 million
charge for our 2002 Restructuring Plan and a $1.1 million
increase to our accrual for the 2001 Restructuring Plan. The
$1.1 million adjustment was the result of an increase in
the estimated carrying costs for our two floors abandoned as
part of the 2001 Restructuring Plan.

The estimated carrying costs of the remaining
abandoned lease space were determined with the assistance of our
leasing agent and were based on an assessment of applicable
commercial real estate markets. The principal reason for the
change in estimate was the continued deterioration of the
sublease market for commercial real estate in Houston, Texas
that occurred since the original determinations were made. The
change in estimates primarily related to: (i) a lowering of
the expected sublease rate to reflect the drop in rates (with
minimal expected escalation over the remaining lease term),
(ii) lengthening the time to sublease the abandoned lease
space either initially or after the existing sublease expires
and (iii) an increase in expense for inducements (e.g.,
rent abatement, tenant improvement allowances, etc.) that
potentially would be offered to prospective tenants of the space.

In January 2003, we approved a sales and
marketing reorganization plan (the 2003 Restructuring
Plan). The cost of this plan totaled approximately
$0.6 million and consisted primarily of
(i) involuntary employee separation for approximately 20
employees (a reduction in workforce of approximately 4 percent),
(ii) closing our Netherlands sales office, and
(iii) reserves for leasehold abandonment.

The 2003 Restructuring Plan activity from
January 1, 2003 to December 31, 2003 was as follows
(in thousands):

|                     |  |               |     |               |  |              |     |            |  |   |      |   |  |   |   | 
|-------------------- |  | ------------- | --- | ------------- |  | ------------ | --- | ---------- |  | - | ---- | - |  | - | - | 
|                     |  |               |     | Restructuring |  |              |     | Remaining 
|                     |  | Restructuring |     | Charge        |  | Cash         |     | Accrual   
|                     |  | Charges       |     | Adjustments   |  | Expenditures |     | 12/31/2003
|                     |  |               |     |               |  |              |     |           
|Employee severance   |  | $             | 442 |               |  | $            | (6  | )          |  | $ | (436 | ) |  | $ |  | 
|Lease commitments    |  |               | 27  |               |  |              | (14 | )          |  |   | (13  | ) |  |   |  | 
|Office closure costs |  |               | 80  |               |  |              |    |            |  |   | (80  | ) |  |   |  | 
|                     |  |               |     |               |  |              |     |            |  |   |      |   |  |   |   | 
|                     |  | $             | 549 |               |  | $            | (20 | )          |  | $ | (529 | ) |  | $ |  | 
|                     |  |               |     |               |  |              |     |            |  |   |      |   |  |   |   | 

All actions under the 2003 Restructuring Plan
were completed by December 31, 2003. The 2003 Restructuring
Plan resulted in an estimated reduction in annual operating
expenses of approximately $1.4 million.

In July 2002, we approved a restructuring plan to
improve operating efficiency and improve sales and marketing
productivity (the 2002 Restructuring Plan). The cost
of this plan totaled approximately $1.9 million and
consisted primarily of (i) involuntary employee separation
for approximately 30 employees (a reduction in workforce of
approximately 5 percent), (ii) closing our Boston
development center and certain European sales offices,
(iii) reserves for leasehold abandonment, and
(iv) various non-personnel related cuts. The costs of the
plan were based on our best estimate utilizing information
available at the time.

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The 2002 Restructuring Plan activity from
January 1, 2003 to December 31, 2003 was as follows
(in thousands):

|                   |  |            |       |               |  |              |       |            |  |   |      |   |  |   |       | 
|------------------ |  | ---------- | ----- | ------------- |  | ------------ | ----- | ---------- |  | - | ---- | - |  | - | ----- | 
|                   |  | Remaining  |       | Restructuring |  |              |       | Remaining 
|                   |  | Accrual    |       | Charge        |  | Cash         |       | Accrual   
|                   |  | 12/31/2002 |       | Adjustments   |  | Expenditures |       | 12/31/2003
|                   |  |            |       |               |  |              |       |           
|Employee severance |  | $          | 238   |               |  | $            |      |            |  | $ | (238 | ) |  | $ |      | 
|Lease commitments  |  |            | 944   |               |  |              | 1,089 |            |  |   | (495 | ) |  |   | 1,538 | 
|                   |  |            |       |               |  |              |       |            |  |   |      |   |  |   |       | 
|                   |  | $          | 1,182 |               |  | $            | 1,089 |            |  | $ | (733 | ) |  | $ | 1,538 | 
|                   |  |            |       |               |  |              |       |            |  |   |      |   |  |   |       | 

The remaining accrual for the 2002 Restructuring
Plan at December 31, 2003 is comprised of the estimated
carrying costs for our remaining excess space in Houston, Texas.
As discussed in detail above, the restructuring charge
adjustments during 2003 were based on our assessment of the
remaining carrying costs of the remaining excess lease space.
Additional adjustments to this balance could be required in
future periods based on the economic outlook of the real estate
market in Houston, Texas. The 2002 Restructuring Plan resulted
in an estimated reduction in annual operating expenses of
approximately $2.9 million.

In connection with the 2002 Restructuring Plan,
we also determined that certain leasehold improvements related
to the downsized or closed offices were impaired and recognized
an asset impairment of $0.3 million.

In 2001, we completed a corporate reorganization
and implemented a number of cost-cutting measures to improve
operating efficiency and to accelerate our return to
profitability (the 2001 Restructuring Plan). The
cost of this plan totaled approximately $6.6 million and
consisted primarily of: (i) involuntary employee separation
expenses for approximately 160 employees (a reduction in
workforce of approximately 21 percent),
(ii) downsizing or closing of our Boston and Arlington
development centers and certain of our European sales offices,
(iii) reserves for leasehold abandonment, and
(iv) various non-personnel related costs. The restructuring
costs included a $1.2 million charge related to asset
impairments of leasehold improvements, equipment and other
assets of the closed or downsized offices.

The 2001 Restructuring Plan activity from
January 1, 2003 to December 31, 2003 was as follows
(in thousands):

|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 
|----------------- |  | ---------- | ----- | ------------- |  | ------------ | --- | ---------- |  | - | ------ | - |  | - | --- | 
|                  |  | Remaining  |       | Restructuring |  |              |     | Remaining 
|                  |  | Accrual    |       | Charge        |  | Cash         |     | Accrual   
|                  |  | 12/31/2002 |       | Adjustments   |  | Expenditures |     | 12/31/2003
|                  |  |            |       |               |  |              |     |           
|Lease commitments |  | $          | 1,384 |               |  | $            | 941 |            |  | $ | (1,872 | ) |  | $ | 453 | 
|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 
|                  |  | $          | 1,384 |               |  | $            | 941 |            |  | $ | (1,872 | ) |  | $ | 453 | 
|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 

The remaining accrual for the 2001 Restructuring
Plan consists of excess carrying costs until the cancellation is
effective in September of 2004. As discussed in detail above,
the restructuring charge adjustments during 2003 were the result
of the lease cancellation for our two floors abandoned as part
of the 2001 Restructuring Plan. The 2001 Restructuring Plan
resulted in an estimated reduction in annual operating expenses
of approximately $11.8 million.

We also recorded asset impairment charges
totaling $7.0 million during 2001 consisting of: (i) a
write off of a $5.0 million equity investment in a UK-based
software distribution and consulting firm and (ii) an asset
impairment charge of $2.0 million consisting of
$1.5 million for software and computer equipment and a
$0.5 million impairment of certain intangible assets. The
investment in the UK-based software firm was originally made
during the second quarter of 2000 and consisted of
$5.0 million of redeemable preferred stock in the firm and
$1.0 million of intangible assets, primarily consisting of
customer lists and non-compete agreements which were being
amortized over their useful lives ranging from one to three
years. The write-off of the $5.0 million equity investment,
which is included in other income (expense) in our
consolidated statement of operations and comprehensive loss, was
based on an independent appraisal of the current fair value of
the investment and managements assessment of the value
that would be derived from the investment. The intangible assets
had a net book value of $0.5 million at the date of the
impairment after we incurred $0.2 million and
$0.3 million in amortization expense for the years ending
December 31, 2001 and 2000, respectively. The

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majority of the $1.5 million in software and
computer equipment impairment related to the acquisition of a
financial management system that management had determined would
not be installed or utilized in the future.


Other Income.Other
income totaled $0.4 million in 2003 and $2.1 million
in 2002. In 2003, other income was primarily comprised of
interest income of $0.4 million. In 2002, other income was
primarily comprised of (i) receipt of a $1.3 million
insurance settlement of a business interruption business claim
made in 2002 and (ii) interest income of $0.7 million.

Provision (Benefit) for Income Taxes.In 2003, we provided approximately
$0.1 million in taxes related to our foreign operations. In
2002, we provided a full valuation allowance against deferred
tax assets of $19.6 million in accordance with Financial
Accounting Standard No. 109, Accounting for Income
Taxes. As in our prior assessments, we considered current
and previous performance and other relevant factors in
determining the sufficiency of our valuation allowance. We gave
substantially more weight to objective factors, such as current
and previous operating losses, than to our outlook for future
profitability. Until such time as a consistent pattern of
sufficient profitability is established, we will not recognize
any tax benefit associated with our pre-tax accounting losses,
nor will we provide a full income tax provision on any future
pre-tax accounting income.

Net Loss.Due to the
factors described above, net loss for 2003 was $3.6 million
compared with $24.4 million for 2002.

Outlook for 2004.We
estimate 2004 revenues to range between $75 million and
$80 million, and net income to range between
$1.5 million and $3.5 million ($0.03 and
$0.07 per share). Revenues for the first half of 2004 are
expected to range between $32 million and $36 million,
and the net loss to range between $2.0 million and
$4.0 million ($0.04 and $0.08 per share). We believe
our ability to achieve the high end of our 2004 revenue range is
dependent upon a number of factors, including increases in
overall sales efficiency and pipeline for the second half of
2004. Our 2004 profitability goals reflect costs associated with
sizing the sales force and marketing programs to achieve the
high end of our revenue target, increases in salaries and
healthcare benefits, estimated costs of compliance with
Sarbanes-Oxley requirements, and expansion of our R&D
capabilities in India.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    with the Year Ended December 31, 2001

Revenues.Revenues
for 2002 were $67.0 million compared with
$70.9 million in 2001. The year-over-year decline related
to a $5.3 million decrease in license revenues, partially
offset by a $1.4 million increase in services revenues.
License revenues for 2002 were $37.2 million, or
56 percent of total revenues, down from $42.5 million
in 2001. The decline in license revenues primarily related to a
$5.6 million decrease in license revenues from our products
for Novell-based platforms, partially offset by a
$0.1 million increase in license revenues from our
Microsoft-related products. The decline in license revenues from
our Novell-related products reflected the maturity, and our high
penetration, of the Novell market. We expect revenues from our
Novell-related products will continue to decline in the future
and as a result these revenues will become a smaller percent of
our overall revenues. We also expect that the decline in our
Novell-related revenues will be offset by growth in revenues
from our other product platforms. Services revenues for 2002
were $29.7 million, or 44 percent of total revenues,
up from $28.4 million in 2001.

During 2002, revenues from our products for
Microsoft-based platforms totaled $43.8 million, an
increase of 5 percent over 2001. Revenues from these
products accounted for approximately 65 percent of total
revenues in 2002, up from 59 percent of total revenues for
2001. License revenues for Microsoft-related products for 2002
were $29.5 million compared with $29.4 million in
2001. Service revenues for Microsoft-related products in 2002
were $14.4 million compared with $12.4 million in 2001.

Revenues from our products for Novell-based
platforms for the current year were $15.1 million, or
23 percent of total revenues, compared with
21.6 million in 2001, or 30 percent of total revenues.
Revenues from these products have been declining over the past
year, reflecting both the maturity and our penetration of the

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Novell market. Licenses revenues for
Novell-related products for 2002 were $5.0 million compared
with $10.6 million in 2001. Service revenues for
Novell-related products in 2002 were $10.1 million compared
with $11.0 million in 2001.


Sales of our security focused bv-Control product
line accounted for approximately 83 percent of our license
revenue in 2002 compared with 90 percent in 2001. Sales of our
system administration focused bv-Admin product line accounted
for approximately 17 percent of our license revenue in 2002
compared with 10 percent in 2001.

No customer accounted for more than
10 percent of our revenues in 2002 and 2001. Revenues
recognized from sales to customers outside North America,
primarily in Europe, accounted for approximately 11 percent
of total revenues in 2002 compared with 13 percent in 2001.

Gross Profit.Gross
profit for 2002 was $60.7 million, compared with
$63.4 million for 2001. The decline in gross profit
reflected the decrease in license revenues, partially offset by
a slight improvement in gross margin. The gross margin for 2002
was 90.6 percent, compared with 89.5 percent for 2001.
The expansion in gross margin reflected lower costs of producing
and delivering our products to customers and improvements in
efficiencies in the delivery of our services. Because resources
used to provide services are not segregated by product line, the
costs of revenues (shipping, technical support, professional
services) are not tracked and segregated by revenue stream and
consequently we do not measure gross profit by product platform
(i.e., Microsoft, Novell, etc). We believe there is no material
difference in the gross margin by product line.

Gross profit generated from license revenue for
2002 was $36.7 million, compared with $41.5 million
for 2001. The gross margin from license revenue for 2002 was
98.7 percent, compared with 97.5 percent for 2001. The
modest improvement in gross margin reflected lower costs of
producing and shipping our products to customers.

Gross profit from services revenue for 2002 was
$24.0 million, compared with $21.9 million for 2001.
Gross margin from services revenue for 2002 was
80.6 percent compared with 77.4 percent for 2001. The
expansion in gross margin reflected the improvement in operating
leverage of our technical support and professional services
units as a result of headcount reductions related to our
restructuring efforts.

Operating Costs and
Expenses.Operating costs and expenses
for 2002 totaled $67.7 million, down from
$94.9 million for 2001. These costs include restructuring
and asset impairment charges of $3.3 million in 2002 and
$8.6 million in 2001. These charges related to
restructuring plans to improve operating efficiency, improve
sales and marketing effectiveness and accelerate our return to
profitability. Excluding these charges, our operating costs and
expenses were $22.0 million lower in 2002 than the
preceding year.

Sales and marketing expenses for 2002 were
$37.2 million (55.6 percent of revenues), from
$49.1 million (69.2 percent of revenues) for 2001,
primarily related to actions we took to improve sales efficiency
and marketing effectiveness. Because of declining revenues and a
weak economic outlook, we completed in 2001 a major corporate
reorganization and implemented a number of cost cutting measures
to improve operating efficiency, accelerate our return to
profitability and generate positive cash flows from operating
activities. These actions included a downsizing of the sales and
marketing departments, which included the closing or downsizing
of a number of our foreign sales offices and a reduction in the
size of our enterprise sales force, which was focused
exclusively on large enterprise transactions. We also redirected
our marketing efforts on enhancing our product marketing
capabilities and improving our sales opportunity generation
capabilities.

Research and development expenses for 2002 were
$19.2 million (28.7 percent of revenues), down from
$22.7 million (32.0 percent of revenues) in 2001. The
year-over-year decrease in R&D expenses and the reduction in
the expense margin primarily related to the closing or
downsizing of our development offices in Boston, Massachusetts
and Arlington, Virginia and transferring those activities to our
lower-cost development centers in Houston, Texas and
Pune, India. We also transferred development
responsibilities for certain of our legacy products from
Houston, Texas to Pune, India and expect to continue
leveraging that development center in the future.

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General and administrative expenses for 2002 were
$7.9 million (11.8 percent of revenues), down from
$14.6 million (20.6 percent of revenues) for 2001.
This decrease primarily related to: (i) a $2 million
reduction in expenses as a result of our restructuring
initiatives in 2001, (ii) a decline of approximately
$0.5 million in third party consulting fees (which were in
incurred in 2001) to reposition and change our go to market
strategy, (iii) a $0.9 million decline in sales tax
expense (which were higher in 2001) as a result of increased
state tax compliance costs incurred in connection with our
expanding geographic operations, and (iv) a
$2.8 million decline in bad debt expense (2001 had included
a significant increase in the allowance following an assessment
made by our new financial management). As previously disclosed,
during the second quarter of 2001, we recorded a provision for
bad debt expense of $2.8 million. This provision was the
result of an assessment made on the adequacy of the allowance
for bad debts after hiring new financial and accounting
management (new Chief Financial Officer and new Corporate
Controller). Subsequent to the end of 2000 and prior to the
hiring of new management, (during which time we did not have a
CFO), we experienced an increase in our past due accounts and a
deterioration in our accounts receivable aging and days sales
outstanding, which was due, in part, to a less-than-desired
focus on receivable collections, the economic downturn, and the
reduction and other changes in sales personnel, particularly in
our foreign operations. The changes in sales personnel,
particularly with respect to foreign operations, related to our
focus on reducing our net operating loss by eliminating or
downsizing underperforming operations. The changes in sales
personnel impaired our collection efforts of certain of the
significant past due accounts.

New management conducted a specific account
review of all significant past due accounts, a review of our
business processes and accounting policies, and an evaluation of
the adequacy of the estimates related to our allowance for
doubtful accounts. We evaluated the impact on outstanding
receivables and the increased risk of collection resulting from
changes in the sales force deployment, which consisted primarily
of reductions in headcount in underperforming international
territories and the elimination of specific US sales personnel
and the worsening economic environment. As a result of the
reductions in international territories and the reduced presence
in such locations, we perceived increased risk related to the
collection of certain foreign outstanding receivables and
provided for such receivables accordingly. The $2.8 million
provision consisted of approximately $2.0 million related
to foreign accounts receivable and approximately
$0.8 million related to domestic accounts receivable. We
implemented enhanced collection processes and did not experience
recurring collectibility issues in 2002.

Restructuring costs were $3.0 million in
2002 and $6.6 million in 2001 (See detailed discussion
above on these restructuring charges). Separate from the
restructuring charge, we also recognized in 2001 an asset
impairment charge of $2.0 million, relating to a
$1.5 million write-off of software and computer equipment
and a $0.5 million impairment of certain intangible assets.
The majority of the software and computer equipment write-off
related to software purchased for internal use that will not be
installed or utilized in the future. The intangible assets
consisted primarily of customer lists and non-compete agreements
acquired in 2000 that were deemed to have no future value.

Other Income
(Expense).Other income
(expense) totaled $2.1 million in 2002 and
$(2.9) million in 2001. In 2002, other income
(expense) was primarily comprised of (i) receipt of a
$1.3 million insurance settlement of a business
interruption business claim made in 2001 and (ii) interest
income of $0.7 million. In 2001, other income
(expense) was primarily comprised of (i) a write-off
of a $5.0 million equity investment in a UK-based software
distribution and consulting firm and (ii) interest income
of $2.1 million. The write-off of the $5.0 million
equity investment was based on an independent appraisal of the
current fair value of the investment and managements
assessment of the value that would be derived from a future
sale. This software distribution and consulting firm has filed
for bankruptcy in the UK in 2002. The year-over-year decrease in
interest income was due to lower interest rates and lower
investment balances in 2002.

Provision (Benefit) for Income Taxes.In 2002, we provided a full valuation
allowance against deferred tax assets of $19.6 million in
accordance with Financial Accounting Standard No. 109,
Accounting for Income Taxes. As in our prior
assessments, we considered current and previous performance and
other relevant factors in determining the sufficiency of our
valuation allowance. Objective factors, such as current and
previous operating losses, were given substantially more weight
than our outlook for future profitability. Until such time as a
consistent pattern of sufficient profitability is established,
no tax benefit will be recognized associated with our

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pre-tax accounting losses and a full income tax
provision will not be provided on any future pre-tax accounting
income.


Net Loss.Due to the
factors described above, net loss for 2002 was
$24.4 million compared with $24.1 million for 2001.

Recent Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin
(ARB) No. 51 (FIN 46). This interpretation
clarifies the application of ARB No. 51, Consolidated
Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. In December
2003, the FASB revised FIN 46 and extended the effective
date for variable interests created on or before
January 31, 2003, to the first quarter of 2004. FIN 46
significantly changes the criteria used in determining whether
entities are consolidated within financial statements. We expect
that the adoption of FIN 46 will not have a material impact
on our results of operations, financial position, and cash flows.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). This statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133). This statement is effective for contracts
entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. In
addition, all provisions of this statement should be applied
prospectively. The provisions of this statement that relate to
SFAS 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective
effective dates. The adoption of SFAS No. 149 had no
impact on our financial condition, results of operations or cash
flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). This statement establishes
standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset
in some circumstances). Many of those instruments were
previously classified as equity. This statement is effective for
financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003.
These effective dates are not applicable to the provisions of
paragraphs 9 and 10 of SFAS 150 as they apply to
mandatorily redeemable noncontrolling interests, as the FASB has
delayed these provisions indefinitely. The adoption of
SFAS 150 had no impact on our financial condition, results
of operations or cash flows.

Liquidity and Capital Resources

Our capital requirements have principally related
to working capital needs and capital expenditures. These
requirements have been met through a combination of issuances of
securities and internally generated funds.

We had cash, cash equivalents and short-term
investments of $35.4 million at December 31, 2003
compared with $37.8 million at December 31, 2002. The
year-over-year decline included a one-time payment of
$1.9 million in December 2003 to cancel our lease on
approximately two-thirds of our excess office space in Houston.
Other changes netted to a decrease of approximately
$0.5 million.

Cash flows (used in) provided by operating
activities were $(1.7) million in 2003 and
$1.6 million in 2002. The decline in cash flows from
operating activities was primarily related to the
$3.1 million increase in accounts receivable balance
resulting from the higher level of sales occurring in the fourth
quarter of 2003 as compared with the fourth quarter of 2002.

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Cash flows (used in) provided by investing
activities were $(2.3) million in 2003 and
$0.2 million in 2002. The decrease in cash generated from
investing activities related to no proceeds generated from the
maturity of investments in 2003 compared to $3.2 million in
2002. Capital expenditures were $2.3 million in 2003
compared with $3.1 million in 2002. The $0.8 million
decline in capital expenditures was due to higher costs incurred
during 2002 related to our sales force management system.

Cash flows provided by (used in) financing
activities were $0.8 million in 2003 and
$(4.8) million in 2002. We received approximately
$0.8 million in proceeds from the sale of common stock to
employees under our Employee Stock Purchase Plan and the
exercises of employee stock options. The major use of cash in
financing activities in 2002 was for the repurchase of
5.7 million shares of our common stock for
$5.4 million. This use was partially offset by proceeds of
$0.6 million primarily from the sale of common stock under
our Employee Stock Purchase Plan.

Our expected principal cash requirements for 2004
are: (i) capital expenditures between $2.5 million and
$3.0 million, primarily for computer and software
equipment, (ii) to meet our working capital requirements,
and (iii) payment of accrued restructuring expenses of
approximately $0.75 million. We believe that there is
sufficient cash on hand to meet these cash requirements, as well
as our cash requirements for the foreseeable future. At
December 31, 2003, we had no outstanding debt and do not
anticipate the need for third party financing during 2004.

Contractual Commitments

We conduct operations in leased facilities under
operating leases expiring at various dates through 2011. The
remaining contractual obligations under these lease commitments
were comprised of the following as of December 31, 2003:

|                          |  |       |        |      |  |             |       |             |  |             |        |  |  |   |       |  |  |   |       | 
|------------------------- |  | ----- | ------ | ---- |  | ----------- | ----- | ----------- |  | ----------- | ------ |  |  | - | ----- |  |  | - | ----- | 
|Contractual Obligation    |  | Total |        | 2004 |  | 2005 - 2007 |       | 2008 - 2009 |  | 2010 - 2011
|                          |  |       |        |      |  |             |       |             |  |            
|Operating leases          |  | $     | 25,090 |      |  | $           | 5,027 |             |  | $           | 10,564 |  |  | $ | 7,100 |  |  | $ | 2,399 | 
|Sub-leasing arrangements* |  |       | (563   | )    |  |             | (563  | )           |  |             |       |  |  |   |      |  |  |   |      | 
|                          |  |       |        |      |  |             |       |             |  |             |        |  |  |   |       |  |  |   |       | 
|                          |  | $     | 24,527 |      |  | $           | 4,464 |             |  | $           | 10,564 |  |  | $ | 7,100 |  |  | $ | 2,399 | 
|                          |  |       |        |      |  |             |       |             |  |             |        |  |  |   |       |  |  |   |       | 



---



|  |                                                                                                                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We have sub-leased portions of these facilities
    under operating leases. Anticipated cash receipts from these
    executed sub-lease arrangements have been taken into account
    when deriving expected cash outflow on operating lease
    commitments in the preceding table.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements,
defined as any transaction, agreement or other contractual
arrangement to which an entity unconsolidated with the
registrant is a party, under which we have:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any obligation under a guarantee contract that
    has any of the characteristics identified in paragraph 3 of FASB
    Interpretation No. 45, Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others (November 2002)
    (FIN 45), as may be modified or supplemented,
    and that is not excluded from the initial recognition and
    measurement provisions of FIN 45 pursuant to paragraphs 6
    or 7 of that Interpretation;                                           
|
| |  | a retained or contingent interest in assets
    transferred to an unconsolidated entity or similar arrangement
    that serves as credit, liquidity or market risk support to such
    entity for such assets;                                                                                                                                                                                                                                                                                                                                               
|
| |  | any obligation, including a contingent
    obligation, under a contract that would be accounted for as a
    derivative instrument, except that it is both indexed to our own
    stock and classified in stockholders equity in our
    statement of financial position, and therefore excluded from the
    scope of FASB Statement of Financial Accounting Standards
    No. 133, Accounting for Derivative Instruments and Hedging
    Activities (June 1998), pursuant to paragraph 11(a) of that
    Statement, as may be modified or supplemented; or

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any obligation, including a contingent
    obligation, arising out of a variable interest (as referenced in
    FASB Interpretation No. 46, Consolidation of Variable
    Interest Entities (January 2003), as may be modified or
    supplemented) in an unconsolidated entity that is held by us or
    is material to us, where such entity provides financing,
    liquidity, market risk or credit risk support to us or engages
    in leasing, hedging or research and development services with us.

Proprietary Rights

See the discussion below under the headings
Cautionary Statements  Other Companies Might
Try to Misappropriate Our Technology and Cautionary
Statements  We Might Be Accused of Misappropriating a
Third Partys Technology.

Cautionary Statements

In addition to the other information in this
Report, the following factors in particular (which are not
necessarily in any particular order of importance) should be
carefully considered when you evaluate BindView and its
business. There may be other risks and uncertainties not
presently known to us, or that we currently deem immaterial,
which could also impair our business operations. As discussed in
more detail below, if one or more of the following risks
actually occur, it is possible our business, financial condition
and operating results could be materially adversely affected.



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Demand for our products is uncertain in the
    current economy.                                                                                  
|
| |  | Our product sales are significantly concentrated.                                                                                                 
|
| |  | We may face future competition from established
    companies entering our market, and/or from consolidated
    companies.                        
|
| |  | Regulatory-compliance costs are likely to
    increase.                                                                                           
|
| |  | Our products could be rendered obsolete by
    operating-system and application-program software vendors.                                         
|
| |  | Our product sales usually require long lead times.                                                                                                
|
| |  | Our quarterly sales are significantly back-end
    loaded, which can lead to uncertainty about meeting expectations
    and to lower sales prices.
|
| |  | Our sales are somewhat seasonal.                                                                                                                  
|
| |  | Our products may not be able to prevail in
    comparative evaluations against our competitors products.                                         
|
| |  | Ongoing refinements to our sales organization may
    result in transitional inefficiencies.                                                      
|
| |  | We do not maintain a significant backlog.                                                                                                         
|
| |  | Our international sales are subject to certain
    additional risks.                                                                              
|
| |  | We are dependent upon continued growth of the
    market for Windows system software.                                                             
|
| |  | We are likely to continue to be confronted by
    rapidly-changing markets.                                                                       
|
| |  | Our R&D efforts may not be sufficient to keep
    up with changing markets.                                                                       
|
| |  | Our software could contain errors that are hard
    to detect and costly to fix.                                                                  
|
| |  | We could be subject to liability claims if our
    software has errors.                                                                           
|
| |  | We rely on certain third-party relationships, and
    our business could be hurt if those relationships were to be
    impaired.                  
|
| |  | We license certain third-party software for
    inclusion in our product, and such software may not always be
    available for our use.          
|
| |  | Our increasing use of development resources in
    other countries may present risks.                                                             

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| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Our revenue bases may change with the market.                                                                      
|
| |  | We are affected by the migration rate to Windows
    2000.                                                         
|
| |  | Other companies might try to misappropriate our
    technology.                                                    
|
| |  | We might be accused of misappropriating a third
    partys technology.                                            
|
| |  | Our cost structure is fixed to a certain extent,
    which may limit our ability to reduce costs if sales decrease.
|
| |  | We may be required to defer increasing amounts of
    revenue in the future.                                       
|
| |  | Our stock price has a history of volatility.                                                                       
|
| |  | Our corporate governance structure includes
    certain anti-takeover provisions.                                  
|
| |  | Our network and Web site may be targeted for
    intentional disruption.                                           
|
| |  | Natural disasters and other infrastructure
    problems may hurt our ability to operate.                           

Demand for our products may be uncertain in
the current economy.In 2001 the
U.S. economy was widely viewed as having entered a
recession, which was exacerbated by the terrorist attacks of
September 11. It is unclear whether customers IT
spending for products like ours will increase.

Our product sales are significantly
concentrated.A majority of our
revenues are derived from the sale of licenses and maintenance
for our vulnerability-management software products. We
anticipate these products will account for a majority of our
revenues for the foreseeable future. If these products become
uncompetitive for any reason, our business could be
substantially damaged. Although we currently plan to broaden our
product line, we cannot be certain we will be able to reduce our
product concentration.

We may face future competition from
established companies entering our market, and/or from
consolidated companies.We expect
competition in our market to increase significantly as current
competitors expand their product lines and services and as new
companies enter the market. Many of these existing and 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. In addition, we have
noted what appears to be a trend of consolidation in our market
through mergers and acquisitions. For example, Symantec
Corporation acquired Axent Technologies and thereby began
competing with us in one area of our market. Other examples from
recent years include Quest Softwares acquisition of
FastLane Technologies Inc. and its announced acquisition of
Aelita Software, as well as NetIQ Corporations mergers
with Mission Critical Software and PentaSafe, Inc. This
could result in the creation of new competitors and/or
enhancement of the competitive capabilities of existing
competitors. If these present and future competitors are
successful, we are likely to lose market share and our revenue
would likely decline.

Regulatory-compliance costs are likely to
increase.In recent years, the
U.S. Congress enacted the Sarbanes-Oxley Act; moreover, the
SEC, NASDAQ, and Financial Accounting Standards Board have
adopted (and continue to propose) implementing rules,
regulations, and standards. These trends are likely to increase
our cost of complying with government regulations.

Our products could be rendered obsolete by
operating-system and application-program software
vendors.We believe vendors of
operating-system and application-program software we support,
particularly Microsoft and Novell, could enhance their software
to include functionality we provide in our own software.
Microsoft has a well-established track record of successfully
entering and competing in markets in which it becomes
interested; in recent years, Microsoft has publicly announced it
intends to focus more intensely on computer- and
Internet-related security issues. If such other vendors were to
offer greater functionality than they currently do, then even if
our software were clearly better, there would still be a
substantial risk many customers would elect to use good
enough functionality in the operating-system or
application-program software instead of buying and/or continuing
to pay maintenance fees for our software. If this risk were to
come to pass, our license and maintenance revenues could be
seriously affected.

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Our product sales usually require long lead
times.The sales cycles for our
products are typically long. The extended sales cycles are due
to a variety of reasons, including but not necessarily limited
to the following. Our customers must complete their own internal
evaluation and budget-approval procedures. Because our software
is used in network management, customers often require that
several people evaluate the software. Sometimes such people are
in different functional and geographic areas and may have
different and perhaps conflicting requirements; this can
increase the time needed for customer evaluation. In addition,
we have recently expanded our product offerings and have been
working to sell more enterprise-wide licenses involving multiple
BindView products; this likewise can increase the time required
for customer review. Some customers intentionally delay
purchases for reasons such as budgetary constraints, concerns
about the general economy, or a desire to wait until new
products are announced, either by us, by our competitors, or by
underlying infrastructure vendors such as Microsoft or Novell.
Moreover, in recent years we have experienced longer budget and
purchasing review cycles from some of our customers.

Our quarterly sales are significantly back-end
loaded, which can lead to uncertainty about meeting expectations
and to lower sales prices.We
generally record a significant portion of our revenues near the
end of each fiscal quarter, due in part to customer buying
patterns. Many companies negotiate large purchase agreements
near the end of the quarter. We believe these companies expect
that by doing so, they can negotiate lower prices and better
terms at a time when publicly-traded vendors are conscious of
the need to make their numbers for the quarter. In
any given quarter, such customer behavior can make it difficult
for us to forecast our ability to meet the expectations of
investors and analysts. We may make some end-of-quarter sales at
lower prices than originally offered, which could have an
adverse impact on our business.

Our sales are somewhat
seasonal.Our customers sometimes make
significant license and maintenance purchases at the end of the
year, possibly because they have budget dollars left and wish to
spend those dollars rather than lose them. In addition, some of
our sales compensation policies are based on achievement of
certain annual revenue goals. As a result, our fourth quarter
has historically tended to be the strongest in sales, which in
turn has meant the following first quarter is often weaker in
sales. (Our first-quarter sales in any given fiscal year do not
necessarily indicate we will achieve higher sales in any
subsequent quarter.)

Our products may not be able to prevail in
comparative evaluations against our competitors
products.Our customers often conduct
beauty contests in which they evaluate not only our
products but those of our competitors. We believe our products
usually fare very well in such head-to-head contests, but the
possibility always exists that we may lose any given such
contest for one or more reasons, some of which may be beyond our
control. For example, if our product does not have a certain
functionality that is particularly important to a customer, and
if a competitors product does have such functionality,
then we may not be able to win that customers business.

Ongoing refinements to our sales organization
may result in transitional
inefficiencies.We are currently
refining our sales organization and go to market strategy to
increase our ability to support enterprise-wide sales. Some of
these refinements may require additional training for some of
our sales personnel, which can result in temporary
inefficiencies as these personnel learn new skills.

We do not maintain a significant
backlog.We normally do not operate
with a backlog of product orders because we ship our products
shortly after orders are received, and our backlog of services
orders is not significant. Consequently, if new product orders
were to dry up, we would not be able to cushion the resulting
lack of sales with backlog sales.

Our international sales are subject to certain
additional risks.If we are unable to
recruit or retain qualified sales personnel, distributors, or
resellers, that inability could materially and adversely affect
our business. If we are unable to generate increased sales using
our international sales force, our costs will be higher without
corresponding increases in revenue, resulting in lower operating
margins for our international operations. In addition,
employment law and 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. Even if

23



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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.


We may be subject to foreign currency
risks.To an increasing extent, our
international business likely will be conducted in foreign
currencies, especially the euro. The exchange ratio of foreign
currencies for U.S. dollars has fluctuated in the past and
is likely to do so in the future, but we cannot predict the
extent to which this will happen. Such fluctuations may lead to
our experiencing currency losses. We have not adopted a formal
hedging program to protect us from risks associated with foreign
currency fluctuations.

We are dependent upon continued growth of the
market for Windows system software.We
depend upon the success of Microsofts Windows 2000 and
Windows XP operating systems, and to a lesser extent on the
success of Novells NetWare operating system and of
Microsofts Exchange software. In particular, market
acceptance of our products depends on the increasing complexity
of these software products and the advantages that our own
software provides in managing those products. There may be times
when the growth of one or more of these software products
flattens out or even declines, especially if IT spending
becomes, or stays, generally flat. To a certain extent, the
growth in the Windows system software products comes at the
expense of the corresponding Novell products, meaning that even
if we gain customers on the Windows side, we may lose customers
on the Novell side.

We are likely to continue to be confronted by
rapidly-changing markets.The markets
in which we do business can often be subject to rapid
technological change, frequent new product introductions and
enhancements, uncertain product life cycles, changes in customer
demands, the emergence of new security threats, and evolving
industry standards. Our products could be rendered obsolete if
new products based on new technologies are introduced or new
industry standards emerge. Our future success will depend in
part on our ability to react to, and ideally to anticipate,
these changes.

Our R&D efforts may not be sufficient to
keep up with changing markets.To deal
successfully with market changes, we must periodically enhance
our existing products, develop and introduce new products, and
sometimes discontinue an existing product. Our products are
inherently complex; as a result, our new products and product
enhancements can require long development and testing periods.
When we undertake a project along these lines, we must make
resource investments that often are significant in scope. We may
experience various delays and other difficulties in any given
project; if that happens, it increases the chances that a
competitor might beat us to the market and thereby achieve a
potential first-to-market advantage; this in turn could hinder
our efforts to persuade customers to buy our products, which
could damage our business. We have, on occasion, experienced
delays in our planned introduction of new or enhanced products
and cannot be sure such delays will not occur again. In short,
we cannot be certain, as our market evolves, we will be able to
introduce new and/or updated products customers will want to buy
or continue to use, or if we do, that we will earn enough money
to recoup or realize a return on our investments.

Our software could contain errors that are
hard to detect and costly to fix.Our
software products are complex and usually are installed and used
in large computer networks having a wide variety of equipment
and networking configurations. We try to test our new products
and product enhancements thoroughly and to work with customers
through our customer support services organization to identify
and correct errors (bugs). Even so, we might first
become aware of a particular error in a product or product
enhancement only after we had released it for general licensing
availability. Depending on severity, such errors could cost us
substantial time and money to fix, possibly delaying our work on
other new products or product enhancements. In addition, such
errors could damage our reputation, possibly hurting our ability
to sell not only the product or product enhancement in question
but perhaps other products as well. Moreover, the
operating-system or applicable-program software with which our
products operate could itself have bugs; this could result in
problems being incorrectly blamed on our software, which in turn
could result in our having to spend time and money addressing
the problems even though they ultimately proved not to have been
of our making.

We could be subject to liability claims if our
software has errors.Conceivably,
errors in our software could lead to warranty claims and/or to
product-liability claims. Such claims could require us to spend
significant time and money in litigation or to pay significant
damages. Most of our license agreements with customers contain
provisions designed to limit our exposure to potential claims,
but it is possible that these provisions may not

24



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prove 100% effective in limiting our liability.
Any such claims, whether or not ultimately successful, could
damage our reputation and our business.


We rely on certain third-party relationships,
and our business could be hurt if those relationships were to be
impaired.We rely to a considerable
extent on our relationships with Microsoft and Novell; for
example, we 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 particular, our
relationship with Novell has been strained in recent years, to
the point that in 2003 Novell declined to renew our
premium-level membership status in the Novell DeveloperNet
organization. If our relationship with companies like Microsoft
and Novell were to deteriorate, we might not be able to
introduce new products and product enhancements on a timely
basis to capitalize on other companies new releases and
feature enhancements. This could result in portions of our
installed base of customers not being able to use our products
effectively with these other companies new releases and
feature enhancements. That in turn could lead to one or more of
our competitors, having better relationships with these
companies, pulling ahead of us in the marketplace.

We license certain third-party software for
inclusion in our products, and such software may not always be
available for our use.We license
certain third-party software to perform certain functions in
certain of our own software products. So far we have been able
to renew the required licenses on terms we regard as
satisfactory. It is possible that in the future we may not be
able to renew one or more of those licenses on acceptable terms.
If that were to occur, we might be forced to stop shipping the
affected product(s) until we could find or build a replacement
for the third-party software; this could materially and
adversely affect our operating results.

Our increasing use of development resources in
other countries may present risks.We
are increasing our use of software development personnel at our
Indian subsidiary. Political uncertainty in that region of the
world, possibly including armed conflict, could interfere with
our operations there. The use by American companies of
non-U.S. personnel in overseas operations has been the
subject of some negative publicity, especially in connection
with the upcoming U.S. presidential election. If federal or
state laws were to be changed to restrict the use of
non-U.S. personnel by U.S. companies, or to (further)
restrict the ability of state- and federal agencies to purchase
products with significant non-U.S. content, our business
could be hurt.

Our revenue bases may change with the
market.The percentages of our
revenues attributable to software licenses for particular
operating-system or application-software 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 and
application-software platforms we support and the relative mix
of development and installation by VARs of application software
operating on such platforms.

We are affected by the migration rate to
Windows 2000, Windows XP, and Microsoft
Exchange.Our ability to sell licenses
for some of our directory-migration products depends in part on
the rate at which customers elect to migrate their networks to
Microsofts Windows 2000 or Windows XP operating system or
to Microsoft Exchange.

Other companies might try to misappropriate
our technology.We attempt to protect
our technology with a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual
provisions. We license our software products primarily under
click-wrap licenses agreements. We believe, however,
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 we regard as proprietary. We have found historically
that a few customers use our software for more than they have
paid for, representing a loss of revenue for us. Policing
unauthorized use of our products is difficult and we are unable
to determine the extent to which piracy of our 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, and we may be subject to unauthorized use of our
products in those countries. Any legal action that we may bring
to protect proprietary information could be expensive and may
distract management from day-to-day operations. Our means of
protecting our proprietary rights may not be adequate to protect
our products and technology from unauthorized copying. In
addition, competitors may be able to independently develop
similar or superior technology.

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We might be accused of misappropriating a
third partys technology.Litigation regarding intellectual property rights is not
uncommon in the software industry. We expect 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. We are not aware that we are
infringing any proprietary rights of third parties. From time to
time, however, third parties may claim we have infringed on
their intellectual property rights. Any such claims, with or
without merit, could be time consuming to defend, could result
in costly litigation, could divert managements attention
and resources, could cause product shipment delays, or could
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. If a third party
alleges we have infringed its intellectual property rights, we
may choose to litigate the claim and/or seek an appropriate
license from the third party. The mere fact a third party makes
such an allegation could damage our reputation and hurt our
ability to sell our products, and we might have little or no
practical recourse even if the allegation is baseless. If
someone were successfully to make a claim of infringement
against us, and if we could not or did not obtain a license or
develop alternative technology on a timely basis, our business
could be materially adversely affected.

Our cost structure is fixed to a certain
extent, which may limit our ability to reduce costs if sales
decrease.We base our expenses to a
significant extent on our estimates of future sales revenues. As
a result, many of our expenses are fixed in the short term. If
our future sales do not match our estimates, we might embark on
certain cost cutting measures (which could include but are not
limited to employee reductions, office closings and product
consolidations), but we might not be able to cut costs quickly
and effectively enough to prevent our business from being
adversely affected.

We may be required to defer increasing amounts
of revenue in the future.As our sales
transactions and product mix becomes more complex,
revenue-recognition principles stated in SOP 97-2 or
SOP 98-9 could require us to defer a significant portion of
our transaction revenues and to recognize the deferred revenue
in future periods, rather than in the period in which the sales
transactions occurred.

Our stock price has a history of
volatility.There have been times when
the market price of our common stock has been highly volatile
(like that of many other technology companies). We expect our
stock price will continue to fluctuate in the future. These
fluctuations may be due to factors specific to our company, to
changes in analysts earnings estimates, to the relatively
low volume of trading in our common stock in recent months, or
to factors affecting the computer industry or the securities
markets in general. We believe that quarter-to-quarter and
year-to-year financial comparisons are not necessarily
meaningful indicators of our future operating results and should
not be relied on as an indication of future performance;
nevertheless, if our quarterly and annual operating results
should fail to meet market expectations, the trading price of
our common stock could be negatively impacted. Our quarterly and
annual operating results have varied substantially in the past
and may vary substantially in the future due to a number of
factors described elsewhere in this Report, which could lead to
significant changes in our stock price.

Our corporate governance structure includes
certain anti-takeover provisions.Certain aspects of our corporate governance structure, like that
of many other technology companies, are typically regarded as
anti-takeover provisions. Such provisions likely would 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 hurt the market price of our common stock.

Our network and Web site may be targeted for
intentional disruption.As a leading
provider of security-related software, we anticipate that, from
time to time, our corporate computer network and our Web site
may be targeted for intentional disruption by
black-hat hackers. We believe we have taken
sufficient precautions to prevent such disruption, but we cannot
be certain we will succeed in preventing all such disruption. If
such disruption is successful, it could hurt our business
activities; if successful disruption becomes publicly known, it
could also damage our reputation and that of our products and
services.

Natural disasters and other infrastructure
problems may hurt our ability to
operate.We rely heavily on our
telephone system, computer network, and data center
infrastructure for internal communications, communications with
customers and partners, direct sales of our software products,
sales lead generation, and direct

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provision of fee-based services. Those systems
may be vulnerable to damage from human error, physical or
electronic security breaches, power loss and other facility
failures, fire, flooding such as that resulting from Tropical
Storm Alison in June 2001, telecommunications failure, sabotage,
terrorist attacks such as those of 9/11, telecommunications
failure, sabotage, terrorist attacks, vandalism and similar
events. Despite precautions, a natural disaster or other
unanticipated problems could result in interruptions in our
service or significant damage. In addition, failure of any of
our telecommunications providers to provide consistent data
communications capacity could result in interruptions in our
services and thus in our ability to provide service to our
customers.







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The Company is exposed to a variety of risks
associated with foreign currency exchange rate fluctuations and
changes in the market value of its investments. 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 contained elsewhere herein.

Foreign Currency Exchange Rates

We operate globally and the functional currency
for most of our non-U.S. enterprises is the local currency.
For the years ended December 31, 2003, 2002 and 2001,
approximately 13 percent, 11 percent and
13 percent of our consolidated revenues, respectively, were
generated from customers outside of North America, substantially
all of which were billed and collected in foreign currencies.
Similarly, substantially all of the expenses of operating our
foreign subsidiaries are incurred in foreign currencies. As a
result, our U.S. dollar earnings and net cash flows from
international operations may be adversely affected by changes in
foreign currency exchange rates. Based on our foreign currency
exchange instruments outstanding at December 31, 2003, we
estimate a near-term change in foreign currency rates would not
materially affect our financial position, results of operations
or net cash flows for the year ended December 31, 2004. We
used a value-at-risk (VAR) model to measure
potential fair value losses due to foreign currency exchange
rate fluctuations. The VAR model estimates were made assuming
normal market conditions and a 95 percent confidence level. The
VAR model is a risk estimation tool, and as such, is not
intended to represent actual losses in fair value that we will
incur.

Interest Rate Risk

We adhere to a conservative investment policy,
whereby our principal concern is the preservation of liquid
funds while maximizing our yield on liquid assets. Cash, cash
equivalents, short-term investments and long-term investments
(including restricted cash) approximated $39.9 million and
$42.3 million at December 31, 2003 and 2002,
respectively. Such amounts were invested in different types of
investment-grade securities with the intent of holding these
securities to maturity. Although our portfolio is subject to
fluctuations in interest rates and market conditions, no gain or
loss on any security would actually be recognized in earnings
unless the instrument was sold. We estimate that a near-term
change in interest rates would not materially affect our
financial position, results of operations or net cash flows for
the year ended December 31, 2004. We used a VAR model to
measure potential market risk on our marketable securities due
to interest rate fluctuations. The VAR model estimates were made
assuming normal market conditions and a 95 percent
confidence level. The VAR model is a risk estimation tool, and
as such, is not intended to represent actual losses in fair
value that we will incur.






|        |                                                
|------- | -----------------------------------------------
|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 15 of this Annual Report on
Form 10-K.

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




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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended, our Chief Executive Officer
and Chief Financial Officer, with the participation of other
management personnel, have carried out an evaluation of the
effectiveness of the design and operation for our disclosure
controls and procedures as of December 31, 2003.

There have been no changes in our internal
controls over financial reporting, as defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934, as
amended, that occurred during the period covered by this report
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




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,
Compliance With Section 16(a) of the Securities
Exchange Act of 1934 and Code of Ethics in the
proxy statement relating to our 2004 annual meeting of
shareholders (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.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

For information concerning this Item, see text
under the caption Relationship with Independent
Accountants in the Proxy Statement, which information is
incorporated herein by reference.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

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

|                                                                 |  |      |    | 
|---------------------------------------------------------------- |  | ---- | -- | 
|Financial Statements                                             |  | Page
|                                                                 |  |     
|Report of Independent Auditors                                   |  |      | 30 | 
|Consolidated Balance Sheets                                      |  |      | 31 | 
|Consolidated Statements of Operations and
    Comprehensive Loss |  |      | 32 | 
|Consolidated Statements of Shareholders
    Equity              |  |      | 33 | 
|Consolidated Statements of Cash Flows                            |  |      | 34 | 
|Notes to Consolidated Financial Statements                       |  |      | 35 | 
|Schedule II  Valuation and
    Qualifying Accounts              |  |      | 54 | 

Other financial schedules under the Securities
Exchange Act of 1934, as amended have been omitted because they
are either not required or are not material.

(b) Reports of Form 8-K:

In a report on Form 8-K dated
October 22, 2003, the Company furnished a press release
announcing, among other things, preliminary revenue expectations
for the third quarter of 2003 and updated guidance for the
second half of 2003.

In a report on Form 8-K dated
October 23, 2003, the Company furnished a press release
announcing, among other things, financial results for the
quarter ended September 30, 2003.

(c) Exhibits:

Reference is made to the Exhibit Index at
the end of this Annual Report on Form 10-K.

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
BindView Development Corporation:

In our opinion, the consolidated financial
statements listed in the index appearing under Item 15(a)
on page 29 present fairly, in all material respects, the
financial position of BindView Development Corporation and its
subsidiaries at December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under
Item 15(a) on page 29 presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are
the responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which 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, 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 our opinion.

Houston, Texas

February 10, 2004


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BINDVIEW DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)


|                                           |                                                                                                            |                                            |       |         |        |  |       |         |        | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                           |                                                                                                            |                                           
|                                           |                                                                                                            | December 31,                              
|                                           |                                                                                                            |                                           
|                                           |                                                                                                            | 2003                                       |       | 2002   
|                                           |                                                                                                            |                                            |       |        
|ASSETS                                    
|Current assets:                            |                                                                                                            |                                            |       |         |        |  |       |        
|                                           | Cash and cash equivalents                                                                                  |                                            | $     | 35,449  |        |  | $     | 37,760  |       
|                                           | Cash  restricted                                                                                          |                                            |       | 2,750   |        |  |       |        |       
|                                           | Accounts receivable, net of allowance of $1,040
    and $1,237                                             |                                            |       | 14,337  |        |  |       | 11,199  |       
|                                           | Other                                                                                                      |                                            |       | 2,180   |        |  |       | 2,052   |       
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|                                           |                                                                                                            | Total current assets                       |       |         | 54,716 |  |       |         | 51,011 | 
|Property and equipment, net                |                                                                                                            |                                            | 6,564 |         |        |  | 7,816 |        
|Investments and other assets               |                                                                                                            |                                            | 1,998 |         |        |  | 4,729 |        
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|                                           |                                                                                                            | Total assets                               |       | $       | 63,278 |  |       | $       | 63,556 | 
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY  
|Current liabilities:                       |                                                                                                            |                                            |       |         |        |  |       |        
|                                           | Accounts payable                                                                                           |                                            | $     | 2,066   |        |  | $     | 1,990   |       
|                                           | Accrued liabilities                                                                                        |                                            |       | 4,879   |        |  |       | 6,341   |       
|                                           | Accrued compensation                                                                                       |                                            |       | 5,275   |        |  |       | 3,907   |       
|                                           | Deferred revenue                                                                                           |                                            |       | 13,351  |        |  |       | 12,464  |       
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|                                           |                                                                                                            | Total current liabilities                  |       |         | 25,571 |  |       |         | 24,702 | 
|Deferred revenue                           |                                                                                                            |                                            | 1,477 |         |        |  | 2,213 |        
|Other                                      |                                                                                                            |                                            | 2,087 |         |        |  | 1,215 |        
|Commitments and Contingencies
    (Note 9) |                                                                                                            |                                            |       |         |        |  |       |        
|Shareholders equity:                      |                                                                                                            |                                            |       |         |        |  |       |        
|                                           | Preferred stock, $0.01 par value,
    20,000 shares authorized, none issued                                |                                            |       |        |        |  |       |        |       
|                                           | Common stock, no par value, 100,000 shares
    authorized, 47,034 and 46,278 shares issued and outstanding |                                            |       | 1       |        |  |       | 1       |       
|                                           | Additional paid-in capital                                                                                 |                                            |       | 105,176 |        |  |       | 104,332 |       
|                                           | Notes receivable from shareholder                                                                          |                                            |       | (392    | )      |  |       | (892    | )     
|                                           | Accumulated deficit                                                                                        |                                            |       | (72,034 | )      |  |       | (68,398 | )     
|                                           | Accumulated other comprehensive income                                                                     |                                            |       | 1,392   |        |  |       | 383     |       
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|                                           |                                                                                                            | Total shareholders equity                 |       |         | 34,143 |  |       |         | 35,426 | 
|                                           |                                                                                                            |                                            |       |         |        |  |       |        
|                                           |                                                                                                            | Total liabilities and shareholders equity |       | $       | 63,278 |  |       | $       | 63,556 | 
|                                           |                                                                                                            |                                            |       |         |        |  |       |        

See notes to consolidated financial statements.

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BINDVIEW DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
AND

COMPREHENSIVE LOSS


(In thousands, except per share
amounts)


|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                            |                                                   |                        
|                                                                            |                                                   | Year Ended December 31,
|                                                                            |                                                   |                        
|                                                                            |                                                   | 2003                    |        | 2002   |   | 2001
|                                                                            |                                                   |                         |        |        |   |     
|Revenues:                                                                   |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            | Licenses                                          |                         | $      | 35,530 |   |      | $       | 37,238  |   |   | $       | 42,532  |  
|                                                                            | Services                                          |                         |        | 32,315 |   |      |         | 29,740  |   |   |         | 28,356  |  
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            |                                                   |                         | 67,845 |        |   |      | 66,978  |         |   |   | 70,888  |        
|Cost of revenues:                                                           |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            | Cost of licenses                                  |                         |        | 527    |   |      |         | 500     |   |   |         | 1,059   |  
|                                                                            | Cost of services                                  |                         |        | 6,954  |   |      |         | 5,782   |   |   |         | 6,407   |  
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            |                                                   |                         | 7,481  |        |   |      | 6,282   |         |   |   | 7,466   |        
|Gross profit                                                                |                                                   |                         | 60,364 |        |   |      | 60,696  |         |   |   | 63,422  |        
|Operating costs and expenses:                                               |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            | Sales and marketing                               |                         |        | 36,040 |   |      |         | 37,242  |   |   |         | 49,079  |  
|                                                                            | Research and development                          |                         |        | 18,423 |   |      |         | 19,219  |   |   |         | 22,668  |  
|                                                                            | General and administrative                        |                         |        | 7,750  |   |      |         | 7,932   |   |   |         | 14,600  |  
|                                                                            | Restructuring                                     |                         |        | 2,184  |   |      |         | 3,002   |   |   |         | 6,594   |  
|                                                                            | Asset impairment                                  |                         |        |       |   |      |         | 276     |   |   |         | 1,979   |  
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|Operating loss                                                              |                                                   |                         | (4,033 | )      |   |      | (6,975  | )       |   |   | (31,498 | )      
|Other income (expense), net                                                 |                                                   |                         | 447    |        |   |      | 2,104   |         |   |   | (2,859  | )      
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|Loss before income taxes                                                    |                                                   |                         | (3,586 | )      |   |      | (4,871  | )       |   |   | (34,357 | )      
|Provision (benefit) for income taxes                                        |                                                   |                         | 50     |        |   |      | 19,562  |         |   |   | (10,211 | )      
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|Net loss                                                                    |                                                   | $                       | (3,636 | )      |   | $    | (24,433 | )       |   | $ | (24,146 | )      
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|Loss per common share  basic and
    diluted                               |                                                   | $                       | (0.08  | )      |   | $    | (0.49   | )       |   | $ | (0.47   | )      
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|Number of shares used to calculate per share
    amounts, basic and diluted |                                                   |                         | 46,714 |        |   |      | 50,319  |         |   |   | 51,438  |        
|Reconciliation of net loss to comprehensive loss:                           |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            | Net loss                                          |                         | $      | (3,636 | ) |      | $       | (24,433 | ) |   | $       | (24,146 | )
|                                                                            | Unrealized gain from foreign currency translation |                         |        | 1,009  |   |      |         | 568     |   |   |         | 84      |  
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        
|                                                                            | Comprehensive loss                                |                         | $      | (2,627 | ) |      | $       | (23,865 | ) |   | $       | (24,062 | )
|                                                                            |                                                   |                         |        |        |   |      |         |         |   |   |         |        

See notes to consolidated financial statements.

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BINDVIEW DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(In thousands)


|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |        |   |   |         |         |   |   |       |       |  |   |         |        |   |   |        |         |  
|---------------------------- | ------------------------------------------------------------- | ------------ | ------ | --------------- | - | ----------- | - | ----------- |  | ------------- | ------- | ------------- | - | ------------- | ------ | ------ | - | - | ------- | ------- | - | - | ----- | ----- |  | - | ------- | ------ | - | - | ------ | ------- | -
|                             |                                                               |              |        |                 |   |             |   |             |  | Accumulated   |         |               |   |              
|                             |                                                               | Common Stock |        | Additional      |   | Shareholder |   |             |  | Other         |         |               |   | Total        
|                             |                                                               |              |        | Paid-In Capital |   | Note        |   | Accumulated |  | Comprehensive |         | Treasury      |   | Shareholders
|                             |                                                               | Shares       |        | Amount          |   | Amount      |   | Receivable  |  | Deficit       |         | Income (Loss) |   | Stock         |        | Equity
|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |       
|Balance at December 31, 2000 |                                                               |              | 52,298 |                 |   | $           | 1 |             |  | $             | 117,816 |               |   | $             | (144   | )      |   | $ | (19,819 | )       |   | $ | (269  | )     |  | $ | (5,324  | )      |   | $ | 92,261 |        
|                             | Exercise of stock options and warrants                        |              |        | 1,490           |   |             |   |            |  |               |         | 1,558         |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 1,558   |  
|                             | Tax benefit related to exercise of employee stock
    options |              |        |                |   |             |   |            |  |               |         | 867           |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 867     |  
|                             | Employee stock purchase plan                                  |              |        | 187             |   |             |   |            |  |               |         | 599           |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 599     |  
|                             | Treasury stock purchases (2,363 shares)                       |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         | (7,414 | ) |   |        | (7,414  | )
|                             | Common stock issued under restricted stock
    agreement      |              |        | 400             |   |             |   |            |  |               |         | 1,044         |   |               |        | (1,044 | ) |   |         |        |   |   |       |      |  |   |         |       |   |   |        |        |  
|                             | Foreign currency translation adjustment                       |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         |        |   |   |       | 84    |  |   |         |       |   |   |        | 84      |  
|                             | Net loss                                                      |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         | (24,146 | ) |   |       |      |  |   |         |       |   |   |        | (24,146 | )
|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |        |   |   |         |         |   |   |       |       |  |   |         |        |   |   |        |        
|Balance at December 31, 2001 |                                                               |              | 54,375 |                 |   | $           | 1 |             |  | $             | 121,884 |               |   | $             | (1,188 | )      |   | $ | (43,965 | )       |   | $ | (185  | )     |  | $ | (12,738 | )      |   | $ | 63,809 |        
|                             | Exercise of stock options                                     |              |        | 108             |   |             |   |            |  |               |         | 66            |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 66      |  
|                             | Employee stock purchase plan                                  |              |        | 490             |   |             |   |            |  |               |         | 498           |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 498     |  
|                             | Treasury stock purchases (5,697 shares)                       |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         | (5,378 | ) |   |        | (5,378  | )
|                             | Retirement of treasury stock                                  |              |        | (8,695          | ) |             |   |             |  |               |         | (18,116       | ) |               |        |        |   |   |         |         |   |   |       |       |  |   |         | 18,116 |   |   |        |        |  
|                             | Reduction of shareholder note in lieu of
    guaranteed bonus |              |        |                |   |             |   |            |  |               |         |              |   |               |        | 296    |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 296     |  
|                             | Foreign currency translation adjustment                       |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         |        |   |   |       | 568   |  |   |         |       |   |   |        | 568     |  
|                             | Net loss                                                      |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         | (24,433 | ) |   |       |      |  |   |         |       |   |   |        | (24,433 | )
|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |        |   |   |         |         |   |   |       |       |  |   |         |        |   |   |        |        
|Balance at December 31, 2002 |                                                               |              | 46,278 |                 |   | $           | 1 |             |  | $             | 104,332 |               |   | $             | (892   | )      |   | $ | (68,398 | )       |   | $ | 383   |       |  | $ |        |        |   | $ | 35,426 |        
|                             | Exercise of stock options                                     |              |        | 281             |   |             |   |            |  |               |         | 390           |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 390     |  
|                             | Provision for reserve on note receivable                      |              |        |                |   |             |   |            |  |               |         |              |   |               |        | 144    |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 144     |  
|                             | Reduction of shareholder note in lieu of
    guaranteed bonus |              |        |                |   |             |   |            |  |               |         |              |   |               |        | 356    |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 356     |  
|                             | Employee stock purchase plan                                  |              |        | 475             |   |             |   |            |  |               |         | 454           |   |               |        |       |   |   |         |        |   |   |       |      |  |   |         |       |   |   |        | 454     |  
|                             | Foreign currency translation adjustment                       |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         |        |   |   |       | 1,009 |  |   |         |       |   |   |        | 1,009   |  
|                             | Net loss                                                      |              |        |                |   |             |   |            |  |               |         |              |   |               |        |       |   |   |         | (3,636  | ) |   |       |      |  |   |         |       |   |   |        | (3,636  | )
|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |        |   |   |         |         |   |   |       |       |  |   |         |        |   |   |        |        
|Balance at December 31, 2003 |                                                               |              | 47,034 |                 |   | $           | 1 |             |  | $             | 105,176 |               |   | $             | (392   | )      |   | $ | (72,034 | )       |   | $ | 1,392 |       |  | $ |        |        |   | $ | 34,143 |        
|                             |                                                               |              |        |                 |   |             |   |             |  |               |         |               |   |               |        |        |   |   |         |         |   |   |       |       |  |   |         |        |   |   |        |        

See notes to consolidated financial statements.

33



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BINDVIEW DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |         |         |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------- | ------------------------------------------------------- | ----- | ------ | ------ | ------- | ------ | ----- | ------ | ------- | ------- | ------ | ------ | -
|                                               |                                                                                               |                                                   
|                                               |                                                                                               | Year Ended December 31,                           
|                                               |                                                                                               |                                                   
|                                               |                                                                                               | 2003                                               |                     | 2002                                                    |       | 2001  
|                                               |                                                                                               |                                                    |                     |                                                         |       |       
|Cash flows from operating activities:          |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               | Net loss                                                                                      |                                                    | $                   | (3,636                                                  | )     |        | $      | (24,433 | )      |       | $      | (24,146 | )      
|                                               | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                    |                     |                                                         |       |        |        |         |        |       |        |         |        
|                                               |                                                                                               | Depreciation and amortization                      |                     |                                                         | 3,574 |        |        |         | 4,442  |       |        |         | 5,413   |       
|                                               |                                                                                               | Bad debt expense                                   |                     |                                                         |      |        |        |         |       |       |        |         | 3,474   |       
|                                               |                                                                                               | Asset impairments                                  |                     |                                                         |      |        |        |         | 276    |       |        |         | 8,148   |       
|                                               |                                                                                               | Deferred income tax provision (benefit)            |                     |                                                         |      |        |        |         | 19,562 |       |        |         | (10,211 | )     
|                                               |                                                                                               | Stock compensation expense                         |                     |                                                         | 357   |        |        |         |       |       |        |         |        |       
|                                               |                                                                                               | Provision for reserve on note receivable and other |                     |                                                         | 144   |        |        |         | 48     |       |        |         | 197     |       
|                                               |                                                                                               | Changes in operating assets and liabilities:       |                     |                                                         |       |        |        |         |        |       |        |         |         |       
|                                               |                                                                                               |                                                    | Accounts receivable |                                                         |       | (2,937 | )      |         |        | (933  | )      |         |         | 9,753  |       
|                                               |                                                                                               |                                                    | Other assets        |                                                         |       | (62    | )      |         |        | (773  | )      |         |         | 75     |       
|                                               |                                                                                               |                                                    | Accounts payable    |                                                         |       | 18     |        |         |        | 36    |        |         |         | (2,279 | )     
|                                               |                                                                                               |                                                    | Accrued liabilities |                                                         |       | 732    |        |         |        | 1,811 |        |         |         | 4,290  |       
|                                               |                                                                                               |                                                    | Deferred revenues   |                                                         |       | 81     |        |         |        | 1,602 |        |         |         | 1,537  |       
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               |                                                                                               |                                                    |                     | Net cash provided by (used in) operating
    activities |       |        | (1,729 | )       |        |       | 1,638  |         |         |        | (3,749 | )
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|Cash flows from investing activities:          |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               | Capital expenditures                                                                          |                                                    |                     | (2,307                                                  | )     |        |        | (3,064  | )      |       |        | (2,986  | )      
|                                               | Net proceeds from maturity (purchase) of
    investments                                      |                                                    |                     |                                                        |       |        |        | 3,253   |        |       |        | 6,951   |        
|                                               | Other                                                                                         |                                                    |                     |                                                        |       |        |        | 40      |        |       |        |        |        
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               |                                                                                               |                                                    |                     | Net cash provided by (used in) investing
    activities |       |        | (2,307 | )       |        |       | 229    |         |         |        | 3,965  |  
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|Cash flows from financing activities:          |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               | Restriction on cash under letter of credit                                                    |                                                    |                     |                                                        |       |        |        |        |        |       |        | (4,500  | )      
|                                               | Repurchase of common stock                                                                    |                                                    |                     |                                                        |       |        |        | (5,378  | )      |       |        | (7,414  | )      
|                                               | Net proceeds from sale of common stock                                                        |                                                    |                     | 844                                                     |       |        |        | 564     |        |       |        | 2,060   |        
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               |                                                                                               |                                                    |                     | Net cash provided by (used in) financing
    activities |       |        | 844    |         |        |       | (4,814 | )       |         |        | (9,854 | )
|Effect of exchange rate changes on cash        |                                                                                               |                                                    | 881                 |                                                         |       |        | 916    |         |        |       | 92     |        
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|Net decrease in cash and cash equivalents      |                                                                                               |                                                    | (2,311              | )                                                       |       |        | (2,031 | )       |        |       | (9,546 | )      
|Cash and cash equivalents at beginning of year |                                                                                               |                                                    | 37,760              |                                                         |       |        | 39,791 |         |        |       | 49,337 |        
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|Cash and cash equivalents at end of year       |                                                                                               | $                                                  | 35,449              |                                                         |       | $      | 37,760 |         |        | $     | 39,791 |        
|                                               |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|Non-cash financing and investing activities:   |                                                                                               |                                                    |                     |                                                         |       |        |        |         |        |       |        |        
|                                               | Reduction of shareholder note in lieu of
    guaranteed bonus                                 |                                                    | $                   | 356                                                     |       |        | $      | 296     |        |       | $      |        |        
|                                               | Tax benefit related to the exercise of employee
    stock options                             |                                                    | $                   |                                                        |       |        | $      |        |        |       | $      | 867     |        
|                                               | Note receivable from shareholder in exchange for
    400 shares of restricted common stock    |                                                    | $                   |                                                        |       |        | $      |        |        |       | $      | 1,044   |        

See notes to consolidated financial statements.

34



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                                           
|-- | --------------------------------------------------------------------------
|1. | Description of Business and Summary of
    Significant Accounting Policies



| |           
| | ----------
| | Operations

BindView Development Corporation
(BindView or the Company), a Texas
corporation, was incorporated in May 1990. The Company delivers
security management software solutions to help safeguard
computer systems and networks from security breaches and helps
protect business systems from both internal and external
threats. The Companys suite of cross-platform software and
associated services help secure, automate and reduce the costs
of managing information technology infrastructures.



| |                                                          
| | ---------------------------------------------------------
| | Principles of Consolidation and Basis of
    Presentation

The accompanying consolidated financial
statements include the accounts of BindView and its
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.



| |                    
| | -------------------
| | Revenue Recognition

The Company follows American Institute of
Certified Public Accountants (AICPA) Statement of
Position 97-2, Software Revenue Recognition
(SOP 97-2) and Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue
Recognition With Respect to Certain Transactions
(SOP 98-9), with respect to revenue
recognition. The Company primarily licenses its software
products under perpetual licenses. Revenues are recognized under
these arrangements once the following criteria are met:
(i) a written purchase order, license agreement or contract
has been executed; (ii) software, or software license
authorization code in situations where the customer previously
received evaluation software, has been delivered to the
customer; (iii) license agreements with no significant
vendor obligations or customer acceptance rights outstanding
have been issued to the customer; (iv) the license fee is
fixed and determinable and collection of the fee is probable;
and (v) vendor-specific objective evidence exists to
allocate the total fee. Vendor-specific objective evidence is
based on the price generally charged when an element is sold
separately or at the renewal rate for maintenance agreements in
subsequent years. In situations where vendor-specific objective
evidence does not exist, and all other revenue recognition
criteria have been met, revenue is recognized ratably over the
term of the agreement.

The Company does not develop new products under
contractual arrangements with customers and does not
substantially modify its products and their functionality for
specific customers and therefore does not use contract
accounting in determining revenue recognition. In rare
situations when installation is essential to the functionality
of the software, revenue is deferred until completion of the
installation. Certain of these items may require the application
of judgment when evaluating specific business arrangements in a
changing environment against the Companys normal business
practices.

The Company does not provide price protection in
customer agreements and generally does not provide conditions of
acceptance in sales agreements. If conditions of acceptance
exist, the Company defers revenue recognition until such
acceptance clauses lapse. If a right of return is granted on a
sales transaction, it is generally for a period of 10 days
and related return experience has been nominal. In situations
where the Company grants a 10-day right of return period,
revenue recognition is not precluded. In the few situations were
return rights exceed 10 days, revenue recognition is
deferred as appropriate. The Company has experienced di minimus
warranty claims. The Company provides customary software
warranties indicating the software will conform to published
specifications, does not include viruses, back doors, etc., and
does not infringe third-party intellectual property rights. To
date, the Company has experienced di minimus warranty claims.

The Company recognizes revenues from sales made
through distributors, value-added resellers (VARs),
and original equipment manufacturers (OEMs) after
all revenue recognition criteria set forth above are met and
after execution of a written purchase order, license agreement
or contract with either the reseller or end user. The Company
performs ongoing credit evaluations and assessments of the
financial viability of its customers, including distributors,
VARs and OEMs, in determining whether or not revenue recognition
is appropriate.

35



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

Service revenues are comprised primarily of
maintenance revenue, with much smaller components of revenue
from training and consulting services. Maintenance revenue
represented approximately 87%, 88% and 92% of total service
revenue in 2003, 2002 and 2001, respectively. Customers
generally elect to purchase a one to three year maintenance
agreement in conjunction with their licensing of the
Companys products, which is renewable, at the
customers discretion, upon expiration of the original
maintenance contract. Maintenance revenues are recognized
ratably over the contract term. Training and consulting service
revenues are recognized when the training or consulting
activities are performed, generally within a few weeks of
product installation by the customer. Services, other than
maintenance, are of a short-term nature and are not provided
under multi-year contracts.

Deferred revenue is comprised primarily of
maintenance revenue and revenue from training and consulting
services. The portion of maintenance contract revenues that have
not yet been recognized as revenues are reported as deferred
revenue in the accompanying consolidated balance sheet. Deferred
maintenance revenue which has not been collected is not
recognized.



| |                         
| | ------------------------
| | Research and Development

The Company follows SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, in accounting for research and
development costs. These costs are charged to operations as they
are incurred until 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. The judgment regarding
when an adequate working model has been satisfactorily tested is
subjective and the degree of proximity of that date to product
release influences how much cost is capitalized. To date, costs
incurred by the Companys development staff subsequent to
the establishment of technological feasibility have not been
material.



| |                                        
| | ---------------------------------------
| | Software Developed for Internal
    Use

The Company follows Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use (SOP 98-1) in
accounting for certain costs related to the development or
purchase of internal-use software. Under SOP 98-1,
generally costs, other than those related to the preliminary
project stage and the post-implementation/operations stage of an
internal-use computer software development project, which are
expensed as incurred, are capitalized and amortized over the
estimated useful life of the software. During 2003, there were
no costs associated with the development of internal-use
software that were capitalized. The Company capitalized
approximately $0.8 million in 2002 and $0.3 million in
2001 in costs associated with the development of internal-use
software. At December 31, 2003 and 2002, capitalized
software development costs, net of amortization, totaled
approximately $0.5 million and $0.8 million,
respectively, and were included in property and equipment in the
accompanying Consolidated Balance Sheets.



| |              
| | -------------
| | Stock Options

The Company accounts for all stock-based employee
compensation plans under the recognition and measurement
provisions of APB Opinion 25, Accounting for Stock Issued
to Employees, (APB 25) and related
interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Companys common shares at the date of the
grant over the amount an employee must pay to acquire the common
shares. The Company generally grants options at prices equal to
the market price of common shares on the date of the grant.
However, if options are granted at a price below fair market
value, compensation expense is recorded in accordance with the
provisions of APB 25. Compensation expense may also be
recognized for certain options which are considered variable
option grants. Statement of Financial Accounting Standards
(SFAS) No. 148, Accounting for
Stock-Based Compensation  an Amendment to
FAS 123, requires companies that continue to account
for stock-based compensation in accordance with APB 25 to
disclose

36



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

certain information using tabular presentation as
presented below. This table illustrates the effect on net loss
and loss per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to
stock-based employee compensation (in thousands, except per
share amounts):

|                                                                                                              |  |                         |        |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                              |  |                        
|                                                                                                              |  | Year Ended December 31,
|                                                                                                              |  |                        
|                                                                                                              |  | 2003                    |        | 2002 |  | 2001
|                                                                                                              |  |                         |        |      |  |     
|Net loss as reported                                                                                          |  | $                       | (3,636 | )    |  | $    | (24,433 | ) |  | $ | (24,146 | )
|Add: Stock-based employee compensation expense
    included in reported net loss                              |  |                         | 357    |      |  |      |        |   |  |   |        |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards |  |                         | (6,343 | )    |  |      | (7,979  | ) |  |   | (7,685  | )
|                                                                                                              |  |                         |        |      |  |      |         |   |  |   |         |  
|Pro forma net loss                                                                                            |  | $                       | (9,622 | )    |  | $    | (32,412 | ) |  | $ | (31,831 | )
|                                                                                                              |  |                         |        |      |  |      |         |   |  |   |         |  
|Loss per common share (basic and diluted):                                                                    |  |                         |        |      |  |      |         |   |  |   |         |  
| As reported                                                                                                 |  | $                       | (0.08  | )    |  | $    | (0.49   | ) |  | $ | (0.47   | )
| Pro forma                                                                                                   |  | $                       | (0.21  | )    |  | $    | (0.64   | ) |  | $ | (0.62   | )

The above pro forma amounts were based on a
Black-Scholes option-pricing model, which included the following
information and assumptions:

|                         |  |              |     |      |  |      |     |   |  |  |     |  
|------------------------ |  | ------------ | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                         |  |             
|                         |  | Year Ended  
|                         |  | December 31,
|                         |  |             
|                         |  | 2003         |     | 2002 |  | 2001
|                         |  |              |     |      |  |     
|Expected life (in years) |  |              | 5   |      |  |      | 5   |   |  |  | 6   |  
|Interest rate            |  |              | 4   | %    |  |      | 5   | % |  |  | 5   | %
|Volatility               |  |              | 100 | %    |  |      | 106 | % |  |  | 112 | %
|Dividend yield           |  |              | 0   | %    |  |      | 0   | % |  |  | 0   | %



| |             
| | ------------
| | Income Taxes

The Company follows the liability method of
accounting for income taxes. Under this method, deferred income
tax assets and liabilities are determined based on differences
between the financial statement and income tax bases of assets
and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation
allowances may also be provided based upon subjective
evaluations of facts, circumstances and expectations, which may
change over the course of time (see Note 5).



| |                          
| | -------------------------
| | Cash and Cash Equivalents

All short-term investments with an original
maturity of 90 days or less are considered cash equivalents.



| |                                                            
| | -----------------------------------------------------------
| | Accounts Receivable and Allowance for
    Doubtful Accounts

The Company provides an allowance for doubtful
accounts when collection is considered doubtful. The Company
performs ongoing credit evaluations of its customers, reviews
its collection efforts and analyzes its payment experience with
specific customers in order to determine whether or not
collection is doubtful. There may be a significant fluctuation
in the provision for doubtful accounts to the extent the
Companys evaluation of the economy, facts, circumstances
and expectations change.

37



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



| |            
| | -----------
| | Investments

The Companys short-term investments include
commercial paper, corporate bonds or certificates of deposit
that have original maturities of more than three months and less
than one year. The Companys long-term investments are
comprised entirely of restricted cash deposits.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost.
Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of the lives of the respective leases
or the service lives of the improvements. Repairs and
maintenance are charged to expense as incurred. When an item is
sold or retired, the related accumulated depreciation is
relieved and the resulting gain or loss net of cash received, if
any, is recognized in the consolidated statement of operations
and comprehensive loss.



| |                  
| | -----------------
| | Long-Lived Assets

In the event that facts and circumstances
indicate that long-lived assets may be impaired, the Company
evaluates the recoverability of such assets. The estimated
future undiscounted cash flows associated with the asset are
compared to the assets carrying amount to determine if a
write-down to market value or discounted cash flow value is
necessary. The Company believes all long-lived assets are fully
realizable as of December 31, 2003.



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are expensed when incurred.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The Companys foreign subsidiaries use the
local currency as their functional currency. Financial
statements of these subsidiaries are translated into
U.S. dollars using the exchange rate at each balance sheet
date for assets and liabilities and a weighted average exchange
rate for each period for revenues, expenses, gains and losses
and cash flows. The impact of currency fluctuations is recorded
as a separate component of comprehensive income (loss) in the
accompanying consolidated statement of operations and
comprehensive loss.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Management considers many factors in
selecting appropriate operational and financial accounting
policies and controls, and in developing the estimates and
assumptions that are used in the preparation of these financial
statements. These factors include: the range of accounting
policies permitted by U.S. generally accepted accounting
principles; managements understanding of the
Companys business (both historical results and expected
future results); the extent to which operational controls exist
that provide high degrees of assurance that all desired
information to assist in the estimation is available and
reliable or whether there is a greater uncertainty in the
information that is available upon which to base the estimate;
expected rates of change, sensitivity and volatility associated
with the assumptions used in developing estimates; and whether
historical trends are expected to be representative of future
trends. Management must apply significant judgment in this
process. The estimation process often times may yield a range of
potentially reasonable estimates of the ultimate future outcomes
and management must select an amount that lies within that range
of reasonable estimates, which may result in the selection of
estimates that could be viewed as conservative or aggressive by
others, based upon the quantity, quality and risks associated
with the variability that might be expected from the future
outcome and the factors considered in developing the estimate.
Actual results could differ from those estimates.

38



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
consolidated financial statements for prior years to conform to
the presentation for the current year.



| |                      
| | ---------------------
| | Recent Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin
(ARB) No. 51 (FIN 46). This interpretation
clarifies the application of ARB No. 51, Consolidated
Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. In December
2003, the FASB revised FIN 46 and extended the effective
date for variable interests created on or before
January 31, 2003, to the first quarter of 2004. FIN 46
significantly changes the criteria used in determining whether
entities are consolidated within financial statements. The
Company expects that the adoption of FIN 46 will not have a
material impact on its results of operations, financial
position, and cash flows.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). This statement amends and clarifies financial
accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133). This statement is effective for contracts
entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. In
addition, all provisions of this statement should be applied
prospectively. The provisions of this statement that relate to
SFAS 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective
effective dates. The adoption of SFAS No. 149 had no
impact on the Companys financial condition, results of
operations or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). This statement establishes
standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset
in some circumstances). Many of those instruments were
previously classified as equity. This statement is effective for
financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003.
These effective dates are not applicable to the provisions of
paragraphs 9 and 10 of SFAS 150 as they apply to
mandatorily redeemable noncontrolling interests, as the FASB has
delayed these provisions indefinitely. The adoption of
SFAS 150 had no impact on the Companys financial
condition, results of operations or cash flows.



|   |                                                 
|-- | ------------------------------------------------
|2. | Restructuring Expenses and Asset
    Impairments

Restructuring costs were $2.2 million in
2003, $3.0 million in 2002 and $6.6 million in 2001.
Restructuring costs in 2003 consisted of a $1.6 million
increase in the accrual for carrying costs of abandoned lease
space (which were accrued as part of the Company restructuring
plans in 2001 and 2002) and a $0.6 million charge related
to the Companys sales and marketing reorganization plan
(the 2003 Restructuring Plan). The $1.6 million
increase in the accrual reflected the Companys decision to
(i) cancel its lease on two of the three abandoned floors
(the maximum cancelable under the lease agreement), which
resulted in a $1.9 million payment to the landlord in
December and (ii) an assessment of the estimated remaining
carrying costs (i.e., estimated future lease expense, less
estimated sublease income over the remaining term of the leases)
associated with the remaining excess floor in Houston and other
excess office space held by the Company. The cancellation of two
floors by the Company resulted in an upward adjustment to the
Companys 2001 Restructuring Plan accrual of

39



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

$0.9 million, which was partially offset
with a reduction to deferred rent expense associated with the
canceled space of approximately $0.4 million. The
assessment of the carrying costs with the remaining excess floor
in Houston resulted in an upward adjustment to the 2002
Restructuring Plan of $1.1 million. Restructuring costs in
2002 consisted of a $1.9 million charge for the
Companys 2002 Restructuring Plan and a $1.1 million
increase to the accrual for the 2001 Restructuring Plan. The
$1.1 million adjustment was the result of an increase in
the estimated carrying costs for the Companys two floors
abandoned as part of the 2001 Restructuring Plan.

The estimated carrying costs of the remaining
abandoned lease space were determined with the assistance of the
Companys leasing agent and were based on an assessment of
applicable commercial real estate markets. The principal reason
for the change in estimate was the continued deterioration of
the sublease market for commercial real estate in Houston, Texas
that occurred since the original determinations were made. The
change in estimates primarily related to: (i) a lowering of
the expected sublease rate to reflect the drop in rates (with
minimal expected escalation over the remaining lease term),
(ii) lengthening the time to sublease the abandoned lease
space either initially or after the existing sublease expires
and (iii) an increase in expense for inducements (e.g.,
rent abatement, tenant improvement allowances, etc.) that
potentially would be offered to prospective tenants of the space.

In January 2003, the Company approved a sales and
marketing reorganization plan (the 2003 Restructuring
Plan). The cost of this plan totaled approximately
$0.6 million and consisted primarily of
(i) involuntary employee separation for approximately 20
employees (a reduction in workforce of approximately
4 percent), (ii) closing the Companys
Netherlands sales office, and (iii) reserves for leasehold
abandonment.

The 2003 Restructuring Plan activity from
January 1, 2003 to December 31, 2003 was as follows
(in thousands):

|                     |  |               |     |                      |  |              |     |                   |  |   |      |   |  |   |   | 
|-------------------- |  | ------------- | --- | -------------------- |  | ------------ | --- | ----------------- |  | - | ---- | - |  | - | - | 
|                     |  | Restructuring |     | Restructuring Charge |  | Cash         |     | Remaining Accrual
|                     |  | Charges       |     | Adjustments          |  | Expenditures |     | 12/31/2003       
|                     |  |               |     |                      |  |              |     |                  
|Employee severance   |  | $             | 442 |                      |  | $            | (6  | )                 |  | $ | (436 | ) |  | $ |  | 
|Lease commitments    |  |               | 27  |                      |  |              | (14 | )                 |  |   | (13  | ) |  |   |  | 
|Office closure costs |  |               | 80  |                      |  |              |    |                   |  |   | (80  | ) |  |   |  | 
|                     |  |               |     |                      |  |              |     |                   |  |   |      |   |  |   |   | 
|                     |  | $             | 549 |                      |  | $            | (20 | )                 |  | $ | (529 | ) |  | $ |  | 
|                     |  |               |     |                      |  |              |     |                   |  |   |      |   |  |   |   | 

All actions under the 2003 Restructuring Plan
were completed by December 31, 2003.

In July 2002, the Company approved a
restructuring plan to improve operating efficiency and improve
sales and marketing productivity (the 2002 Restructuring
Plan). The cost of this plan totaled approximately
$1.9 million and consisted primarily of
(i) involuntary employee separation for approximately 30
employees (a reduction in workforce of approximately 5 percent),
(ii) closing the Companys Boston development center
and certain European sales offices, (iii) reserves for
leasehold abandonment, and (iv) various non-personnel
related cuts. The costs of the plan were based on the
Companys best estimate utilizing information available at
the time.

The 2002 Restructuring Plan activity from January
1, 2003 to December 31, 2003 was as follows (in thousands):

|                   |  |                   |       |                      |  |              |       |                   |  |   |      |   |  |   |       | 
|------------------ |  | ----------------- | ----- | -------------------- |  | ------------ | ----- | ----------------- |  | - | ---- | - |  | - | ----- | 
|                   |  | Remaining Accrual |       | Restructuring Charge |  | Cash         |       | Remaining Accrual
|                   |  | 12/31/2002        |       | Adjustments          |  | Expenditures |       | 12/31/2003       
|                   |  |                   |       |                      |  |              |       |                  
|Employee severance |  | $                 | 238   |                      |  | $            |      |                   |  | $ | (238 | ) |  | $ |      | 
|Lease commitments  |  |                   | 944   |                      |  |              | 1,089 |                   |  |   | (495 | ) |  |   | 1,538 | 
|                   |  |                   |       |                      |  |              |       |                   |  |   |      |   |  |   |       | 
|                   |  | $                 | 1,182 |                      |  | $            | 1,089 |                   |  | $ | (733 | ) |  | $ | 1,538 | 
|                   |  |                   |       |                      |  |              |       |                   |  |   |      |   |  |   |       | 

The remaining accrual for the 2002 Restructuring
Plan at December 31, 2003 is comprised of the estimated
carrying costs for the remaining excess space in Houston, Texas.
As discussed in detail above, the restructuring

40



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

charge adjustments during 2003 were based on the
Companys assessment of the remaining carrying costs of the
remaining excess lease space. Additional adjustments to this
balance could be required in future periods based on the
economic outlook of the real estate market in Houston, Texas.

In connection with the 2002 Restructuring Plan,
the Company also determined that certain leasehold improvements
related to the downsized or closed offices were impaired and
recognized an asset impairment of $0.3 million.

In 2001, the Company completed a corporate
reorganization and implemented a number of cost-cutting measures
to improve operating efficiency and to accelerate our return to
profitability (the 2001 Restructuring Plan). The
cost of this plan totaled approximately $6.6 million and
consisted primarily of: (i) involuntary employee separation
expenses for approximately 160 employees (a reduction in
workforce of approximately 21 percent),
(ii) downsizing or closing of the Companys Boston and
Arlington development centers and certain of the Companys
European sales offices, (iii) reserves for leasehold
abandonment, and (iv) various non-personnel related costs.
The restructuring costs included a $1.2 million charge
related to asset impairments of leasehold improvements,
equipment and other assets of the closed or downsized offices.

The 2001 Restructuring Plan activity from
January 1, 2003 to December 31, 2003 was as follows
(in thousands):

|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 
|----------------- |  | ---------- | ----- | ------------- |  | ------------ | --- | ---------- |  | - | ------ | - |  | - | --- | 
|                  |  | Remaining  |       | Restructuring |  |              |     | Remaining 
|                  |  | Accrual    |       | Charge        |  | Cash         |     | Accrual   
|                  |  | 12/31/2002 |       | Adjustments   |  | Expenditures |     | 12/31/2003
|                  |  |            |       |               |  |              |     |           
|Lease commitments |  | $          | 1,384 |               |  | $            | 941 |            |  | $ | (1,872 | ) |  | $ | 453 | 
|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 
|                  |  | $          | 1,384 |               |  | $            | 941 |            |  | $ | (1,872 | ) |  | $ | 453 | 
|                  |  |            |       |               |  |              |     |            |  |   |        |   |  |   |     | 

The remaining accrual for the 2001 Restructuring
Plan consists of excess carrying costs until the cancellation is
effective in September of 2004. As discussed in detail above,
the restructuring charge adjustments during 2003 were the result
of the lease cancellation for the Companys two floors
abandoned as part of the 2001 Restructuring Plan.

The Company also recorded asset impairment
charges totaling $7.0 million during 2001 consisting of:
(i) a write off of a $5.0 million equity investment in
a UK-based software distribution and consulting firm and
(ii) an asset impairment charge of $2.0 million
consisting of $1.5 million for software and computer
equipment and a $0.5 million impairment of certain
intangible assets. The investment in the UK-based software firm
was originally made during the second quarter of 2000 and
consisted of $5.0 million of redeemable preferred stock in
the firm and $1.0 million of intangible assets, primarily
consisting of customer lists and non-compete agreements which
were being amortized over their useful lives ranging from one to
three years. The write-off of the $5.0 million equity
investment, which is included in other income (expense) in
the Companys consolidated statement of operations and
comprehensive loss, was based on an independent appraisal of the
current fair value of the investment and managements
assessment of the value that would be derived from the
investment. The intangible assets had a net book value of
$0.5 million at the date of the impairment after the
Company incurred $0.2 million and $0.3 million in
amortization expense for the years ending December 31, 2001
and 2000, respectively. The majority of the $1.5 million in
software and computer equipment impairment related to the
acquisition of a financial management system that management had
determined would not be installed or utilized in the future.

3.     Restricted
Cash

At December 31, 2003 and 2002, the Company
had $4.5 million of restricted cash, which is on deposit
with a financial institution as collateral for a
$4.5 million irrevocable letter of credit that was issued
by that institution on the Companys behalf to meet the
collateral requirement of its corporate office lease. Under
terms of the office

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BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

lease, this letter of credit requirement is
reduced to $1.75 million in 2004 and expires in 2005.
Except for the current portion of the restricted cash, which is
included in current assets, the restricted cash is included in
investments and other assets in the accompanying Consolidated
Balance Sheets.

4.     Property and
Equipment

Property and equipment were comprised of the
following:

|                                     |  |                |             |              |  |      |         |   |  |   |         |  
|------------------------------------ |  | -------------- | ----------- | ------------ |  | ---- | ------- | - |  | - | ------- | -
|                                     |  |                |             |             
|                                     |  |                |             | December 31,
|                                     |  | Estimated      |             |             
|                                     |  | Useful Lives   |             | 2003         |  | 2002
|                                     |  |                |             |              |  |     
|                                     |  |               
|                                     |  | (In thousands)
|Computer equipment and software      |  |                | 3 years     |              |  | $    | 19,549  |   |  | $ | 18,402  |  
|Office furniture and other equipment |  |                | 3-10 years  |              |  |      | 4,161   |   |  |   | 3,497   |  
|Autos                                |  |                | 5 years     |              |  |      | 49      |   |  |   | 49      |  
|Leasehold improvements               |  |                | Lease terms |              |  |      | 5,061   |   |  |   | 4,777   |  
|                                     |  |                |             |              |  |      |         |   |  |   |         |  
|                                     |  |                |             |              |  |      | 28,820  |   |  |   | 26,725  |  
|Less  accumulated depreciation      |  |                |             |              |  |      | (22,256 | ) |  |   | (18,909 | )
|                                     |  |                |             |              |  |      |         |   |  |   |         |  
|                                     |  |                |             |              |  | $    | 6,564   |   |  | $ | 7,816   |  
|                                     |  |                |             |              |  |      |         |   |  |   |         |  

Depreciation expense totaled $3.6 million in
2003, $4.1 million in 2002, and $5.2 million in 2001.

5.     Income
Taxes

The components of income (loss) before income
taxes are summarized as follows (in thousands):

|                |                                |                         |        |        |   |      |        |        |   |   |         |         |  
|--------------- | ------------------------------ | ----------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|                |                                |                        
|                |                                | Year Ended December 31,
|                |                                |                        
|                |                                | 2003                    |        | 2002   |   | 2001
|                |                                |                         |        |        |   |     
|                |                                |                        
|                |                                | (In thousands)         
|U.S. operations |                                | $                       | (4,351 | )      |   | $    | (5,653 | )      |   | $ | (37,112 | )      
|Foreign         |                                |                         | 765    |        |   |      | 782    |        |   |   | 2,755   |        
|                |                                |                         |        |        |   |      |        |        |   |   |         |        
|                | Total loss before income taxes |                         | $      | (3,586 | ) |      | $      | (4,871 | ) |   | $       | (34,357 | )
|                |                                |                         |        |        |   |      |        |        |   |   |         |        

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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

The provision (benefit) for income taxes
consisted of the following:

|                |         |                         |    |      |    |      |   |        |        |  |    |         |         |  
|--------------- | ------- | ----------------------- | -- | ---- | -- | ---- | - | ------ | ------ |  | -- | ------- | ------- | -
|                |         |                        
|                |         | Year Ended December 31,
|                |         |                        
|                |         | 2003                    |    | 2002 |    | 2001
|                |         |                         |    |      |    |     
|                |         |                        
|                |         | (In thousands)         
|Current         |         |                         |    |      |    |      |   |        |        |  |    |        
|U.S. operations |         |                         |    |      |    |      |   |        |        |  |    |        
|                | Federal |                         | $  |     |    |      | $ |       |        |  | $  |        |        
|                | State   |                         |    |     |    |      |   |       |        |  |    |        |        
|Foreign         |         |                         | 50 |      |    |      |  |        |        |  | 75 |        
|                |         |                         |    |      |    |      |   |        |        |  |    |        
|                |         | Total current           |    | $    | 50 |      |   | $      |       |  |    | $       | 75      |  
|Deferred        |         |                         |    |      |    |      |   |        |        |  |    |        
|U.S. operations |         |                         |    |      |    |      |   |        |        |  |    |        
|                | Federal |                         | $  |     |    |      | $ | 19,466 |        |  | $  | (10,250 | )      
|                | State   |                         |    |     |    |      |   | 96     |        |  |    | (36     | )      
|Foreign         |         |                         |   |      |    |      |  |        |        |  |   |        
|                |         |                         |    |      |    |      |   |        |        |  |    |        
|                |         | Total deferred          |    | $    |   |      |   | $      | 19,562 |  |    | $       | (10,286 | )
|                |         |                         |    |      |    |      |   |        |        |  |    |        
|                |         | Total                   |    | $    | 50 |      |   | $      | 19,562 |  |    | $       | (10,211 | )
|                |         |                         |    |      |    |      |   |        |        |  |    |        

The differences between income taxes computed at
the federal statutory income tax rate and the provision
(benefit) for income taxes follow:

|                                                               |                                            |                         |        |      |  |      |        |        |  |   |         |         |  
|-------------------------------------------------------------- | ------------------------------------------ | ----------------------- | ------ | ---- |  | ---- | ------ | ------ |  | - | ------- | ------- | -
|                                                               |                                            |                        
|                                                               |                                            | Year Ended December 31,
|                                                               |                                            |                        
|                                                               |                                            | 2003                    |        | 2002 |  | 2001
|                                                               |                                            |                         |        |      |  |     
|                                                               |                                            |                        
|                                                               |                                            | (In thousands)         
|Income taxes computed at federal statutory income
    tax rate |                                            | $                       | (1,219 | )    |  | $    | (1,656 | )      |  | $ | (11,681 | )      
|State income taxes, net of federal benefit                     |                                            |                         | (513   | )    |  |      | (112   | )      |  |   | (36     | )      
|Foreign income taxes                                           |                                            |                         | (210   | )    |  |      | (203   | )      |  |   | 25      |        
|Research and development credit                                |                                            |                         | (791   | )    |  |      | (275   | )      |  |   | (780    | )      
|Foreign interest and dividends                                 |                                            |                         | 467    |      |  |      |       |        |  |   |        |        
|Valuation allowance                                            |                                            |                         | 2,095  |      |  |      | 21,705 |        |  |   | 2,035   |        
|Other                                                          |                                            |                         | 221    |      |  |      | 103    |        |  |   | 226     |        
|                                                               |                                            |                         |        |      |  |      |        |        |  |   |         |        
|                                                               | Total provision (benefit) for income taxes |                         | $      | 50   |  |      | $      | 19,562 |  |   | $       | (10,211 | )
|                                                               |                                            |                         |        |      |  |      |        |        |  |   |         |        

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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

The components of deferred tax assets and
liabilities at December 31, 2003 and 2002 are comprised of
the following:

|                          |                                              |                |         |        |  |   |         |        | 
|------------------------- | -------------------------------------------- | -------------- | ------- | ------ |  | - | ------- | ------ | 
|                          |                                              |               
|                          |                                              | December 31,  
|                          |                                              |               
|                          |                                              | 2003           |         | 2002  
|                          |                                              |                |         |       
|                          |                                              |               
|                          |                                              | (In thousands)
|Deferred tax assets:      |                                              |                |         |        |  |   |         |       
|                          | Net operating loss carryforwards             |                | $       | 18,327 |  |   | $       | 21,445 | 
|                          | Capitalized research and development costs   |                |         | 5,539  |  |   |         | 4,155  | 
|                          | Difference in basis for equity investment    |                |         | 1,872  |  |   |         | 1,872  | 
|                          | Research and development credit carryforward |                |         | 4,122  |  |   |         | 3,331  | 
|                          | Allowance for doubtful accounts              |                |         | 372    |  |   |         | 439    | 
|                          | Accrued liabilities                          |                |         | 544    |  |   |         | 886    | 
|                          | Differences in basis for long-lived assets   |                |         | 1,705  |  |   |         | 1,646  | 
|                          | Other                                        |                |         | 952    |  |   |         | 409    | 
|                          |                                              |                |         |        |  |   |         |       
|                          |                                              |                | 33,433  |        |  |   | 34,183  |       
|Deferred tax liabilities  |                                              |                |        |        |  |   |        |       
|                          | Total                                        |                |         | 33,433 |  |   |         | 34,183 | 
|Less: Valuation allowance |                                              |                | (33,433 | )      |  |   | (34,183 | )     
|                          |                                              |                |         |        |  |   |         |       
|Total deferred tax asset  |                                              | $              |        |        |  | $ |        |       
|                          |                                              |                |         |        |  |   |         |       

At December 31, 2003, the Company has a
domestic NOL carryforward of approximately $51 million, of
which $8 million expires in 2012, $39 million expires
from 2018 through 2021 and $4 million expires in 2022. The
Company also has a foreign NOL carryforwards totaling
approximately $3 million and a research and development
credit carryforward of $4 million expiring between 2018 and
2023.

During 2002, the Company made an assessment of
realization of its deferred tax assets and concluded that a full
valuation allowance was appropriate, resulting in a charge of
19.6 million. As of December 31, 2003, the Company has
a full valuation allowance of $33.4 million against its
deferred tax assets. As in its prior assessments, the Company
considered its current and previous performance and other
relevant factors in determining the sufficiency of its valuation
allowance. Objective factors, such as current and previous
operating losses, were given substantially more weight than
managements outlook for future profitability. Until such
time as a consistent pattern of sufficient profitability is
established, no tax benefit will be recognized associated with
the Companys pre-tax accounting losses and a full income
tax provision will not be provided on any future pre-tax
accounting income.

United States income taxes have not been provided
on the cumulative undistributed earnings, which totaled
approximately $2.6 million at December 31, 2003, of
the Companys foreign subsidiaries as it is the
Companys intention to reinvest such earnings indefinitely.

6.     Net Loss Per
Share

The Companys loss per share data is
presented in accordance with SFAS No. 128, Earnings
Per Share. Basic earnings (loss) per share are computed
using the weighted average number of shares outstanding. Diluted
earnings (loss) per share are 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. The

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BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

following table sets forth the computation of
basic and diluted loss per share (in thousands, except per share
amounts):

|                                              |                                                                    |                      |       |        |        |      |       |         |        |   |       |         |        | 
|--------------------------------------------- | ------------------------------------------------------------------ | -------------------- | ----- | ------ | ------ | ---- | ----- | ------- | ------ | - | ----- | ------- | ------ | 
|                                              |                                                                    | 2003                 |       | 2002   |        | 2001
|                                              |                                                                    |                      |       |        |        |     
|Numerator:                                    |                                                                    |                      |       |        |        |      |       |         |        |   |       |        
|                                              | Net loss  numerator for loss per
    share  basic and diluted    |                      | $     | (3,636 | )      |      | $     | (24,433 | )      |   | $     | (24,146 | )     
|Denominator:                                  |                                                                    |                      |       |        |        |      |       |         |        |   |       |        
|                                              | Denominator for basic loss per share 
    weighted-average shares |                      |       | 46,714 |        |      |       | 50,319  |        |   |       | 51,438  |       
|Effect of dilutive securities:                |                                                                    |                      |       |        |        |      |       |         |        |   |       |        
|                                              | Effect of stock options                                            |                      |       |       |        |      |       |        |        |   |       |        |       
|                                              |                                                                    |                      |       |        |        |      |       |         |        |   |       |        
|                                              |                                                                    | Total diluted shares |       |        | 46,714 |      |       |         | 50,319 |   |       |         | 51,438 | 
|                                              |                                                                    |                      |       |        |        |      |       |         |        |   |       |        
|Loss per common share  basic and
    diluted |                                                                    | $                    | (0.08 | )      |        | $    | (0.49 | )       |        | $ | (0.47 | )      
|                                              |                                                                    |                      |       |        |        |      |       |         |        |   |       |        

Options to purchase 9.6 million,
7.5 million and 8.2 million shares of common stock for
the years ended December 31, 2003, 2002 and 2001,
respectively, were outstanding, but were not included in the
computation of diluted loss per share as their inclusion would
have been anti-dilutive.

7.     Shareholders
Equity



| |             
| | ------------
| | Common Stock

In 1998, the Company issued 0.5 million
shares of common stock to the two founders of Entevo pursuant to
the terms of restricted stock purchase agreements. The common
stock was issued at $0.05 per share in consideration of
full recourse promissory notes due in 2003 bearing interest at
6 percent from the founders. During 2000, one promissory
note totaling $0.1 million was paid in full. During 2003,
the Company provided a full reserve on the remaining note which
had an outstanding balance of $0.1 million.

In May of 2001, the Company, under terms of a
restricted stock agreement, issued 0.4 million shares of
restricted common stock to an executive officer at
$2.61 per share in exchange for a full recourse promissory
note of approximately $1.0 million. The restricted common
stock vests over a four-year period from the date of issuance.
At December 31, 2001, the May 2001 agreements were
rescinded and a new restricted stock agreement and promissory
note were entered into reflecting issuance of 0.4 million
shares to the executive at $1.97 per share. Additionally,
the executives employment agreement was amended to lower
his guaranteed signing bonus in proportion to the reduction in
proceeds to the Company from the stock issuance.



| |                        
| | -----------------------
| | Shareholder Rights Plan

On September 17, 2001 the Board of Directors
adopted a Shareholder Rights Plan (the Rights Plan).
Pursuant to the Rights Plan, the Company distributed Preferred
Stock Purchase Rights (Rights) as a dividend at the
rate of one Right for each share of the Companys common
stock held by stockholders of record as of September 21,
2001 (the Record Date). The Board of Directors also
authorized the issuance of Rights for each share of common stock
issued after Record Date, until the occurrence of certain
specified events. The Rights Plan was adopted to provide
protection to stockholders in the event of an unsolicited
attempt to acquire the Company. The Rights are not exercisable
until the earlier of (i) ten days following an announcement
that a person or group has acquired beneficial ownership of
15 percent of the Companys common stock or
(ii) ten days following the announcement of a tender offer
which would result in a person or group obtaining beneficial
ownership of 15 percent or more of the Companys
outstanding common stock, subject to certain exceptions (the
earlier of such dates being called the (Distribution
Date)). The Rights are initially exercisable for one
one-hundredth of a share of the Companys preferred stock
at a price of $11 per share, subject to adjustment.
However, if (i) after the

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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

Distribution Date the Company is acquired in
certain types of transactions, or (ii) any person or group,
with certain exceptions, acquires beneficial ownership of
15 percent of the Companys common stock, then holders
of Rights (other than the 15 percent holder) will be
entitled to receive upon exercise of the Right, common stock of
the Company (or in the case of acquisition of the Company,
common stock of the acquirer) having a market value of two times
the exercise price of the Right. The Company is entitled to
redeem the Rights, for $0.001 per Right, at the discretion
of the Board of Directors, until certain specified times. The
Company may also require the exchange of Rights, at a rate of
one share of common stock, for each Right, under certain
circumstances. The Company also has the ability to amend the
Rights, subject to certain limitations.



| |                            
| | ---------------------------
| | Treasury Stock Transactions

Under terms of a share repurchase program
approved by the Board of Directors in 2002, the Company
purchased approximately 5.7 million shares of common stock
during the year ended December 31, 2002, at an average
price per share of $0.94. The Company retired these shares in
November 2002.

Under terms of a share repurchase program
approved by the Board of Directors in 2000, the Company
purchased approximately 2.4 million and 0.6 million
shares of common stock at an average price per share of $3.14
and $8.38 during the years ended December 31, 2001 and
2000, respectively. In February 2002, the Company retired all of
the 3.0 million shares of common stock held in treasury as
of December 31, 2001.

8.     Stock-Based
Compensation Plans



| |                            
| | ---------------------------
| | Incentive Stock Option Plan

In 1996, the Companys Board of Directors
adopted the Incentive Stock Option Plan under which
3.7 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 0.5 million common shares were outstanding and
1.1 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.5  |      |  |      | 0.5  |  |  |   | 0.6  | 
|Weighted average exercise price on options
    exercisable |  | $    | 1.49 |      |  | $    | 1.38 |  |  | $ | 1.63 | 



| |                                   
| | ----------------------------------
| | Nonqualified Stock Option
    Plan

In 1996, the Companys Board of Directors
adopted the Nonqualified Stock Option Plan under which
3.5 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, 2002, and
2001, there were no options outstanding and 0.3 million
options available for issuance under this plan.



| |                                    
| | -----------------------------------
| | 1997 Employee Stock Option
    Plan

In 1997, the Companys Board of Directors
adopted the 1997 Employee Stock Option Plan under which
2.6 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 0.4 million common shares were outstanding and
0.4 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.4  |      |  |      | 0.5  |  |  |   | 0.4  | 
|Weighted average exercise price on options
    exercisable |  | $    | 1.42 |      |  | $    | 2.91 |  |  | $ | 2.53 | 

46



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



| |                            
| | ---------------------------
| | 1998 Omnibus Incentive Plan

In 1998, the Companys Board of Directors
adopted the 1998 Omnibus Incentive Plan under which
8.0 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 3.8 million common shares were outstanding and
3.3 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 1.3  |      |  |      | 1.2  |  |  |   | 1.5  | 
|Weighted average exercise price on options
    exercisable |  | $    | 6.72 |      |  | $    | 7.16 |  |  | $ | 8.13 | 



| |                           
| | --------------------------
| | Non-Employee Director Plan

In 1998, the Companys Board of Directors
adopted the Non-Employee Director Plan under which
0.5 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 0.4 million common shares were outstanding and
0.1 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.2  |      |  |      | 0.1  |  |  |   | 0.1  | 
|Weighted average exercise price on options
    exercisable |  | $    | 1.47 |      |  | $    | 1.73 |  |  | $ | 1.92 | 

During 2003, the Companys Board of
Directors approved an increase of 0.5 million common shares
available for issuance under the plan. This increase is subject
to shareholder approval at the Companys 2004 Annual
Meeting of Shareholders. In connection with the authorization of
additional shares for the plan, the Board of Directors approved
the issuance of options to purchase 0.1 million common
shares. These issuances, which are contingent upon shareholder
approval, were approved by the Board of Directors at the fair
market value at the time of approval. The Company will recognize
compensation expense over the vesting period of these options
for the difference between the exercise price and the value of
the Companys common stock on the date of shareholder
approval.



| |                              
| | -----------------------------
| | 2000 Indian Stock Option Plan

In 2000, the Companys Board of Directors
adopted the 2000 Indian Stock Option Plan under which
0.5 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 0.4 million common shares were outstanding and
0.1 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.1  |      |  |      | 0.1  |  |  |   | 0.1  | 
|Weighted average exercise price on options
    exercisable |  | $    | 4.57 |      |  | $    | 5.70 |  |  | $ | 6.63 | 



| |                             
| | ----------------------------
| | 2000 Employee Incentive Plan

In 2000, the Companys Board of Directors
adopted the BindView 2000 Employee Incentive Plan under which
4.4 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 4.1 million common shares were outstanding and
0.2 million options were available for issuance under this
plan. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 1.6  |      |  |      | 0.8  |  |  |   | 0.4  | 
|Weighted average exercise price on options
    exercisable |  | $    | 2.46 |      |  | $    | 3.01 |  |  | $ | 4.74 | 

47



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



| |                                                                               
| | ------------------------------------------------------------------------------
| | International Employee Stock Option Plan
    and Section 102 Share Option Plan

In 1998, Netects Board of Directors adopted
the International Employee Stock Option and
Section 102 Share Option Plans under which
0.4 million shares of common stock have been reserved for
issuance of options. As of December 31, 2003, options to
purchase 0.1 million common shares were outstanding. No
options are available for issuance under the plans as these
plans were made inactive during 2003. In connection with the
merger of Netect and the Company, these options were exchanged
for options to purchase the Companys common stock using
the exchange ratio, which is reflected in the amounts listed
herein. Summary data on exercisable options at December 31,
2003, 2002 and 2001, follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.1  |      |  |      | 0.1  |  |  |   | 0.1  | 
|Weighted average exercise price on options
    exercisable |  | $    | 7.13 |      |  | $    | 4.59 |  |  | $ | 3.50 | 



| |                                                             
| | ------------------------------------------------------------
| | 1997 Entevo Stock Plan and 1998 Indian
    Stock Option Plan

In 1997, Entevos Board of Directors adopted
the 1997 Entevo Stock Plan and in 1998 the 1998 Indian Stock
Option Plan under which 0.4 million shares of common stock
have been reserved for issuance of options. As of
December 31, 2003, options to purchase 0.1 million
common shares were outstanding and 0.3 million options were
available for issuance under this plan. Certain local regulatory
restrictions apply to the Indian Stock Option Plan. In
connection with the merger of Entevo into the Company, these
options were exchanged for options to purchase the
Companys common stock using the exchange ratio, which is
reflected in the amounts listed herein. Summary data on
exercisable options at December 31, 2003, 2002 and 2001,
follow:

|                                                           |  |      |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                           |  | 2003 |      | 2002 |  | 2001
|                                                           |  |      |      |      |  |     
|Options exercisable (in millions)                          |  |      | 0.1  |      |  |      | 0.1  |  |  |   | 0.1  | 
|Weighted average exercise price on options
    exercisable |  | $    | 1.75 |      |  | $    | 1.65 |  |  | $ | 0.94 | 



| |                                       
| | --------------------------------------
| | All Stock-Based Compensation
    Plans

Options granted under the Incentive Stock Option
Plan and Nonqualified Stock Option Plan generally vest
20 percent per year over five years. Options granted under
the International Employee Stock Option Plan, the
Section 102 Share Option Plan, 1997 Entevo Stock Plan,
1998 Indian Stock Option Plan, 2000 Indian Stock Option Plan,
Non-Employee Director Plan, and 2000 Employee Incentive Plan
generally vest 25 percent per year over four years. Options
granted under the 1997 Employee Stock Option Plan and 1998
Omnibus Incentive Plan vest at varying rates. Options expire
between one year and ten years from the date of grant. Except as
noted below, stock options have been granted at the fair market
value of the Companys stock at the date of grant.

48



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

The following table summarizes combined activity
under the stock option plans for each of the three years ended
December 31, 2003:

|                                       |                                  |                                          |        |                 |   |           |             |             |  |   |      |       | 
|-------------------------------------- | -------------------------------- | ---------------------------------------- | ------ | --------------- | - | --------- | ----------- | ----------- |  | - | ---- | ----- | 
|                                       |                                  |                                          |        |                 |   | Weighted 
|                                       |                                  |                                          |        |                 |   | Average  
|                                       |                                  |                                          |        |                 |   | Price Per
|                                       |                                  | Options                                  |        | Price Per Share |   | Share    
|                                       |                                  |                                          |        |                 |   |          
|                                       |                                  |                                         
|                                       |                                  | (In thousands, except per share amounts)
|Options outstanding, December 31, 2000 |                                  |                                          | 11,956 |                 |   | $         | 0.38-$22.50 |             |  | $ | 7.22 |      
|                                       | Options granted                  |                                          |        | 6,057           |   |           | $           | 1.00-$ 8.91 |  |   | $    | 3.13  | 
|                                       | Options lapsed or canceled       |                                          |        | (8,328          | ) |           | $           | 0.39-$13.81 |  |   | $    | 7.27  | 
|                                       | Options exercised                |                                          |        | (1,486          | ) |           | $           | 0.38-$10.06 |  |   | $    | 1.01  | 
|                                       |                                  |                                          |        |                 |   |           |             |             |  |   |      |      
|Options outstanding, December 31, 2001 |                                  |                                          | 8,199  |                 |   | $         | 0.38-$13.81 |             |  | $ | 5.28 |      
|                                       | Options granted                  |                                          |        | 3,149           |   |           | $           | 0.79-$ 2.37 |  |   | $    | 1.41  | 
|                                       | Options lapsed or canceled       |                                          |        | (3,698          | ) |           | $           | 0.41-$13.81 |  |   | $    | 6.34  | 
|                                       | Options exercised                |                                          |        | (107            | ) |           | $           | 0.38-$ 2.07 |  |   | $    | 0.61  | 
|                                       |                                  |                                          |        |                 |   |           |             |             |  |   |      |      
|Options outstanding, December 31, 2002 |                                  |                                          | 7,543  |                 |   | $         | 0.38-$13.75 |             |  | $ | 3.20 |      
|                                       | Options granted                  |                                          |        | 3,478           |   |           | $           | 1.10-$ 3.06 |  |   | $    | 1.34  | 
|                                       | Options lapsed or canceled       |                                          |        | (1,300          | ) |           | $           | 0.41-$12.38 |  |   | $    | 4.73  | 
|                                       | Options exercised                |                                          |        | (280            | ) |           | $           | 0.46-$ 2.90 |  |   | $    | 1.39  | 
|                                       | Reinstated exchange plan options |                                          |        | 198             |   |           | $           | 3.19-$13.13 |  |   | $    | 10.07 | 
|                                       |                                  |                                          |        |                 |   |           |             |             |  |   |      |      
|Options outstanding, December 31, 2003 |                                  |                                          | 9,639  |                 |   | $         | 0.38-$22.50 |             |  | $ | 2.54 |      
|                                       |                                  |                                          |        |                 |   |           |             |             |  |   |      |      

The following table summarizes outstanding and
exercisable options at various price ranges at December 31,
2003:

|             |  |                        |       |                     |  |          |     |         |  |          |       |  |  |  |       |  |  |   |       | 
|------------ |  | ---------------------- | ----- | ------------------- |  | -------- | --- | ------- |  | -------- | ----- |  |  |  | ----- |  |  | - | ----- | 
|             |  |                        |       |                    
|             |  | Options Outstanding    |       | Options Exercisable
|             |  |                        |       |                    
|             |  |                        |       | Weighted            |  | Weighted |     |         |  | Weighted
|             |  |                        |       | Average             |  | Average  |     |         |  | Average 
|             |  |                        |       | Remaining           |  | Exercise |     |         |  | Exercise
|             |  | Options                |       | Life in Years       |  | Price    |     | Options |  | Price   
|             |  |                        |       |                     |  |          |     |         |  |         
|             |  |                       
|             |  | (Options in thousands)
|under $1.00  |  |                        | 743   |                     |  |          | 5.6 |         |  | $        | 0.78  |  |  |  | 552   |  |  | $ | 0.72  | 
|$1.01-$1.50  |  |                        | 3,798 |                     |  |          | 8.5 |         |  | $        | 1.17  |  |  |  | 663   |  |  | $ | 1.34  | 
|$1.51-$2.00  |  |                        | 1,645 |                     |  |          | 7.9 |         |  | $        | 1.57  |  |  |  | 689   |  |  | $ | 1.62  | 
|$2.01-$5.00  |  |                        | 2,445 |                     |  |          | 7.4 |         |  | $        | 2.90  |  |  |  | 1,356 |  |  | $ | 3.21  | 
|$5.01-$10.00 |  |                        | 770   |                     |  |          | 6.0 |         |  | $        | 8.92  |  |  |  | 655   |  |  | $ | 8.98  | 
|Over $10.00  |  |                        | 238   |                     |  |          | 5.6 |         |  | $        | 11.80 |  |  |  | 210   |  |  | $ | 11.76 | 
|             |  |                        |       |                     |  |          |     |         |  |          |       |  |  |  |       |  |  |   |       | 
|             |  |                        | 9,639 |                     |  |          | 7.6 |         |  | $        | 2.54  |  |  |  | 4,125 |  |  | $ | 3.66  | 
|             |  |                        |       |                     |  |          |     |         |  |          |       |  |  |  |       |  |  |   |       | 

Included in the Companys 2003 stock option
activity are grants that were issued with an exercise price that
was less than the market price of the Companys common
stock at the date of grant under an option exchange program
completed during 2003. The Company issued 0.3 million
options at an exercise price of $1.10 per share related to
these grants. The weighted average fair value of these shares at
the date of grant was $1.86.



| |                        
| | -----------------------
| | Option Exchange Program

In July 2003, the Company completed a voluntary
exchange program whereby employees could surrender options to
purchase the Companys common stock having an option price
of $3.00 or higher in exchange for a

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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

lesser number of new options at a price equal to
the market price on the date of issuance. The program was
initiated in November 2002 and during 2003, extended in a manner
that enabled participants who previously surrendered their
options with the opportunity to rescind their participation.
Under this program, the participants in the program surrendered
0.7 million options (which were cancelled by the Company in
2002) and in July 2003, the Company issued new options to
purchase 0.3 million shares of common stock.

As part of its 2003 annual option awards to
employees, the Company issued to these participants in 2003
options to purchase 0.2 million common shares. For
accounting purposes, these options are variable and during 2003,
the Company recognized compensation expense of approximately
$0.3 million. At December 31, 2003, the Company had
deferred compensation expense related to these options of
approximately $0.5 million, which will be amortized over
the remaining vesting period of the options. Related future
stock compensation expense will increase or decrease dependent
upon the value of the Companys stock until the related
option is exercised or expires.

As part of its annual option awards to employees,
the Company also issued options to purchase approximately
0.3 million shares of the Companys common stock to
employees who had exercised their rescission right and opted out
of the exchange program referred to above. These options were
issued in July 2003 at the same option price for employees who
received their annual option award earlier in the year. Since
the exercise price of these options was lower than the market
price of the Companys stock at the date of issuance, the
Company will recognize compensation expense of approximately
$0.3 million over the four year vesting term for these
fixed options, of which $0.1 million was recognized in the
year ended December 31, 2003.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

During 1999, the Companys Board of
Directors adopted the 1999 Employee Stock Purchase Plan whereby
eligible employees may purchase shares of the Companys
common stock at a price equal to 85 percent of the lower of
the closing market price on the first or last trading day of a
six-month period. The Board of Directors originally authorized
1.0 million shares for issuance of common stock under this
plan. During 2003, the Board of Directors authorized an
additional 1.0 million shares for issuance and received
shareholder approval during the Companys 2003 Annual
Meeting of Shareholders. Employees purchased 0.5 million,
0.5 million and 0.2 million shares during 2003, 2002
and 2001, respectively. Aggregate proceeds to the Company
totaled $0.5 million, $0.5 million and
$0.6 million in 2003, 2002 and 2001, respectively. At
December 31, 2003, 0.7 million shares remain available
for issuance under the plan.

9.     Commitments
and Contingencies



| |                  
| | -----------------
| | Lease Commitments

The Company conducts its operations in leased
facilities under operating leases expiring at various dates
through 2011. Total lease expense amounted to approximately
$3.2 million in 2003, $4.1 million in 2002, and
$4.4 million in 2001.

The minimum rental commitments under operating
leases at December 31, 2003 are: $5.0 million in 2004,
$3.6 million in 2005, $3.5 million in 2006,
$3.5 million in 2007, $3.5 million in 2008 and
$6.0 million in 2009 and beyond. A portion of the
Companys leased facilities under operating leases have
been sub-leased. Anticipated cash receipts from these executed
sub-lease arrangements are: $0.6 million in 2004.

Under terms of the Companys lease agreement
covering its corporate office, the Company posted a
$4.5 million irrevocable letter of credit to the lessor.
The letter of credit requirement drops to $1.75 million in
2004 and expires in 2005.

50



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



| |                      
| | ---------------------
| | Employment Agreements

Certain of the Companys executives are
covered by employment agreements covering, among other things,
base compensation, incentive-bonus determinations and payments
in the event of termination or a change in control of the
Company.



| |              
| | -------------
| | Legal Matters

From time to time the Company is a plaintiff or
defendant in various lawsuits and claims arising in the normal
course of business. There are no such pending or threatened
lawsuits or claims whose outcomes, individually or in the
aggregate, are likely to have a material adverse effect on the
Company.

10.     Employee
Benefit Plans

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 percent of the
participants contribution up to a maximum of
6 percent. Additionally, the Company may make a
discretionary contribution as determined by the Board of
Directors. Total Company contributions were $0.7 million in
2003, $0.3 million in 2002 and $1.1 million in 2001.

11.     Fair Value of
Financial Instruments

The Company has determined, based on available
market information and appropriate valuation methodologies, that
the fair value of its financial instruments approximates
carrying value. The carrying value of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable
and deferred revenues approximate their carrying value due to
the short-term maturity of the instruments.

12.     Concentrations
of Credit Risk

Financial instruments that subject the Company to
concentrations of credit risk consist primarily of cash
equivalents, short-term and long-term investments, and accounts
receivable. The Company maintains its cash equivalent balance in
money market funds invested in U.S. Treasury Certificates
or in U.S. dollar-linked instruments with major banks.
These funds are not FDIC insured. The Company has not
experienced any losses in such funds and believes it is 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 reduce 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. No single customer accounted for more than
10 percent of revenue in 2003, 2002, or 2001. The Company
performs ongoing credit evaluations of its customers to reduce
credit risk.

As previously disclosed, during the second
quarter of 2001, the Company recorded a provision for bad debt
expense of $2.8 million. This provision was the result of
an assessment made on the adequacy of the allowance for bad
debts by the Company after hiring new financial and accounting
management (new Chief Financial Officer and new Corporate
Controller). Subsequent to the end of 2000 and prior to the
hiring of new management, (during which time the Company did not
have a CFO), the Company experienced an increase in its past due
accounts and a deterioration in its accounts receivable aging
and days sales outstanding, which was due, in part, to
less-than-desired focus on receivable collections, the economic
downturn and the reduction and other changes in sales personnel,
particularly in the Companys foreign operations. The
changes in sales personnel, particularly with respect to foreign
operations, related to the Companys focus on reducing its
net operating loss by eliminating or downsizing underperforming
operations. The changes in sales personnel impaired the
Companys collections efforts of certain of the significant
past due accounts.

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BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

New management conducted a specific account
review of all significant past due accounts, a review of the
Companys business processes and accounting policies, and
an evaluation of the adequacy of the estimates related to the
Companys accounting reserves. The Company evaluated the
impact on outstanding receivables and the increased risk of
collection resulting from changes in the sales force deployment,
which consisted primarily of reductions in headcount in
underperforming international territories and the elimination of
specific US sales personnel. As a result of the reductions in
international territories and the reduced presence in such
locations, the Company perceived increased risk related to the
collection of certain foreign outstanding receivables and
provided for such receivables accordingly. The $2.8 million
provision consisted of approximately $2.0 million related
to foreign accounts receivable and approximately
$0.8 million related to domestic accounts receivable. The
Company implemented enhanced collection processes and did not
experience recurring collectibility issues in 2002 or 2003.

Approximately 13 percent, 11 percent,
and 13 percent of the Companys sales were made to
customers in foreign countries, primarily to customers in
Europe, during 2003, 2002, and 2001, respectively.

13.     Segment
Data

The Company believes that since its inception
that it has operated in only one reportable segment as defined
by SFAS 131. The Company manages its business primarily on
an overall products and services basis. Revenues related to
operations in the United States totaled $59.3 million,
$59.8 million, and $62.0 million for the years ended
December 31, 2003, 2002 and 2001, respectively. Revenues
related to customers located in foreign countries, primarily in
Europe, totaled $8.5 million, $7.2 million, and
$8.9 million for the years ended December 31, 2003,
2002, and 2001, respectively. Revenues related to bv-Control
totaled $54.7 million, $55.2 million, and
$61.2 million for the years ended December 31, 2003,
2002, and 2001, respectively. Revenues related to bv-Admin
totaled $8.8 million, $8.6 million, and
$7.4 million for the years ended December 31, 2003,
2002, and 2001, respectively. Revenues related to bv-Policy
Center, which was introduced in 2002, were $0.3 million in
2003 and less than $0.1 million in 2002. Because resources
used to provide services are not tracked and segregated by
product line, the costs of revenues are not tracked and
segregated by revenue stream and consequently the Company does
not measure gross profit by product line. Long-lived assets
within the United States totaled $5.9 million and
$6.9 million at December 31, 2003 and 2002,
respectively. Long-lived assets in foreign countries totaled
$0.7 million and $0.9 million at December 31,
2003 and 2002, respectively.

14.     Other Income
(Expense)

Other income (expense) for the Company is
primarily comprised of income on the Companys cash, cash
equivalents and investments. Other income (expense) in 2002
includes a receipt of $1.3 million for settlement of a
business interruption claim during 2002 related to flooding that
occurred in June 2001. Other income (expense) in 2001
includes a write-off of a $5.0 million equity investment in
a UK-based software distribution and consulting firm.

52



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##### Table of Contents



BINDVIEW DEVELOPMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

15.     Quarterly
Financial Data (Unaudited)

Quarterly financial information for 2003 and 2002
is summarized as follows:

|                                              |  |                                         |        |          |  |               |         |              |  |   |        |   |  |   |        | 
|--------------------------------------------- |  | --------------------------------------- | ------ | -------- |  | ------------- | ------- | ------------ |  | - | ------ | - |  | - | ------ | 
|                                              |  |                                        
|                                              |  | Quarter Ended                          
|                                              |  |                                        
|                                              |  | March 31,                               |        | June 30, |  | September 30, |         | December 31,
|                                              |  |                                         |        |          |  |               |         |             
|                                              |  |                                        
|                                              |  | (In thousands except per share amounts)
|2003:                                         |  |                                         |        |          |  |               |         |              |  |   |        |   |  |   |        | 
|Revenues                                      |  | $                                       | 13,047 |          |  | $             | 15,315  |              |  | $ | 15,551 |   |  | $ | 23,932 | 
|Gross profit                                  |  |                                         | 11,499 |          |  |               | 13,515  |              |  |   | 13,458 |   |  |   | 21,892 | 
|Net income (loss)                             |  |                                         | (2,701 | )        |  |               | (2,143  | )            |  |   | (1,146 | ) |  |   | 2,354  | 
|Basic and diluted net income (loss) per share |  |                                         | (0.06  | )        |  |               | (0.05   | )            |  |   | (0.02  | ) |  |   | 0.05   | 
|                                             
|2002:                                         |  |                                         |        |          |  |               |         |              |  |   |        |   |  |   |        | 
|Revenues                                      |  | $                                       | 16,805 |          |  | $             | 15,003  |              |  | $ | 15,944 |   |  | $ | 19,226 | 
|Gross profit                                  |  |                                         | 15,079 |          |  |               | 13,552  |              |  |   | 14,368 |   |  |   | 17,697 | 
|Net income (loss)                             |  |                                         | (424   | )        |  |               | (22,466 | )            |  |   | (2,941 | ) |  |   | 1,398  | 
|Basic and diluted net income (loss) per share |  |                                         | (0.01  | )        |  |               | (0.43   | )            |  |   | (0.06  | ) |  |   | 0.03   | 

53



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##### Table of Contents



SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                                          |      |            |   |            |  |                 |   |             |  |  |   |       |   |  |   |        | 
|--------------------------------------------------------- | ---- | ---------- | - | ---------- |  | --------------- | - | ----------- |  |  | - | ----- | - |  | - | ------ | 
|                                                          |      |            |   | Additions- |  |                 |   |            
|                                                          |      |            |   | Charges    |  |                 |   |            
|                                                          |      | Balance at |   | to         |  | Charges         |   | Balance at 
|                                                          |      | January 1  |   | Expense    |  | Against Reserve |   | December 31
|                                                          |      |            |   |            |  |                 |   |            
|Accounts receivable  allowance for
    doubtful accounts |      |            |   |            |  |                 |   |             |  |  |   |       |   |  |   |       
|                                                          | 2001 |            | $ | 804        |  |                 | $ | 3,474       |  |  | $ | 3,181 |   |  | $ | 1,097  | 
|                                                          | 2002 |            |   | 1,097      |  |                 |   |            |  |  |   | (140  | ) |  |   | 1,237  | 
|                                                          | 2003 |            |   | 1,237      |  |                 |   |            |  |  |   | 197   |   |  |   | 1,040  | 
|Deferred tax asset valuation allowance                    |      |            |   |            |  |                 |   |             |  |  |   |       |   |  |   |       
|                                                          | 2001 |            | $ | 10,443     |  |                 | $ | 2,035       |  |  | $ |      |   |  | $ | 12,478 | 
|                                                          | 2002 |            |   | 12,478     |  |                 |   | 21,705      |  |  |   |      |   |  |   | 34,183 | 
|                                                          | 2003 |            |   | 34,183     |  |                 |   |             |  |  |   | 750   |   |  |   | 33,433 | 

54



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##### Table of Contents



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

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Eric J. Pulaski                                   
| | Chairman of the Board, Chief Executive
    Officer
| | and President (Principal Executive
    Officer)   

Date: March 29, 2004

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.

|                                          |  |                                                                                                      |  |                |  | 
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                          |  |                                                                                                      |  |               
|Signature                                 |  | Title                                                                                                |  | Date          
|                                          |  |                                                                                                      |  |               
|                                         
|/s/ ERIC J. PULASKIEric J. Pulaski        |  | Chairman of the Board, Chief Executive Officer
    and President (Principal Executive Officer)       |  | March 29, 2004
|                                         
|/s/ EDWARD L. PIERCEEdward L. Pierce      |  | Director, Executive Vice President and Chief
    Financial Officer (Principal Financial Officer)     |  | March 29, 2004
|                                         
|/s/ KEVIN P. COHNKevin P. Cohn            |  | Vice President, Chief Accounting Officer and
    Corporate Controller (Principal Accounting Officer) |  | March 29, 2004
|                                         
|/s/ PETER T. DAMERISPeter T. Dameris      |  | Director                                                                                             |  | March 29, 2004
|                                         
|/s/ RICHARD A. HOSLEYRichard A. Hosley II |  | Director                                                                                             |  | March 29, 2004
|                                         
|/s/ ROBERT D. REPASSRobert D. Repass      |  | Director                                                                                             |  | March 29, 2004
|                                         
|/s/ ARMAND SHAPIROArmand Shapiro          |  | Director                                                                                             |  | March 29, 2004

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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 15.

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 |    |      |  |            
|Number  |    |      |  | Description
|        |    |      |  |            
|        | 2  | .1   |  |            |  | Agreement of Merger dated as of January 26,
    2000, by and among BindView, Bravo Acquisition Corporation,
    Entevo Corporation and the Representing Stockholders identified
    therein (incorporated by reference to Exhibit 2.1 to
    BindViews Current Report on form 8-K (File No. 000-24677),
    dated February 9, 2000).
|        | 3  | .1   |  |            |  | Amended and Restated Articles of Incorporation of
    BindView (incorporated by reference to Exhibit 3.1 to the
    Registration Statement on Form S-1 of BindView (Reg.
    No. 333-52883), filed with the Commission on May 15,
    1998 (the Form S-1)).                                                                        
|        | 3  | .2   |  |            |  | Bylaws of BindView Development Corporation, as
    amended May 23, 2002 (Incorporated by reference to
    Exhibit 3.3 to BindViews Quarterly Report on Form
    10-Q for the quarter ended June 30, 2002)                                                                                                                           
|        | 4  | .1   |  |            |  | Reference is hereby made to Exhibit 3.1
    (incorporated by reference to Exhibit 4.1 to the
    Form S-1) and Exhibit 3.2 (incorporated by reference
    to Exhibit 3.3 to BindViews Quarterly Report on Form
    10-Q for the quarter ended June 30, 2002)                                                                        
|        | 4  | .2   |  |            |  | Rights Agreement dated September 17, 2001
    between BindView and Mellon Investor Services LLC (incorporated
    by reference to Exhibit 4.1 to BindViews Form 8-K
    filed on September 20, 2001 (the 9/20/2001 8-K).                                                                                                          
|        | 4  | .3   |  |            |  | Resolution Establishing a Series of Preferred
    Stock dated September 17, 2001 (incorporated by reference
    to Exhibit 4.2 to the 9/20/2001 8-K).                                                                                                                                                                                
|        | 4  | .4   |  |            |  | Form of Right Certificate (incorporated by
    reference to Exhibit 4.3 to the 9/20/2001 8-K).                                                                                                                                                                                                                                       
|        | 4  | .5   |  |            |  | Summary of Rights to Purchase Preferred Shares
    (incorporated by reference to Exhibit 4.4 to the
    9/20/2001 8-K).                                                                                                                                                                                                              
|        | 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, as amended (incorporated
    by reference to Exhibit 10.2 to BindViews Annual
    Report on Form 10-K for the year ended December 31, 1999
    (the 1999 10-K).                                                                                                                                           
|        | 10 | .5   |  |            |  | Agreement to Sublease dated June 25, 1998
    between BindView and Halliburton Energy Services, Inc.                                                                                                                                                                                                                                 
|        | 10 | .6   |  |            |  | Lease Agreement dated June 20, 1995 between
    BindView and School Employees Holding Corp., including all
    amendments thereto (incorporated by reference to
    Exhibit 10.7 to the Form S-1).                                                                                                                                   
|        | 10 | .7  |  |            |  | Amended and Restated Employment Agreement, dated
    June 24, 1999, between BindView and Marc R. Caminetsky                                                                                                                                                                                                                          
|        |    |      |  |             |  | (incorporated by reference to BindViews
    Quarterly Report On Form 10-Q (File No. 000-24677) for the
    quarter ended June 30, 1999 (the 6/30/99 10-Q).                                                                                                                                                                        
|        | 10 | .8  |  |            |  | Amended and Restated Employment Agreement, dated
    June 24, 1999, between BindView and Paul J. Cormier
    (incorporated by reference to Exhibit 10.2 to the
    6/30/99 10-Q).                                                                                                                                                    
|        | 10 | .9  |  |            |  | Executive Employment Agreement dated
    October 2, 2000 between BindView and Kevin M. Weiss
    (Incorporated by reference to Exhibit 10.10 to
    BindViews Annual Report on Form 10-K for the year ended
    December 31, 2000 (the 2000 10-K)                                                                                 
|        | 10 | .10 |  |            |  | 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 | .11 |  |            |  | Form of Indemnification Agreement (incorporated
    by reference to Exhibit 10.16 to the Form S-1).                                                                                                                                                                                                                                  

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##### Table of Contents



|        |    |      |  |             |  |                                                                                                                                                                                                                                                            
|------- | -- | ---- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |  |            
|Number  |    |      |  | Description
|        |    |      |  |            
|        | 10 | .12 |  |            |  | Executive Employment Agreement dated May 1,
    2001 between BindView and Edward L. Pierce (incorporated by
    reference to Exhibit 10.1 to BindViews Quarterly
    Report on Form 10-Q for the quarter ended June 30, 2001
    (the 6/30/2001 10-Q).  
|        | 10 | .13 |  |            |  | Restricted Stock Agreement dated May 1, 2001
    between BindView and Edward L. Pierce (incorporated by reference
    to Exhibit 10.2 to the 6/30/2001 10-Q).                                                                                              
|        | 10 | .14 |  |            |  | Promissory Note dated May 1, 2001 executed
    in favor of Bindview by Edward L. Pierce (incorporated by
    reference to Exhibit 10.3 to the 6/30/2001 10-Q).                                                                                             
|        | 10 | .15 |  |            |  | Change of Control Agreement dated May 1,
    2001 between BindView and Edward L. Pierce (incorporated by
    reference to Exhibit 10.4 to the 6/30/2001 10-Q).                                                                                             
|        | 10 | .16 |  |            |  | Indemnification Agreement dated May 1, 2001
    between BindView and Edward L. Pierce (incorporated by reference
    to Exhibit 10.5 to the 6/30/2001 10-Q).                                                                                               
|        | 10 | .17 |  |            |  | Nonqualified Stock Option Agreement dated
    May 1, 2001 between BindView and Richard P. Gardner
    (incorporated by reference to Exhibit 10.6 to the 6/30/2001
    10-Q).                                                                               
|        | 10 | .18 |  |            |  | Nonqualified Stock Option Agreement dated
    May 1, 2001 between BindView and William D. Miller
    (incorporated by reference to Exhibit 10.7 to the 6/30/2001
    10-Q).                                                                                
|        | 10 | .19 |  |            |  | Nonqualified Stock Option Agreement dated
    May 1, 2001 between BindView and Kevin M. Weiss
    (incorporated by reference to Exhibit 10.8 to the 6/30/2001
    10-Q).                                                                                   
|        | 10 | .20 |  |            |  | Executive Employment Agreement dated May 31,
    2001 between BindView and Kevin P. Cohn (incorporated by
    reference to Exhibit 10.9 to the 6/30/2001 10-Q).                                                                                            
|        | 10 | .21 |  |            |  | Nonqualified Stock Option Agreement dated
    May 31, 2001 between BindView and Kevin P. Cohn
    (incorporated by reference to Exhibit 10.10 to the
    6/30/2001 10-Q).                                                                                  
|        | 10 | .22 |  |            |  | Change of Control Agreement dated May 31,
    2001 between BindView and Kevin P. Cohn (incorporated by
    reference to Exhibit 10.11 to the 6/30/2001 10-Q).                                                                                              
|        | 10 | .23 |  |            |  | Indemnification Agreement dated May 31, 2001
    between BindView and Kevin P. Cohn (incorporated by reference to
    Exhibit 10.12 to the 6/30/2001 10-Q).                                                                                                
|        | 10 | .24 |  |            |  | Indemnification Agreement dated July 18,
    2001 between BindView and Gary S. Margolis (incorporated by
    reference to Exhibit 10.1 to BindViews Quarterly
    Report on Form 10-Q for the quarter ended September 30,
    2001 (the 9/30/2001 10-Q).
|        | 10 | .25 |  |            |  | Separation Agreement dated August 1, 2001 to
    be effective July 2, 2001 between BindView and Richard P.
    Gardner (incorporated by reference to Exhibit 10.2 to the
    9/30/2001 10-Q).                                                              
|        | 10 | .26 |  |            |  | Separation Agreement dated August 3, 2001 to
    be effective July 16, 2001 between BindView and Kevin M.
    Weiss (incorporated by reference to Exhibit 10.3 to the
    9/30/2001 10-Q).                                                                 
|        | 10 | .27 |  |            |  | 1998 Non-Employee Director Stock Option Plan, as
    amended October 26, 2001 and February 21, 2002
    (incorporated by reference to Exhibit 10.28 to
    BindViews Annual Report on Form 10K for the year ended
    December 31, 2001 (the 2001 10-K))
|        | 10 | .28 |  |            |  | Amended and Restated Executive Employment
    Agreement dated December 31, 2001 between BindView and
    Edward L. Pierce (incorporated by reference to
    Exhibit 10.29 to the 2001 10-K)                                                                
|        | 10 | .29  |  |            |  | Lease agreement dated March 30, 2001 between
    BindView and Sage Plaza One Ltd (incorporated by reference to
    Exhibit 10.30 to the 2001 10-K)                                                                                                         
|        | 10 | .30 |  |            |  | Indemnification Agreement between the Company and
    Armand S. Shapiro, effective October 26, 2001 (incorporated
    by reference to Exhibit 10.31 to the 2001 10-K)                                                                                      
|        | 10 | .31 |  |            |  | Promissory Note dated December 31, 2001
    executed in favor of Bindview by Edward L. Pierce (incorporated
    by reference to Exhibit 10.32 to the 2001 10-K)                                                                                            
|        | 10 | .32 |  |            |  | Rescission Agreement dated December 31, 2001
    between BindView and Edward L. Pierce (incorporated by reference
    to Exhibit 10.33 to the 2001 10-K)                                                                                                   
|        | 10 | .33 |  |            |  | Restricted Stock Agreement dated
    December 31, 2001 between BindView and Edward L. Pierce
    (incorporated by reference to Exhibit 10.34 to the 2001
    10-K)                                                                                         
|        | 10 | .34 |  |            |  | Security Agreement dated December 31, 2001
    between BindView and Edward L. Pierce (incorporated by reference
    to Exhibit 10.35 to the 2001 10-K)                                                                                                     

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##### Table of Contents



|        |    |      |  |             |  |                                                                                                                                                                                                                                                                                         
|------- | -- | ---- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |  |            
|Number  |    |      |  | Description
|        |    |      |  |            
|        | 10 | .35 |  |            |  | Indemnification agreement between the Company and
    Eric J. Pulaski, executed March 27, 2002 (incorporated by
    reference to Exhibit 10.1 to BindViews Quarterly
    Report on Form 10-Q for the quarter ended March 31, 2002
    (the 3/31/2002 10-Q))                          
|        | 10 | .36 |  |            |  | Indemnification agreement between the Company and
    Peter L. Bloom, executed March 27, 2002 (incorporated by
    reference to Exhibit 10.2 to the 3/31/2002 10-Q)                                                                                                                     
|        | 10 | .37 |  |            |  | Indemnification agreement between the Company and
    Richard A. Hosley II, executed March 27, 2002
    (incorporated by reference to Exhibit 10.2 to the 3/31/2002
    10-Q)                                                                                                           
|        | 0  | .38 |  |            |  | Indemnification agreement between the Company and
    Peter T. Dameris, executed August 15, 2002 (incorporated by
    reference to Exhibit 10.1 to BindViews Quarterly
    Report on Form 10-Q for the quarter ended September 30,
    2002 (the 9/30/2002 10-Q))                    
|        | 10 | .39 |  |            |  | Nonqualified Stock Option Agreement,
    August 15, 2002, between the Company and Peter T. Dameris
    (incorporated by reference to Exhibit 10.2 to the 9/30/2002
    10-Q)                                                                                                            
|        | 10 | .40 |  |            |  | 1999 Employee Stock Purchase Plan (incorporated
    by reference to Annex A to the Registrants Proxy
    Statement relating to its 1999 Annual Shareholders
    Meeting, filed with the commission on April 30, 1999)                                                                 
|        | 10 | .41  |  |            |  | 1999 Employee Stock Purchase Plan, as amended
    effective January 1, 2001 (incorporated by reference to
    Exhibit 10.41 to BindViews Annual Report on Form 10-K
    for the year ended December 31, 2002 (the 2002
    10-K)                                                     
|        | 10 | .42  |  |            |  | Second Amendment to Employee Stock Purchase Plan,
    adopted by the Board of Directors on January 27, 2003,
    subject to subsequent shareholder approval (incorporated by
    reference to Exhibit 10.42 to the 2002 10-K)                                                           
|        | 10 | .43  |  |            |  | BindView Development Corporation 2000 Indian
    Stock Option Plan, as amended through March 30, 2001
    (incorporated by reference to Exhibit 10.43 to the
    2002 10-K)                                                                                                             
|        | 10 | .44  |  |            |  | BindView Development Corporation 2000 Employee
    Incentive Plan, as amended through March 30, 2001
    (incorporated by reference to Exhibit 10.44 to the 2002
    10-K)                                                                                                              
|        | 10 | .45 |  |            |  | Executive Employment Agreement entered into
    effective December 30, 2002, between the Company and Eric
    J. Pulaski (incorporated by reference to Exhibit 10.45 to
    the 2002 10-K)                                                                                              
|        | 10 | .46 |  |            |  | Executive Employment Agreement entered into
    effective December 30, 2002, between the Company and David
    S. Flame (incorporated by reference to Exhibit 10.46 to the
    2002 10-K)                                                                                               
|        | 10 | .47 |  |            |  | Executive Employment Agreement entered into
    effective December 30, 2002, between the Company and David
    E. Lloyd (incorporated by reference to Exhibit 10.47 to the
    2002 10-K)                                                                                               
|        | 10 | .48 |  |            |  | Executive Employment Agreement entered into
    effective December 30, 2002, between the Company and Gary
    S. Margolis (incorporated by reference to Exhibit 10.48 to
    the 2002 10-K)                                                                                             
|        | 10 | .49 |  |            |  | Executive Employment Agreement entered into
    effective December 30, 2002, between the Company and Ronald
    E. Rosenthal (incorporated by reference to Exhibit 10.49 to
    the 2002 10-K)                                                                                          
|        | 10 | .50 |  |            |  | Form of Change of Control Agreement entered into
    effective December 30, 2002, between the Company and,
    respectively, Eric J. Pulaski, Kevin P. Cohn, Jeffery E.
    Margolis, Gary E. Margolis, and D.C. Toedt (incorporated by
    reference to Exhibit 10.50 to the 2002 10-K)
|        | 10 | .51 |  |            |  | Change of Control Agreement entered into
    effective December 30, 2002, between the Company and David
    S. Flame (incorporated by reference to Exhibit 10.51 to the
    2002 10-K)                                                                                                  
|        | 10 | .52 |  |            |  | Change of Control Agreement entered into
    effective December 30, 2002, between the Company and David
    E. Lloyd (incorporated by reference to Exhibit 10.52 to the
    2002 10-K)                                                                                                  
|        | 10 | .53 |  |            |  | Change of Control Agreement entered into
    effective December 30, 2002, between the Company and Ronald
    E. Rosenthal (incorporated by reference to Exhibit 10.53 to
    the 2002 10-K)                                                                                             
|        | 10 | .54 |  |            |  | Form of First Amended and Restated Executive
    Employment Agreement entered into effective December 30,
    2002, between the Company and, respectively, Jeffery E. Margolis
    and D.C. Toedt (incorporated by reference to Exhibit 10.54
    to the 2002 10-K)                     
|        | 10 | .55 |  |            |  | Form of Executive Employment Agreement entered
    into effective December 30, 2002, between the Company and,
    respectively, Scott S. Blake, Shantanu Ghosh, Diana Massaro, and
    Bruce K. Swope (incorporated by reference to Exhibit 10.55
    to the 2002 10-K)                 

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##### Table of Contents



|        |    |      |  |             |  |                                                                                                                                                                                                                                                                     
|------- | -- | ---- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |  |            
|Number  |    |      |  | Description
|        |    |      |  |            
|        | 10 | .56 |  |            |  | Form of Change of Control Agreement entered into
    effective December 30, 2002, between the Company and,
    respectively, Scott S. Blake, Shantanu Ghosh, Diana Massaro, and
    Bruce K. Swope (incorporated by reference to Exhibit 10.56
    to the 2002 10-K)
|        | 21 | .1*  |  |            |  | Subsidiaries of the Company                                                                                                                                                                                                                                         
|        | 23 | .1*  |  |            |  | Consent of PricewaterhouseCoopers                                                                                                                                                                                                                                   
|        | 31 | .1*  |  |            |  | Certification of the Companys Chief
    Executive Officer, Eric J. Pulaski, pursuant to Rule 13a-14(a)
    under the Securities and Exchange Act of 1934                                                                                                           
|        | 31 | .2*  |  |            |  | Certification of the Companys Chief
    Financial Officer, Edward L. Pierce, pursuant to Rule 13a-14(a)
    under the Securities and Exchange Act of 1934                                                                                                          
|        | 32 | .1*  |  |            |  | Certifications of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      
|        | 32 | .2*  |  |            |  | Certifications of the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                      

59