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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended September 30, 2004



Commission file number: 0-25137



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CONCUR TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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State of Incorporation: Delaware

I.R.S. Employer I.D. No.: 91-1608052

Address of principal executive offices: 6222 185th Avenue NE

Redmond, Washington 98052

Telephone number, including area code: 425-702-8808



Securities registered pursuant to section 12(b) of the act:

None



Securities
registered pursuant to section 12(g) of the act:

Common stock, $0.001 par value

Rights to Purchase Series A Preferred Stock, $0.001 par value



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



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



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). x



The number of shares outstanding of the registrants common stock as of November 30, 2004 was 33,187,650.



The aggregate market value of common stock held by non-affiliates of the registrant as of March 31, 2004 was approximately $320 million.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of registrants definitive Proxy Statement to be filed pursuant
to Regulation 14A promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, which is anticipated to be filed within 120 days after the end of the Registrants fiscal year ended September 30, 2004, are
incorporated by reference into Part III.



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CONCUR TECHNOLOGIES, INC.



FORM 10-K

SEPTEMBER 30, 2004



INDEX



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|PART I     |  |                                                                                                             
|           |  |                                                                                                             
|ITEM 1.    |  | BUSINESS                                                                                                     |  | 3   
|           |  |                                                                                                             
|ITEM 2.    |  | PROPERTIES                                                                                                   |  | 9   
|           |  |                                                                                                             
|ITEM 3.    |  | LEGAL PROCEEDINGS                                                                                            |  | 10  
|           |  |                                                                                                             
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 10  
|           | 
|PART II    |  |                                                                                                             
|           |  |                                                                                                             
|ITEM 5.    |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 11  
|           |  |                                                                                                             
|ITEM 6.    |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                                         |  | 12  
|           |  |                                                                                                             
|ITEM 7.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 13  
|           |  |                                                                                                             
|ITEM 7A.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 34  
|           |  |                                                                                                             
|ITEM 8.    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 35  
|           |  |                                                                                                             
|ITEM 9.    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 61  
|           |  |                                                                                                             
|ITEM 9A.   |  | CONTROLS AND PROCEDURES                                                                                      |  | 61  
|           |  |                                                                                                             
|ITEM 9B.   |  | OTHER INFORMATION                                                                                            |  | 61  
|           | 
|PART III   |  |                                                                                                             
|           |  |                                                                                                             
|ITEM 10.   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 62  
|           |  |                                                                                                             
|ITEM 11.   |  | EXECUTIVE COMPENSATION                                                                                       |  | 62  
|           |  |                                                                                                             
|ITEM 12.   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 62  
|           |  |                                                                                                             
|ITEM 13.   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 62  
|           |  |                                                                                                             
|ITEM 14.   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 62  
|           | 
|PART IV    |  |                                                                                                             
|           |  |                                                                                                             
|ITEM 15.   |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULE                                                                    |  | 63  
|           | 
|SIGNATURES |  | 66                                                                                                          



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PART I



Special Note Regarding Forward-Looking
Statements



This report contains forward-looking
statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or
by forward-looking words such as may, will, expect, anticipate, believe, intend, estimate, continue, and other similar words and phrases. Our
Managements Discussion and Analysis of Financial Condition and Results of Operations contains many such forward-looking statements.These forward-looking statements involve many risks and uncertainties. Examples of such risks and
uncertainties are described underManagements Discussion and Analysis of Financial Condition and Results of Operations -Factors That May Affect Financial Condition and Results of Operations and in our other filings with the
United States Securities and Exchange Commission. The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse
effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We assume no obligation or duty to update any such
forward-looking statements.



ITEM 1.    BUSINESS



Overview



Concur Technologies, Inc. is a
leading provider of business services and software solutions that automate processes involved in the management of corporate expenses. Our core purpose is to use innovation to help our customers drive down their costs associated with corporate
expense management. Our flagship products are our Concur Expense services and software for automating the travel and entertainment expense management process. We also offer value-added services and software that are integrated with our core software and services, as well as
consulting, customer support and training. Our solutions, comprised of all these elements, are designed to automate and streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater insight
to their spending patterns through comprehensive analytics.



We were incorporated in the state of Washington in 1993 and commenced operations during 1994. We reincorporated in the State of Delaware and completed our initial public offering of common stock in 1998. Our executive offices are located at
6222 185th Avenue Northeast, Redmond, Washington 98052 and our telephone number is (425) 702-8808.



The Corporate Expense Management Market



We call the marketplace for products and services that automate and streamline processes involved in the management of corporate expenses the Corporate Expense Management market. We believe two major
trends continue to drive customer demand in this market:



| |  |  | the need for businesses to reduce operating costs and improve operational efficiency; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the need for businesses to comply with new governmental requirements.
| | - |  | ---------------------------------------------------------------------



Companies constantly seek to reduce costs and improve operational efficiency in their businesses. We believe that next to payroll, corporate travel and
entertainment expense is the second-largest controllable expense within an organization. However, for most companies, the management of corporate expenses still involves manual, paper-based processes that are time-consuming, inefficient, and costly.
Automating the expense management process can result in significant cost savings. According to a 2002 study conducted by the Aberdeen Group, an information technology market analysis firm, companies that automate the expense management process can
drive down the average cost to prepare and process an expense report from $48 per expense report to



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less than $18 per report. In addition to direct cost savings of this nature, our customers leverage the data collected throughout the expense reporting
process to ensure contract compliance and negotiate more favorable terms with vendors.



To achieve even greater cost savings and operational efficiency, many companies are seeking to outsource their business processes rather than operating them in-house. We believe this is a growing trend in our
industry. To meet this demand, we offer flexible delivery models for our solutions, including our subscription services delivery model, which can offer distinct advantages compared to traditional software licensing, as discussed in more detail in
Our Corporate Expense Management Solutions below.



Companies are also seeking ways to improve the reliability of their financial data and ensure the soundness of their internal controls, particularly since the enactment of the Sarbanes-Oxley Act of 2002 and related regulations. Public
companies are now required to establish and maintain appropriate internal controls and procedures for financial management and reporting, and these internal controls and procedures must be attested to by both the companys management and its
independent auditors. Our solutions allow our customers to automate much of the corporate expense management process and enhance the reporting of captured information, improving the reliability of financial data and enhancing visibility into
financial processes to reduce the potential for fraud and improve compliance with these new governmental requirements.



Our Corporate Expense Management Solutions



Our Corporate Expense Management solutions are designed to automate and streamline business processes, reduce operating costs, improve internal controls,
and empower businesses to apply greater insight to their spending patterns through comprehensive analytics. The components of these solutions include:



| |  |  | Concur Expense services and software for travel and entertainment expense management; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Value-added services and software that integrate with Concur Expense, such as Concur Payment, Concur Imaging Service, Concur Business Intelligence, Concur Total Access, Concur Travel Integration, Concur Benchmarking Service, and Concur Compliance Solution.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our solutions benefit many groups within an enterprise. For corporate management, our solutions can reduce the amount of time required to administer,
manage, and process expense reports and payment requests, thereby increasing productivity and reducing operating costs. They also enable management to access information for purposes of internal controls compliance, trend analysis, vendor
negotiation, and financial planning. For employees, our products provide intuitive, easy-to-use interfaces for the creation of expense reports and payment requests, which reduce the amount of time required to create these documents.



Our solutions are designed to accommodate a wide range of customer business
needs, technical requirements and budget objectives for businesses of all sizes worldwide. To meet these needs, we offer flexible delivery models that range from highly-configurable to standardized. We primarily deliver our solutions through our
subscription services delivery models and, to a lesser extent, through our on-premises license delivery models.



We provide our subscription services to customers over the Internet or a dedicated telecommunications connection, allowing them to outsource their
corporate expense management functions. Revenues from our subscription service offerings produced 71% of our total revenues in fiscal 2004. Compared to traditional software licensing, our subscription services models offer distinct advantages to
customers. Subscription customers pay for our services with a one-time set up fee and recurring usage fees, reducing the financial risk of large up-front costs and maintenance associated with traditional on-premise enterprise software licensing. In
addition, because our services are provided on an outsourced basis, we, as the service provider, are responsible for procuring and managing the hardware infrastructure necessary to perform the service and for delivering reliable, secure, and
scalable performance, which reduces the impact on the customers internal information technology organization. We have engaged third-party facility providers to provide the hosting facilities and



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related infrastructure for our subscription services. These outsourcing facilities are located in several locations in the United States and the United
Kingdom. We also retain third-party telecommunications providers to provide Internet and direct telecommunications connections for our services.



We also license our software to customers that want highly-configurable solutions that are typically installed at the customers premises on
customer-furnished equipment, managed by the customer, and accessed over a corporate Intranet. Revenues from our license offerings produced 8% of our total revenues in fiscal 2004.



Concur Expense Solutions



Our flagship Concur Expense solutions are designed to automate, simplify, reduce the costs of, and improve internal controls associated with, the travel
and entertainment expense management process. Concur Expense automates each step of the expense management process, from expense report preparation and approval to business policy compliance, reimbursement, and data analysis. Concur Expense provides
the process and information for management to reduce manual processing, improve internal controls, increase business policy compliance, speed up reimbursement, and increase expense report accuracy.



Our intuitive, easy-to-use interface makes the creation of expense reports
fast, while reducing errors and improving policy compliance. Corporate charge or credit card information can be used to automatically populate the expense report with key information, such as transaction date, type, vendor, location, method of
payment, amount, and currency conversion.



Our customers can
determine how expense reports should be processed based on customizable workflow rules and how to route the report for approval based on cost center, dollar limit, or other criteria. Items that are not compliant with corporate policy can be flagged
for review, allowing approvers to reduce review time. Once approved, the report is forwarded to the next phase in the process or to the customers accounting department, and the user is notified of the action.



Concur Expense streamlines back-office processing of expense reports through
electronic preparation, integration to external financial systems, and auditing tools that allow for a variety of audit practices ranging from auditing every report to random audits to allowing customers to audit only those reports flagged as
non-compliant. Status inquiries between employees and processing departments are reduced by updating the status of reports in the database, and alerting employees via e-mail to the status of their reports. In addition, Concur Expense helps companies
claim reimbursement of tax credits by tracking value added tax, goods and services tax, and other international taxes.



Concur Expense also offers business intelligence capabilities. Companies can use captured data to analyze trends, influence budget decisions, improve
forecasting, and monitor for fraudulent activity.



Value-Added Solutions



We provide value-added services and software that are
fully integrated with our Concur Expense solutions. Our primary value-added services and software are:



Concur Payment.    Concur Payment is an application that is designed to automate, simplify, and reduce the costs associated
with the process of entering, approving, and managing non-purchase order vendor payments. It enables companies to streamline payment requests, facilitating flexible approval processes and automatic updating of accounts payable systems. The
combination of increased productivity and availability of valuable data for improved cost management derived from Concur Payment can generate cost savings for our customers.



Concur Imaging Service.    Concur Imaging Service provides companies with the ability to capture,
store, archive and retrieve employee receipts and vendor invoices electronically. This enables our Concur Expense customers to reduce the costs of handling paper receipts and invoices. Faxed receipts and invoices can be viewed electronically and are
available online throughout the approval, payment, and audit processes.



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Concur Business Intelligence.    We offer various business intelligence
reporting solutions to give customers enhanced reporting capabilities for the data gathered by our Concur Expense solutions. Concur Analysis Service provides customers an accessible means of analyzing expense data and enabling them to save money by managing spending more effectively and to
transform captured data into valuable information that can be used for effective decision-making. In addition, through our strategic relationship with Cognos Inc., a leading global provider of business intelligence solutions, we offer additional
reporting solutions to meet the reporting needs of our customers.



Concur Total Access.    Concur Total Access enables users to enter expense report data when disconnected from the Internet by voice, laptop, or handheld device.



Concur Travel Integration.    Concur Travel
Integration provides customers an end-to-end travel procurement and expense management solution by integrating Concur Expense with the travel planning process.



Concur Benchmarking Service.    Concur Benchmarking Service enables customers to benchmark their
travel spending so travel-related costs can be better controlled and actual spend data can be used to leverage better rates with vendors.



Concur Compliance Solution.    Concur offers solutions to give customers enhanced fraud detection capabilities. For example,
our Concur Transaction Assessment Module provides
fraud detection capability to customers, helping them reduce the potential for expense-related fraud and comply with the internal controls reporting and certification requirements of the Sarbanes-Oxley Act. Tests built into the software recognize
patterns in the data, including excessive and duplicate claims and threshold amounts.



Client Services



Our client services
organization offers consulting, customer support, and training services in connection with our Corporate Expense Management solutions. Consulting and other fees charged to customers represented 21% of total revenues in fiscal 2004.



Consulting.    We offer consulting services in
connection with implementation of our solutions to assist customers in maximizing their return on investment. Leveraging industry best practices and our direct experience, our consulting staff meets with customers prior to implementation to review
existing business processes and information technology infrastructure, and provide advice on ways to improve these processes. Our consultants also install, configure, and test our applications, integrate them with customers existing systems,
and assist with enterprise-wide deployment strategies. After deployment, our consultants continue to work with customers to identify additional opportunities to further improve their return on investment.



Customer Support.    We provide customer support
as well as new releases and updates of our services and software through our CustomerOne Services support program. Under this program, we provide telephone and Internet support, including online case entry and review, access to technical information
documents, and technical tips. We also provide new releases and updates of our services and software for customers who subscribe to our CustomerOne Services program. Our CustomerOne Services program is typically included as part of our subscription
service offerings. Most license customers subscribe for the first year of the CustomerOne Services program at the time they license an application; thereafter, support is typically renewable on an annual basis.



Training Services.    We offer a variety of
flexible training programs for our services and software, all designed to assist our customers with managing their transition to our products and services. These programs are tailored to particular user groups, such as administrators, help desk
personnel, or trainers.



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Customers



We have sold our products and services to more than 1,500 companies in over 60 countries, including 7 of the top 10 Global 100 companies and 29 of the top
100 Fortune 1000 companies. Our customers range from large global public companies with more than 100,000 employees to smaller, single-location private companies. No single customer accounted for more than 10% of our total revenues in fiscal 2004,
2003 or 2002.



Sales and Marketing



We market and sell our solutions worldwide through our direct sales
organization and through indirect distribution channels via our strategic reseller and referral partners.



Our direct sales organization has field sales professionals located in metropolitan areas throughout the United States, the United Kingdom, and Australia.
Our field-based sales engineers provide technical sales support. Direct telemarketing representatives based at our headquarters in Redmond, Washington support the field sales force through lead-generation and lead-tracking activities. We also have a
number of marketing referral alliances that provide our sales force with prospects. Our direct sales efforts involve contact with multiple decision makers, frequently including the prospective customers chief financial officer, vice president
of finance, controller, and corporate travel manager.



Our
indirect distribution channels consist of strategic relationships with a number of reseller and referral partners, which include more than 50 leading companies. For example, we have strategic relationships with ADP, Inc., a subsidiary of Automatic
Data Processing, Inc., a global payroll solutions and computing services provider, Microsoft Business Solutions, a leading provider of business management solutions, and U.S. Bank, a leading provider of corporate banking services and the leading
issuer of Visa corporate card products.



Our marketing
programs are designed to increase awareness of our solutions within our target markets, and to extend the competitive advantage of our subscription services and software. These efforts are specifically targeted to accounting, finance, information
technology, and travel executives.



We engage in a variety of
marketing activities, including e-mail and direct mail campaigns, co-marketing strategies designed to leverage existing strategic relationships, website marketing, seminars and webinars, public relations campaigns, speaking engagements
and forums, and industry analyst visibility initiatives. We actively participate in and sponsor finance and shared-service conferences and demonstrate and promote our products at trade shows targeted to accounting, finance, information technology,
and travel executives.



We actively communicate with our
existing customers to enhance customer satisfaction, gain input for future product strategy, and promote the adoption of additional services and software. In addition to our standard newsletter communication and conference calls, we also sponsor
regional user groups, an advisory board and an international user conference.



Product Development



Our research and
development organization is responsible for developing new services and software as well as enhancing our existing services and software. We believe that a technically skilled and productive software engineering organization will continue to be
important for the success of new product offerings. We employed approximately 80 people in research and development as of September 30, 2004. Research and development expenses recognized were $8.8 million, $10.4 million and $10.6 million in fiscal
2004, 2003 and 2002, respectively.



We have a well-defined
software development methodology that we believe allows us to deliver products that satisfy business needs and meet commercial quality expectations. Our research and development group teams with our marketing department to further understand market
needs and requirements. We also use



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independent development firms or contractors, as needed, to expand the capacity and technical expertise of our internal research and development team.
Additionally, we may license third-party technology that is incorporated into our products.



Intellectual Property Rights



Our success depends, in part, upon our proprietary technology, processes, trade secrets, and other proprietary information, and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of
copyright, trade secret, and trademark laws, confidentiality procedures, contractual provisions, and other similar measures to protect our proprietary information. To protect our proprietary information, we enter into license agreements with our
customers and nondisclosure agreements with certain of our employees, consultants, corporate partners, customers, and prospective customers which include restrictions on the disclosure, use, and transfer of our proprietary information. We also
employ various physical security measures to protect our software source codes, technology, and other proprietary information. Currently, we do not own any issued patents or have any patent applications pending.



Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary, and third parties may attempt to develop similar technology independently. We provide our licensed customers with access to object code
versions of our software, and to other proprietary information underlying our software. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and we expect that it will become more difficult to monitor use of our products as we increase our international presence. There can
be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim infringement by
us with respect to current or future products or other intellectual property rights. Any such claims could have a material adverse effect on our business, results of operations and financial condition.



We own trademarks and registered trademarks with respect to our various
products and attempt to ensure we protect all necessary intellectual property rights. Concur, the Concur logo, Concur Expense, Concur Payment, Concur Imaging Service, Concur Travel Integration, Concur Business Intelligence, Concur Analysis Service,
Concur Total Access, Concur Compliance Solution, Concur Transaction Assessment Module, and Concur Benchmarking Service are trademarks or registered trademarks of Concur Technologies, Inc. Other names or brands appearing in this report may be claimed
as the property of others. Over the past several years, we have made numerous changes in our product names. Although we own registered trademarks in the United States and have filed trademark applications in the United States and in certain other
countries, we do not have assurance that our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.



Competition



The market for our business services and software solutions is highly competitive and subject to rapid change. Our principal direct competition comes from
independent vendors of Corporate Expense Management services and software, and from financial institutions and providers of ERP software that sell, along with their other products and services, offerings similar to ours. These competitors include,
but are not limited to, American Express, Bank of America, Geac Computer Corporation, Gelco Information Network, IBM, JD Edwards, Necho Systems Corporation, Oracle Corporation, OneMind Connect, Inc., Outtask, Inc., PeopleSoft, Inc., SAP AG, and
Wells Fargo Bank. Many of our competitors have longer operating histories, greater financial and other resources, greater name recognition, larger numbers of total customers for their products and services, and well-established relationships with
our current and potential customers. We also expect to face competition from new



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entrants including financial institutions and ERP vendors that do not already market products similar to ours. In addition, we face indirect competition from
potential customers internal development efforts and, at times, have to overcome their reluctance to move away from existing paper-based systems. Increased competition may result in price reductions, reduced gross margins, and change in market
share, any of which could harm our business.



We believe that
the principal competitive factors considered with respect to, and the relative competitive standing of, our travel and entertainment expense management services and software are as follows:



| |  |  | Functionality.    We believe we offer corporate expense management software and services with generally more features than other competing products, and
that we have often been the first to offer many new features.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interoperability.    Our software and services are designed and built to interoperate with commonly-used existing information technology systems.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cost-competitive delivery method.    We offer our solutions under flexible delivery models that range from highly-configurable to standardized. We believe
that a significant number of companies are seeking to reduce their operating costs by outsourcing their back-office processes, such as the management of corporate expenses. We have a well-established and scalable hosting infrastructure that allows
us to provide cost-competitive solutions to our customers on an outsourced basis. We believe our outsourced subscription services are cost-competitive alternatives to customer self-hosted and self-managed software products provided by many of our
competitors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Referenceable customers.    We believe our installed base of customers for Corporate Expense Management solutions is larger than that of our primary
competitors and this base, combined with those that are referenceable, provides us with a competitive advantage.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Employees



As of September 30, 2004, we had approximately 350 full-time employees. No employees are known by us to be represented by a collective bargaining
agreement, and we have never experienced a strike or similar work stoppage. We consider our relations with our employees to be good.



Available Information



Our Internet website address is www.concur.com. We provide free access to various reports that we file with or furnish to the United States
Securities and Exchange Commission (SEC) through our Internet website, as soon as reasonably practicable after they have been filed or furnished. These reports include, but are not limited to our 10-K annual reports, our 10-Q quarterly reports, our
8-K current reports, and any amendments to those reports. Our SEC reports can be accessed through the investor relations section of our website. Information on our website does not constitute part of this 10-K report or any other report we file or
furnish with the SEC.



ITEM 2.    PROPERTIES



Our principal administrative, sales, marketing, and research and development facility is located in Redmond, Washington and consists of approximately 81,000 square feet of office space held under leases that expire on May 31, 2005. In
September 2004, we entered into a definitive lease agreement for a successor facility at a different location in Redmond, Washington. We expect to move our Redmond operations into this successor facility before June 1, 2005. The lease for our new
facility has an eight-year term with an option to renew for an additional five years. The premises consist of approximately 100,000 square feet of office space. As of September 30, 2004, we also leased sales offices in Atlanta, Chicago, Dallas,
London, Miami, New York, Phoenix, and Sydney.



We believe that
our facilities are adequate for our current and near-term needs, and that we will be able to locate additional facilities as needed.



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ITEM 3.    LEGAL PROCEEDINGS



In July 2001, we and several of our current and former officers were named as defendants in two securities class-action lawsuits filed in the United States District Court for the Southern District of New York. In
April 2002, these lawsuits were consolidated. The consolidated complaint generally alleges claims against us, several of our current and former officers, and the underwriters of our initial public offering in December 1998, based on alleged errors
and omissions concerning underwriting terms in the prospectus for our initial public offering. The plaintiffs in this lawsuit seek damages in unspecified amounts, which, if awarded, could be substantial. This lawsuit is one of more than 300 similar
pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In October 2002, the court dismissed the individual defendants from the consolidated lawsuit, without
prejudice, pursuant to a stipulated agreement between the parties. In February 2003, the presiding judge denied a motion to dismiss all claims. In July 2003, we decided to participate in a proposed settlement being negotiated by representatives of a
coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to participate in the proposed settlement to avoid the cost and distraction of
continued litigation. We do not believe that the proposed settlement will have any material adverse effect on our business, financial condition, or results of operations. The proposed settlement is expected to be funded by a group of insurers on
behalf of the issuer defendants. The proposed settlement agreement would dispose of all remaining claims against us and the individual defendants, without any admission of wrongdoing by us or the individual defendants. The proposed settlement is
subject to final approval by the parties and the court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the parties and the court fail to approve the proposed settlement, we would continue to defend
ourselves vigorously.



ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matter was submitted to a vote of our stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal 2004.



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PART II



ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market Information



Our common stock is traded on the NASDAQ Stock Market under the symbol CNQR. The following table shows the range of the high and low closing sales prices
by quarter for fiscal 2004 and 2003, as reported on the NASDAQ Stock Market:



|                                      |  |      |       |     |   |      
|------------------------------------- |  | ---- | ----- | --- | - | -----
|                                      |  | High |       | Low
|Fiscal year ended September 30, 2004: |  |      |       |     |   |      
|First Quarter                         |  | $    | 13.03 |     | $ | 9.31 
|Second Quarter                        |  | $    | 12.39 |     | $ | 9.22 
|Third Quarter                         |  | $    | 12.15 |     | $ | 10.07
|Fourth Quarter                        |  | $    | 10.71 |     | $ | 8.90 
|                                      |  |     
|Fiscal year ended September 30, 2003: |  |      |       |     |   |      
|First Quarter                         |  | $    | 3.84  |     | $ | 1.42 
|Second Quarter                        |  | $    | 5.10  |     | $ | 3.28 
|Third Quarter                         |  | $    | 10.29 |     | $ | 5.10 
|Fourth Quarter                        |  | $    | 13.08 |     | $ | 9.00 



On September 30, 2004,
there were approximately 300 stockholders of record of our common stock.



Dividends



We have never paid cash dividends
on our common stock. We currently intend to retain earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our common stock in fiscal 2005.



Issuer Purchases of Equity Securities



We did not purchase any of our common stock in the fourth quarter of fiscal 2004.



11



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##### Table of Contents

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA



This selected consolidated financial data comes from our Consolidated Financial Statements, and should be read in conjunction with the Consolidated
Financial Statements and Notes, as well as our Managements Discussion and Analysis of Financial Condition and Results of Operations.



The consolidated statement of operations data for each of the years in the five year period ended September 30, 2004, and the consolidated balance sheet
data at September 30, 2004, 2003, 2002, 2001, and 2000 are derived from our audited consolidated financial statements. See Note 1 of Notes to Consolidated Financial Statements included in Item 8 of this report for an explanation of the
determination of the shares used to compute basic and diluted net income (loss) per share. Historical results are not necessarily indicative of results to be expected for any future period.



|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- | - | ------ |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                               |  | 2004                                  |        | 2003 |   | 2002   |  |   | 2001    |   |  | 2000 |        
|                                                               |  | (in thousands, except per share data) |       
|Consolidated Statements of Operations(Year Ended September 30) |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues:                                                      |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Subscription                                                   |  | $                                     | 40,244 |      | $ | 33,590 |  | $ | 20,076  |   |  | $    | 13,376  |   |  | $ | 7,948   |  
|Consulting                                                     |  |                                       | 11,560 |      |   | 14,457 |  |   | 15,174  |   |  |      | 15,019  |   |  |   | 12,904  |  
|License                                                        |  |                                       | 4,746  |      |   | 8,690  |  |   | 9,847   |   |  |      | 12,704  |   |  |   | 14,852  |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                                 |  |                                       | 56,550 |      |   | 56,737 |  |   | 45,097  |   |  |      | 41,099  |   |  |   | 35,704  |  
|                                                               |  |                                       |        |      |  
|Expenses:                                                      |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of operations                                             |  |                                       | 23,264 |      |   | 23,214 |  |   | 21,987  |   |  |      | 24,961  |   |  |   | 27,832  |  
|Sales and marketing                                            |  |                                       | 14,329 |      |   | 14,549 |  |   | 16,669  |   |  |      | 24,941  |   |  |   | 38,581  |  
|Research and development                                       |  |                                       | 8,773  |      |   | 10,356 |  |   | 10,606  |   |  |      | 16,449  |   |  |   | 31,212  |  
|General and administrative                                     |  |                                       | 7,295  |      |   | 6,710  |  |   | 6,800   |   |  |      | 10,729  |   |  |   | 14,795  |  
|Amortization of intangible assets                              |  |                                       | 1,140  |      |   | 1,140  |  |   | 190     |   |  |      |        |   |  |   |        |  
|Acquisition and restructuring charges                          |  |                                       |       |      |   |       |  |   | 1,300   |   |  |      | 266     |   |  |   | 2,167   |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Total expenses                                                 |  |                                       | 54,801 |      |   | 55,969 |  |   | 57,552  |   |  |      | 77,346  |   |  |   | 114,587 |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                                  |  |                                       | 1,749  |      |   | 768    |  |   | (12,455 | ) |  |      | (36,247 | ) |  |   | (78,883 | )
|Other income, net                                              |  |                                       | 286    |      |   | 193    |  |   | 168     |   |  |      | 1,164   |   |  |   | 3,228   |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                              |  | $                                     | 2,035  |      | $ | 961    |  | $ | (12,287 | ) |  | $    | (35,083 | ) |  | $ | (75,655 | )
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss) per share (basic and diluted)                |  | $                                     | 0.06   |      | $ | 0.03   |  | $ | (0.46   | ) |  | $    | (1.37   | ) |  | $ | (3.15   | )
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Shares used in calculation of net income (loss) per share:     |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Basic                                                          |  |                                       | 32,595 |      |   | 31,265 |  |   | 26,571  |   |  |      | 25,574  |   |  |   | 23,981  |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted                                                        |  |                                       | 36,815 |      |   | 35,440 |  |   | 26,571  |   |  |      | 25,574  |   |  |   | 23,981  |  
|                                                               |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|                                                               |  |                                       |        |      |  
|Consolidated Balance Sheet Data (at September 30)              |  |                                       |        |      |   |        |  |   |         |   |  |      |         |   |  |   |         |  
|Cash, cash equivalents and marketable securities               |  | $                                     | 23,735 |      | $ | 21,607 |  | $ | 15,770  |   |  | $    | 25,765  |   |  | $ | 55,292  |  
|Total assets                                                   |  | $                                     | 52,899 |      | $ | 42,973 |  | $ | 39,685  |   |  | $    | 42,628  |   |  | $ | 82,358  |  
|Long-term obligations, excluding current portion               |  | $                                     |       |      | $ | 199    |  | $ | 746     |   |  | $    | 108     |   |  | $ | 2,042   |  
|Stockholders equity                                           |  | $                                     | 30,145 |      | $ | 25,608 |  | $ | 19,697  |   |  | $    | 22,777  |   |  | $ | 57,013  |  



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##### Table of Contents

ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Our Managements Discussion and Analysis of Financial Condition and Results of Operations provides information we believe is relevant to an
assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes that are included with this report. Also, the discussion of
Critical Accounting Policies and Estimates in this section is an integral part of the analysis of our results of operations and financial condition.



Overview



Concur Technologies, Inc. is a leading provider of business services and software solutions that automate processes involved in the management of
corporate expenses. Our core purpose is to use innovation to help our customers drive down their costs associated with corporate expense management. Our solutions are designed to automate and streamline business processes, reduce operating costs,
improve internal controls, and empower businesses to apply greater insight to their spending patterns through comprehensive analytics.



Our flagship products are our Concur Expense services and software for automating the travel and entertainment expense management process. We also offer value-added services and software that are
integrated with our core software and services, as well as consulting, customer support and training for our customers. Concur Expense and related services represented greater than 95% of our total revenues in fiscal 2004, 2003 and 2002.



We offer our solutions under flexible delivery models that range from
highly-configurable to standardized offerings. We sell our solutions primarily as subscription services, and, to a lesser extent, through our on-premises license agreements. We market and sell our solutions worldwide through a direct sales
organization and indirect distribution channels.



We generate
our revenues from the delivery of subscription services, consulting services, and the sale of software licenses. Subscription revenues have grown significantly as a percentage of our total revenues, to 71% of total revenues in fiscal 2004 from 59%
in fiscal 2003 and 45% in fiscal 2002. This growth reflects our strategic shift to emphasize sales of subscription services rather than license sales. Generally, our subscription services revenues are recognized over the time period we
provide our services to customers, in contrast to license revenues, which typically are recognized upon software delivery to the customer. We believe that our strategic shift to the business services model provides more stable and predictable
revenues and operating results compared to prior years when our license revenues were more significant than our subscription services revenues. From the time we began selling expense management software in 1996 we offered our products under a
traditional software license model. In 1999, we began offering Concur Expense as a subscription service and, since that time, we have increasingly focused our business on providing our solutions under a subscription delivery model. We continue to
sell licensed software and support license customers, and will continue to do so in the future.



Our strategic focus in fiscal 2005 is to grow our core subscription business and related market share of our offerings and to reduce our cost of deploying
and operating services. We expect our subscription revenues to increase in fiscal 2005 compared to fiscal 2004, on both an absolute basis and as a percentage of total revenues, due to anticipated demand for our subscription services and lower sales
of license software. We expect our sales and marketing expenses to increase in fiscal 2005 compared to fiscal 2004, primarily reflecting increased direct sales headcount, to support expected demand and create additional awareness in our target
market.



We operate in and report on one segment: corporate
expense management software and services.



13



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##### Table of Contents

Selected Financial Data



In the following table, we show financial data derived from our statements of operations as a percentage of total revenues for the periods indicated.



|                                      |  |                          |   |  |       |   |  |       |   
|------------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | --
|                                      |  | Year Ended September 30, |  
|                                      |  | 2004                     |   |  | 2003  |   |  | 2002  |   
|Revenues:                             |  |                          |   |  |       |   |  |       |   
|Subscription                          |  | 71.2                     | % |  | 59.2  | % |  | 44.5  | % 
|Consulting                            |  | 20.4                     | % |  | 25.5  | % |  | 33.7  | % 
|License                               |  | 8.4                      | % |  | 15.3  | % |  | 21.8  | % 
|                                      |  |                          |   |  |       |   |  |       |   
|Total revenues                        |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | % 
|Expenses:                             |  |                          |   |  |       |   |  |       |   
|Cost of operations                    |  | 41.1                     | % |  | 40.9  | % |  | 48.7  | % 
|Sales and marketing                   |  | 25.4                     | % |  | 25.6  | % |  | 37.0  | % 
|Research and development              |  | 15.5                     | % |  | 18.3  | % |  | 23.5  | % 
|General and administrative            |  | 12.9                     | % |  | 11.8  | % |  | 15.1  | % 
|Amortization of intangible asset      |  | 2.0                      | % |  | 2.0   | % |  | 0.4   | % 
|Acquisition and restructuring charges |  |                         |   |  |      |   |  | 2.9   | % 
|                                      |  |                          |   |  |       |   |  |       |   
|Total expenses                        |  | 96.9                     | % |  | 98.6  | % |  | 127.6 | % 
|                                      |  |                          |   |  |       |   |  |       |   
|Income (loss) from operations         |  | 3.1                      | % |  | 1.4   | % |  | (27.6 | )%
|Other income, net                     |  | 0.5                      | % |  | 0.3   | % |  | 0.4   | % 
|                                      |  |                          |   |  |       |   |  |       |   
|Net income (loss)                     |  | 3.6                      | % |  | 1.7   | % |  | (27.2 | )%
|                                      |  |                          |   |  |       |   |  |       |   



Results of Operations



Revenues



|               |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       
|-------------- |  | ------------------------ | ------ | ------ | ----- | -- | ---- | - | ------ |  | ----- | ---- |  | - | ------
|               |  | Year Ended September 30,
|               |  | 2004                     |        | Change |       |    | 2003 |   | Change |  |       | 2002
|               |  | (dollars in thousands)  
|Subscription   |  | $                        | 40,244 |        | 19.8  | %  |      | $ | 33,590 |  | 67.3  | %    |  | $ | 20,076
|Consulting     |  |                          | 11,560 |        | (20.0 | )% |      |   | 14,457 |  | (4.7  | )%   |  |   | 15,174
|License        |  |                          | 4,746  |        | (45.4 | )% |      |   | 8,690  |  | (11.7 | )%   |  |   | 9,847 
|               |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       
|Total revenues |  | $                        | 56,550 |        | (0.3  | )% |      | $ | 56,737 |  | 25.8  | %    |  | $ | 45,097
|               |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       



Subscription
Revenues.Subscription revenues consist of monthly fees paid for subscription services offerings, the amortization of set-up fees paid to us in connection with those services, the amortization of fees paid for software
maintenance services under software license arrangements, and in some multiple element subscription arrangements, where there is no vendor specific objective evidence of fair value for an undelivered subscription element, the amortized portion of
the related license and consulting fees. Subscription revenues are affected by pricing, number of new customers, customer contract durations, and our customer retention rate.



Subscription revenues increased by 19.8% in fiscal 2004 over fiscal 2003. Revenues from our subscription services (total
subscription revenues less revenue from the amortization of fees paid for software maintenance services under software license arrangements) contributed approximately 90% of the absolute dollar increase in subscription revenues for fiscal 2004
compared to fiscal 2003. Continued expansion of our customer base for outsourced subscription services was the main reason for the increase. The larger customer base reflects a trend of increased market demand for our subscription services and
strong retention of existing subscription customers. We believe this trend was related primarily to the markets continued and growing acceptance of outsourced services, driven by limited information technology capital budgets, which make
traditional self-hosted software license arrangements, with their substantial up-front costs, less attractive compared with subscription services.



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##### Table of Contents

Subscription revenues increased by 67.3% in fiscal 2003 over fiscal 2002. Revenues from our subscription
services contributed approximately 85% of the absolute dollar increase in subscription revenues for fiscal 2003 compared to fiscal 2002. The increase in subscription revenues reflects expansion of our existing customer base for outsourced
subscription services due to the factors described above for fiscal 2004, and to our July 2002 acquisition of Captura Software, Inc. (Captura), which provided us a large base of existing subscription-based clients. We accounted for the
acquisition under the purchase method of accounting, including Capturas results in our Consolidated Statement of Operations beginning August 1, 2002.



We expect subscription revenues to continue to grow in fiscal 2005, on both an absolute basis and as a percentage of total revenues, as a result of the
growing demand for our subscription service offerings and our planned increase in spending on sales and marketing in fiscal 2005 compared to fiscal 2004.



Consulting Revenues.Consulting revenues consist of fees for client services, which include system implementation and
integration, planning, data conversion, training, and documentation of procedures. Consulting revenues are affected by the number of and complexity of implementations. Recognized consulting revenues are also affected by circumstances in which
consulting fees in multiple element arrangements require deferral or are deemed to be subscription related.



The 20.0% decrease in consulting revenues in fiscal 2004 from fiscal 2003, was due in part to the deferral of revenues totaling approximately $1.4 million
in fiscal 2004 relating to consulting services performed under contracts signed in fiscal 2004 through certain strategic resellers, which are required to be recognized ratably over the remaining life of the contracts, due to the structure of those
customer contracts. The decrease was also attributable to fewer new license customers added, due to our shift to a business services model discussed above, and to fewer upgrades and enhancements for existing customers during fiscal 2004, compared to
fiscal 2003.



The 4.7% decrease in consulting revenues in
fiscal 2003, compared to fiscal 2002, was primarily due to lower demand for our consulting services resulting from a decrease in new license sales in fiscal 2003, compared to fiscal 2002.



We anticipate that consulting revenues in fiscal 2005 will fluctuate on a quarterly basis but be higher for the fiscal year
compared to fiscal 2004, as a result of the demand for our services and software and the timing of upgrades and enhancements to our solutions.



License Revenues.    License revenues consist of fees earned from sales of our software licenses.



The 45.4% decrease in license revenues for fiscal 2004, compared to fiscal
2003 and the 11.7% decrease in license revenues for fiscal 2003, compared to fiscal 2002 reflect the continued shift from our licensed model to our subscription services model.



We expect the absolute dollar value of license revenues to decrease in fiscal 2005, compared to fiscal 2004, reflecting the
markets continued shift in demand from a licensed model to a subscription services model.



International Revenues.    Revenues from customers outside the United States were $8.2 million (14% of total revenues), $7.6
million (13%) and $6.6 million (15%) in fiscal 2004, 2003 and 2002, respectively. Historically, fluctuations in foreign currency exchange rates have not had a material effect on our operating results. We expect our international revenues to grow in
the near term, as our products and services continue to gain acceptance in international markets, due in part to the expansion of international functionality within our solutions.



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##### Table of Contents

Expenses



|                                    |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       
|----------------------------------- |  | ------------------------ | ------ | ------ | ----- | -- | ---- | - | ------ |  | ----- | ---- |  | - | ------
|                                    |  | Year Ended September 30,
|                                    |  | 2004                     |        | Change |       |    | 2003 |   | Change |  |       | 2002
|                                    |  | (dollars in thousands)  
|Cost of operations                  |  | $                        | 23,264 |        | 0.2   | %  |      | $ | 23,214 |  | 5.6   | %    |  | $ | 21,987
|Sales and marketing                 |  |                          | 14,329 |        | (1.5  | )% |      |   | 14,549 |  | (12.7 | )%   |  |   | 16,669
|Research and development            |  |                          | 8,773  |        | (15.3 | )% |      |   | 10,356 |  | (2.4  | )%   |  |   | 10,606
|General and administrative          |  |                          | 7,295  |        | 8.7   | %  |      |   | 6,710  |  | (1.3  | )%   |  |   | 6,800 
|Amortization of intangible assets   |  |                          | 1,140  |        |      |    |      |   | 1,140  |  | 500.0 | %    |  |   | 190   
|In-process research and development |  |                          |       |        |      |    |      |   |       |  |      |      |  |   | 1,300 
|                                    |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       
|Total expenses                      |  | $                        | 54,801 |        | (2.1  | )% |      | $ | 55,969 |  | (2.8  | )%   |  | $ | 57,552
|                                    |  |                          |        |        |       |    |      |   |        |  |       |      |  |   |       



Cost of
Operations.    Cost of operations expenses primarily consist of salaries and related expenses (including travel related expenses) and allocated overhead costs (which include depreciation, occupancy, insurance,
telecommunications, and computer equipment expenses) associated with employees and contractors who provide our subscription and consulting services. Cost of operations expenses also include co-location and related telecommunications costs, fees paid
to third parties for referrals, resale arrangements, royalties, and amortization of deferred set-up costs we incur in connection with our subscription services.



Cost of operations expenses represented 41.1% of total revenues in fiscal 2004 compared with 40.9% for fiscal 2003. Despite a decline in license
revenues from $8.7 million in fiscal 2003 to $4.7 million in fiscal 2004, cost of operations expenses, for our subscription and consulting services combined, decreased to 44.9% of the related revenues in fiscal 2004 from 48.3% in fiscal 2003. This
decrease was due in part to improvements in our solutions and implementation methodology, which now enable us to provide our subscription and consulting services more efficiently, and the increase in new sales of our subscription services for which
implementation costs are deferred and amortized. Total salaries and related expenses and allocated overhead costs increased 1.0% for fiscal 2004 compared to fiscal 2003. Co-location and related telecommunications costs decreased 10.1% for fiscal
2004 compared to fiscal 2003, primarily due to our consolidation of existing co-location facilities. Fees paid to third parties for referrals, resale arrangements, and royalties decreased 6.8% for fiscal 2004 compared to fiscal 2003. This decrease
reflected lower royalties for sub-licensing third-party software expense, due primarily to lower license sales, offset in part by an increase in reseller partner fees for subscription-based sales.



Cost of operations expenses as a percentage of total revenues were 40.9% for
the fiscal year ended September 30, 2003 compared with 48.7% for fiscal 2002. This decrease was primarily due to the increase in our subscription revenues in fiscal 2003 compared to fiscal 2002 relative to the increase in operating expenses and
additional investment costs to support then current and expected subscription business. Total salaries and related expenses and allocated overhead costs decreased 2.6% for fiscal 2003 compared to fiscal 2002. Co-location and related
telecommunications costs increased 79% for fiscal 2003 compared to fiscal 2002, to support existing and anticipated growth in our subscription business. Fees paid to third parties for referrals, resale arrangements, and royalties increased 22% for
fiscal 2003 compared to fiscal 2002, due to increases in reseller partner fees for subscription-based sales.



We expect total cost of operations expenses to remain relatively constant or decline slightly as a percentage of total revenues in 2005 compared to fiscal
2004 as we continue to deploy and support additional new customers and invest amounts necessary to meet future demand, consistent with our overall growth plans. Our expectation is that over time our cost of operations will decline as a percentage of
revenues, as the cost to deploy and support each new customer decreases due to the leverage (economies of scale) anticipated in our subscription service model infrastructure.



Sales and Marketing.    Sales and marketing expenses consist of salaries and related expenses
(including sales commissions and travel related expenses) and allocated overhead costs associated with our sales and marketing personnel, and, to a lesser extent, miscellaneous sales and marketing costs, such as advertising, trade shows, and other
promotional activities.



16



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##### Table of Contents

Sales and marketing expenses were 25.4% of total revenues in fiscal 2004 compared to 25.6% in fiscal 2003
and 37% in fiscal 2002. The 1.5% total decrease in sales and marketing expense for fiscal 2004 compared to fiscal 2003 was due to a 2.1% decrease in salaries and related expenses and allocated overhead costs, offset in part by an increase of 20% in
advertising costs. The 12.7% total decrease in fiscal 2003 compared to fiscal 2002 was due to a 10.2% decrease in salaries and related expenses and allocated overhead costs, and a 41% decrease in costs for advertising, trade shows and other
promotional activities.



We expect total sales and marketing
expenses in fiscal 2005 to increase significantly in absolute dollars compared to fiscal 2004, driven primarily by our expected 50% increase in sales headcount compared to the level at September 30, 2004. A key part of our strategic focus in fiscal
2005 is to ensure our sales and marketing efforts support expected demand and create additional awareness in our target market.



Research and Development.    Research and development expenses consist of salaries and related expenses, and allocated overhead
costs associated with employees and contractors engaged in software engineering, program management, and quality assurance.



Research and development expenses were 15.5% of total revenues in fiscal 2004 compared to 18.3% in fiscal 2003 and 23.5% in fiscal 2002. Research and
development expenses decreased $1.6 million (15.3%) in fiscal 2004 compared to fiscal 2003. Capitalization of research and development costs, net of amortization, represented $1.8 million of the decrease in research and development expenses for
fiscal 2004 compared to fiscal 2003, offset in part by an increase in personnel and allocated overhead costs totaling $0.3 million in fiscal 2004 compared to fiscal 2003. This additional capitalization was primarily the result of our shift from
developing licensed software for resale to developing software for internal use to support our subscription services offerings. Such development of internal-use software requires the capitalization of related costs, as provided for under generally
accepted accounting principles.



Research and development
expenses recognized decreased 2.4% for fiscal 2003 compared to fiscal 2002.



We anticipate that total research and development expenses in fiscal 2005 will increase moderately compared to fiscal 2004 as we continue to focus on product innovation and enhancement.



General and Administrative.    General and
administrative expenses consist of salaries and related expenses and allocated overhead costs associated with employees and contractors in finance, human resources, legal, information technology, facilities, and, to a lesser extent, miscellaneous
costs, such as professional fees and provision for doubtful accounts.



General and administrative expenses were 12.9% of total revenues in fiscal 2004 compared to 11.8% in fiscal 2003 and 15.1% in fiscal 2002. General and administrative expenses increased 8.7% in total for fiscal 2004 compared to fiscal 2003,
due to an increase in salaries and related expenses and allocated overhead costs of 6.4% and an increase of 23% in miscellaneous costs for fiscal 2004 compared to fiscal 2003. The majority of the increase in general and administrative expense is due
to costs related to the growth of our business as well as increased public company compliance costs, including our compliance with the laws and regulations associated with the Sarbanes-Oxley Act of 2002.



General and administrative expenses decreased 1.3% in total for fiscal 2003
compared to fiscal 2002, due to a decrease in salaries and related expenses and allocated overhead costs of 6.2%, offset in part by an increase of 43% in miscellaneous costs for fiscal 2003 compared to fiscal 2002.



We expect the absolute dollar amount of general and administrative expenses
to increase in fiscal 2005 compared to fiscal 2004 due to increases in personnel costs related to the growth of our business and a charge in the first quarter of fiscal 2005 for capitalized costs related to a proposed acquisition that Concur had
been evaluating but terminated during the quarter, as well as increased public company compliance costs, including our continued Sarbanes-Oxley compliance efforts.



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##### Table of Contents

Amortization of Intangible Asset.    Amortization of intangible asset
represents the allocation of the acquired customer base intangible asset from our July 2002 acquisition of Captura. This intangible asset is being ratably amortized as a non-cash charge to operations over five years, consistent with the timing and
level of the expected cash flows from the underlying acquired customer contracts.



In-Process Research and Development.    The 2002 expense for in-process research and development consisted of a one-time write-off of acquired in-process research and development costs
totaling $1.3 million relating to our July 2002 acquisition of Captura.



Other



|                 |  |                          |     |        |       |    |      |   |        |  |       |      |  |   |    
|---------------- |  | ------------------------ | --- | ------ | ----- | -- | ---- | - | ------ |  | ----- | ---- |  | - | ---
|                 |  | Year Ended September 30,
|                 |  | 2004                     |     | Change |       |    | 2003 |   | Change |  |       | 2002
|                 |  | (dollars in thousands)  
|Interest income  |  | $                        | 237 |        | 11.8  | %  |      | $ | 212    |  | (43.6 | )%   |  | $ | 376
|Interest expense |  |                          | 29  |        | (71.6 | )% |      |   | 102    |  | (48.7 | )%   |  |   | 199



Interest Income and
Interest Expense.    The increase in interest income in fiscal 2004 compared to fiscal 2003 reflected higher levels of interest-earning cash and cash equivalent investments, offset in part by lower interest rates. The
decrease in interest income in fiscal 2003 compared to fiscal 2002 primarily reflected a lower level of interest-earning cash, cash equivalents and marketable securities.



The decreases in interest expense in both fiscal 2004 and 2003 compared to the respective prior year were due to lower
average outstanding bank borrowings and capital lease obligations.



Provision for Income Taxes.    No provision for federal or state income taxes has been recorded as we have accumulated significant net losses since inception, resulting in deferred tax assets. Since our
utilization of these deferred tax assets is dependent on future profits, which are not assured, we have recorded a valuation allowance equal to the net deferred tax assets.



Financial Condition



Our total assets were $52.9 million and $43.0 million at September 30, 2004 and 2003, respectively, representing an increase of $9.9 million or 23%. This
increase consisted primarily of increases in our cash and cash equivalents, accounts receivable, and property and equipment at September 30, 2004. Our cash and cash equivalents totaled $23.7 million and $21.6 million as of September 30, 2004 and
2003, respectively, representing an increase of $2.1 million, or 9.7%. Our cash flow activity is described in more detail in the Liquidity and Capital Resources section below. Net property and equipment increased to $5.0 million at September
30, 2004 from $1.3 million at September 30, 2003, primarily due to additional purchases of computer equipment and software and investment in software used internally, both in connection with our subscription services offerings.



Accounts receivable balances, net of allowances of $0.7 million and $0.5
million, were $10.3 million and $7.9 million as of September 30, 2004 and 2003, respectively, representing an increase of $2.4 million or 30%. The increase was primarily due to a higher level of receivables from our subscription customers (including
increases in software maintenance renewals), due in turn to the growth of the subscription business.



Our total current liabilities were $17.7 million and $15.2 million at September 30, 2004 and 2003, respectively, representing an increase of $2.5 million,
or 16.4%. This increase was mainly due to an increase of $1.7 million in the current portion of deferred revenues. Including the $3.0 million increase in long term deferred revenues, total deferred revenues increased by $4.7 million to $16.6 million
at September 30, 2004 from $11.9 million at September 30, 2003. This increase resulted from the larger customer base for our subscription services offerings, as well as revenues deferred in fiscal 2004 resulting from the execution of contracts
through certain strategic resellers during fiscal 2004.



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Our common stock and additional paid in capital totaled $239.8 million and $237.4 million at September
30, 2004 and 2003, respectively, an increase of $2.4 million, or 1.0%. The increase reflected proceeds received from the exercise of stock options under our stock based compensation plans and purchases of stock under our employee stock purchase
plan.



Liquidity and Capital Resources



Our available sources of liquidity as of September 30, 2004 consisted
principally of cash and cash equivalents totaling $23.7 million. We have a revolving credit line and equipment purchase facility available, which is discussed in more detail below.



Our operating cash inflows consist of cash received from our subscription and license customers. Our operating cash outflows
consist of cash payments to employees and vendors directly related to subscription and license customers, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services
offerings, related sales and marketing and administrative costs, and research and development costs. Operating activities provided $5.8 million and $4.7 million in fiscal 2004 and 2003, respectively, and used $8.3 million in fiscal 2002. The
improvements in our operating cash flows in 2004 and 2003 were driven by profitable operating results and increases in deferred revenue balances.



Our investing activities used $5.6 million in fiscal 2004 and provided $0.2 million and $1.6 million in fiscal 2003 and 2002, respectively. Purchases of
property and equipment totaled $5.6 million in fiscal 2004, compared to $1.3 million and $1.6 million in fiscal 2003 and 2002, respectively. These amounts consisted mainly of computer equipment and software purchases, as well as amounts capitalized
in fiscal 2004 for the development of software used internally, in connection with our subscription services offerings, as described in more detail in Research and Development above.



Our financing activities provided $1.7 million and $3.0 million in fiscal
2004 and 2003, respectively, and used $1.2 million in fiscal 2002. Proceeds from financing activities during these periods have consisted primarily of proceeds from employee stock option exercises and employee stock purchase plan activity, which we
do not directly control, and from borrowings. Scheduled payments made on loans and capital leases are our primary cash outflows from financing activities.



In March 2002, we entered into a loan and security agreement (Agreement) with a bank for a $1.0 million equipment credit facility (Term
I Advance). The Agreement for the Term I Advance allowed for borrowings in the amount of actual equipment purchases made through December 2002. As of September 30, 2004, the outstanding indebtedness under the Term I Advance was approximately
$90,000, bears interest at the banks prime rate (4.75% at September 30, 2004), and matures in December 2004.



In September 2002, we amended the terms of Agreement to add Captura as a borrower, and to include an additional term loan (Term II Advance) of
$0.4 million, with the proceeds used to refinance certain indebtedness owed by Captura to another creditor. As of September 30, 2004, the outstanding indebtedness under the Term II Advance was approximately $16,000, bears interest at the banks
prime rate and matures in October 2004. There were no additional borrowings available under this additional term loan as of September 30, 2004.



In September 2003, we amended the terms of the Agreement to add a revolving line of credit (Revolver) in an amount not to exceed the lesser of
80% of eligible accounts receivable or $5.0 million, with interest at the banks prime rate. Any advances under the Revolver became due and payable on September 23, 2004. In September 2004 we amended the Agreement to extend the Revolvers
availability to March 31, 2005, at which time any advances become due and payable. The other terms of the Revolver remain the same. There were no amounts borrowed under the Revolver at September 30, 2004.



We also amended the terms of the Agreement in September 2003 to add an
additional equipment facility (Term III Advance) for advances in the amount of actual equipment purchases up to $1.0 million through



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September 2004, with interest at the banks prime rate, maturing September 2006. In September 2004 we amended the Agreement to extend the Term III
Advances availability to March 31, 2005, with any amounts borrowed due on March 31, 2007. The other terms of the Term III Advance remain the same. There were no amounts borrowed under the Term III Advance at September 30, 2004.



In March 2004, we entered into an arrangement to finance the premium for our
current directors and officers liability insurance policy. The loan under this financing agreement bears interest at 5.4% and matures in December 2004. As of September 30, 2004, the balance under the arrangement was approximately
$98,000.



In January 2003, our Board of Directors authorized a
stock repurchase program under which we may repurchase up to one million shares of our outstanding stock over a two-year period. Stock purchases under the stock repurchase program may be made from time to time in the open market based on market
conditions. Any purchases will be made at the then-current market prices, and repurchased shares will be retired. No purchases have been made under this program through the date of this report.



The following table summarizes our contractual obligations as of September
30, 2004 related to long-term debt, operating leases, and purchase obligations:



|                                               |  |                        |       |             |   |             |  |                   |       |       |   |       |  |   |       
|---------------------------------------------- |  | ---------------------- | ----- | ----------- | - | ----------- |  | ----------------- | ----- | ----- | - | ----- |  | - | ------
|                                               |  | Payments due by period
|Contractual Obligations:                       |  | Less than 1 year       |       | 1  3 years |   | 3  5 years |  | More than 5 years |       | Total
|                                               |  | (in thousands)        
|Long-term debt obligations, including interest |  | $                      | 206   |             | $ |            |  | $                 |      |       | $ |      |  | $ | 206   
|Operating lease obligations                    |  |                        | 1,645 |             |   | 1,783       |  |                   | 2,232 |       |   | 4,598 |  |   | 10,258
|Purchase obligations (1)                       |  |                        | 1,953 |             |   | 3,000       |  |                   |      |       |   |      |  |   | 4,953 
|                                               |  |                        |       |             |   |             |  |                   |       |       |   |       |  |   |       
|Total                                          |  | $                      | 3,804 |             | $ | 4,783       |  | $                 | 2,232 |       | $ | 4,598 |  | $ | 15,417
|                                               |  |                        |       |             |   |             |  |                   |       |       |   |       |  |   |       

---

|(1) |  | Reflects future minimum commitments under arrangements with third parties who provide hosting infrastructure services in connection with the provision of our subscription services
offerings.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We do not use derivative financial
instruments.



We believe our cash and cash equivalents, amounts
available under our equipment credit facilities and revolving line of credit, as well as expected positive operating cash flows, will be sufficient to meet our anticipated cash needs for normal business operations, working capital needs and capital
expenditures for at least the next 12 months. In the longer term, or if we decide to acquire assets or businesses, we may require additional funds and may seek to raise such additional funds through private or public sales of debt or equity
securities, strategic relationships, bank debt, lease financing arrangements, or other available means. There can be no assurances that any such funds will be available or, if available, be on acceptable terms to meet our business needs. If
additional funds are raised through the issuance of equity securities, stockholders may experience additional dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock.



Critical Accounting Policies and Estimates



Our discussion and analysis of financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other factors that we
believe to be reasonable under the circumstances; such estimates and judgments are periodically re-evaluated. Actual results may differ materially from these estimates under different assumptions, judgments, or conditions.



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The estimates and judgments noted above are affected by our application of accounting policies. Our
critical accounting policies are those most important to the portrayal of our financial condition and results of operations, and that require the most difficult, subjective, or complex judgments. Our critical accounting policies include revenue
recognition, internal-use software, allowances for accounts receivable, accounting for stock-based compensation, and accounting for income taxes.



Revenue Recognition.    We generate our revenues from the delivery of subscription services (which include software maintenance
services), consulting services, and the sale of software licenses. We recognize revenues in accordance with accounting standards for software and service companies.



Generally, we recognize revenue when:



| |  |  | evidence of an arrangement exists;
| | - |  | ----------------------------------



| |  |  | delivery has occurred;
| | - |  | ----------------------



| |  |  | the fees are fixed or determinable; and
| | - |  | ---------------------------------------



| |  |  | collection is considered probable.
| | - |  | ----------------------------------



If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize
revenues as payments become due from the customer. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of operations. If non-standard
acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance criteria, as applicable.



In contractual arrangements that include the provision of multiple elements,
we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the arrangement. Multiple element arrangements require the delivery or
performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated together and, therefore, are accounted
for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we measure and allocate the total arrangement fee among each of the elements
based on their fair value or, if necessary, vendor-specific objective evidence of their fair value (VSOE). VSOE is determined by the price charged when an element is sold separately or, in the case of an element not yet sold separately,
the price set by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.



Subscription Revenues



Our subscription revenues are typically recognized monthly as the service is provided to the customer and consist of:



| |  |  | monthly fees paid for subscription services;
| | - |  | --------------------------------------------



| |  |  | amortization of related set-up fees;
| | - |  | ------------------------------------



| |  |  | amortization of fees paid for software maintenance services under software license arrangements; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the amortized portion of the related license and consulting fees in certain multiple element subscription arrangements where VSOE does not exist for an undelivered subscription
element.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Set-up fees paid by customers in
connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected lives of the customer
relationships, which generally range from two to five years. For those subscription service offerings that have been commercially available for only a short period of



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time, the contractual lives are used as the best estimate of the expected lives of the customer relationships. We continue to evaluate and adjust the length
of these amortization periods as we gain more experience with customer contract renewals and contract cancellations. It is possible that, in the future, the estimates of expected customer lives may change and, if so, the periods over which such
subscription set-up fees and costs are amortized will be adjusted. Any such change in estimated expected customer lives will affect our future results of operations.



Software maintenance services include technical support and the right to receive unspecified upgrades and enhancements on a
when-and-if available basis. Fees for software maintenance services are typically billed annually in advance of performance with provisions for subsequent automatic annual renewals. We defer the related revenues and recognize them ratably over the
respective maintenance terms, which typically are one year.



Subscription revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.



Consulting Revenues



Consulting revenues consist of fees for professional services, which consist
of system implementation and integration, planning, data conversion, training, and documentation of procedures. Consulting service fees are typically billed and recognized as revenue on a time-and-materials basis. In some instances, we sell
consulting services under milestone or fixed-fee contracts and, in such cases, recognize consulting revenues on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical
experience, including a review of our experience related to price adjustments and sales credits issued.



In service arrangements including both consulting and subscription services, but not a license of our software, we recognize consulting revenues as they
are performed if the consulting services qualify as a separate unit of accounting within the arrangement. The consulting services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective
and reliable evidence of the fair value of the subscription services, and delivery or performance of the subscription services is considered probable and substantially within our control. We have determined that, in our service arrangements of this
type, the consulting services typically qualify as a separate unit of accounting and, accordingly, the consulting revenues are recognized as the services are performed. If the consulting services do not qualify as a separate unit of accounting, the
related revenues are combined with the subscription revenues, and recognized ratably over the subscription service period. Our judgment as to whether the consulting services qualify as a separate unit of accounting may materially affect the timing
of our revenue recognition and our results of operations.



License Revenues



License revenues consist of
fees earned from, and allocable to, grants of licenses to use our software products. We recognize license revenues when evidence of a license arrangement exists, we have delivered the software, the amount of the transaction is fixed or determinable,
collection is probable, and VSOE exists for any undelivered elements of the arrangement. Elements included in our multiple-element software arrangements consist of various licensed software products and services such as software maintenance
services, consulting services, and subscription services.



In
software license arrangements that include rights to multiple elements, we allocate the total arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on VSOE and the
residual amounts of revenue are allocated to the delivered elements. If sufficient VSOE does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until the earlier of the
point at which such sufficient VSOE does exist or all elements of the arrangement have been delivered. If the only undelivered element is software maintenance, the entire fee is recognized ratably as subscription revenue. We are required to exercise
judgment in deciding



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how to interpret the evidence of fair value to determine the allocation of arrangement consideration with respect to a given element, and in determining
whether an established price is likely to change prior to separate market introduction. These judgments may materially affect the timing of our revenue recognition and results of operations.



In software license arrangements where we also provide consulting services,
license revenues generally are recognized upon delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the performance of the
consulting services, and the consulting services are not essential to the functionality of the software. If we determine that the consulting services are essential to the functionality of the software, or payment of the license fees is dependent
upon the performance of the consulting services, then both the license and consulting fees are recognized on a percentage-of-completion basis. We typically do not consider the consulting services we provide in such arrangements to be essential to
the functionality of the software and, therefore, license revenues are typically recognized upon delivery of the software and consulting revenues are recognized as the services are performed. Accordingly, our judgment as to whether consulting
services should be considered essential to the functionality of the licensed software may materially affect the timing of our revenue recognition and results of operations.



In arrangements where we license our software and also host the licensed software for our customer, a software element is
only considered present if our customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for our customer to either operate the software on its own
hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of license revenues described above, we recognize license revenues when the software is delivered,
and the subscription hosting revenues are recognized as the hosting service is provided. The hosting set-up fees, as well as the associated direct and incremental costs, are deferred and recognized ratably over the hosting service period. If we
determine that a separate software element as described above is not present, we combine the software license fees with the subscription hosting fees and recognize them ratably over the subscription service period, as subscription revenue. Our
judgment as to whether we meet the criteria above could have a material affect on the timing and mix of our revenue recognition and on our results of operations.



Portions of our revenues are generated from sales made through our reseller partners. When we assume a majority of the
business risks associated with performance of the contractual obligations, we record the revenues on a gross basis, and amounts paid to our reseller partners are recognized as cost of operations. Our assumption of such business risks is evidenced
when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement, and are the primary obligor in the arrangement. When our reseller partner assumes the majority of the business risks
associated with the performance of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller partner. Our judgment as to whether we have assumed the majority of the business risks associated with
performance of the contractual obligations materially affects how we report revenues and cost of operations.



Internal-Use Software



We capitalize certain costs of software developed or obtained for internal use in accordance with AICPA SOP 98-1, Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use (SOP 98-1). We
capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage activities, training,
maintenance and all other post implementation stage activities are expensed as incurred. Our policy provides for the capitalization of certain payroll and payroll-related costs for employees who are directly associated with internal use computer
software projects, as well as external direct costs of materials and services associated with developing or obtaining internal use software. Capitalizable personnel costs are limited to the time directly spent on such projects. Capitalized costs are
ratably amortized, using the straight-line method, over the estimated useful lives of the related applications which typically range from three to five years. Our judgment as to which costs to capitalize, when to begin capitalizing, and what period
to amortize the costs over may materially affect our results of operations.



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Accounts Receivable Allowances.    We record provisions for estimated sales
allowances to subscription and consulting revenues in the period in which the related revenues are recorded. We record our sales allowances based on historical experience, including a review of our experience related to price adjustments and sales
credits issued.



We make judgments as to our ability to collect
outstanding receivables, and we provide an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an
analysis of our historical bad debt experience and the current economic environment. If the data used to estimate the allowance provided for doubtful accounts does not adequately reflect our future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and future results of operations could be materially affected.



Stock-Based Compensation.    We have elected to continue to account for our stock-based compensation plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employeesand related interpretations, as opposed to the fair value method allowed by SFAS No. 123, Accounting for Stock-Based
Compensation, as amended. Accordingly, no stock-based compensation cost has been reflected in our statement of operations for any of the periods presented, as all options granted under these plans had exercise prices equal to the fair market
value of the underlying common stock on the date of grant, and any purchase discounts under our employee stock purchase plan were within statutory limits. If we are required to change our accounting for stock-based compensation in the future to the
fair value method, as currently proposed by the Financial Accounting Standards Board, we would incur and record substantial, non-cash, stock-based compensation expense, which would have a material effect on our results of operations. The pro forma
effect of using the fair value method of accounting is provided in Note 1 of the Notes to Consolidated Financial Statements in this report.



Income Taxes.    We are required to estimate our income taxes in each of the jurisdictions in which we operate. This involves
estimating our current tax liabilities, including the impact, if any, of additional taxes resulting from tax examinations as well as making judgments regarding our ability to realize our deferred tax assets. Such judgments can involve complex issues
and may require an extended period to resolve.



We have
experienced significant operating losses to date, as well as assumed significant net operating loss carryforwards from acquisitions, both of which have resulted in significant net deferred tax assets. We have recorded a valuation allowance equal to
these deferred tax assets and will continue to do so until the point at which we believe future profitability is more than reasonably assured. In the event we determine it is more likely than not we will be able to realize our deferred tax assets in
excess of our net recorded amount, an adjustment to our valuation allowance would be recorded and may result in a reduction to goodwill, and/or the recording of a significant tax benefit, which would increase net income in the period such a
determination was made. Depending on the amount of deferred tax assets that may be realized, and depending on whether we incur taxable profits in the periods following the recognition of any tax benefit, we may record tax expense in these subsequent
periods. Any recorded tax expense would result in minimal actual tax payments until the point at which we fully utilized our accumulated net operating loss carryforwards, which are subject to the limitations and timing as described below.



As a result of prior equity financings and the equity issued
in conjunction with certain acquisitions, we have incurred ownership changes, as defined by applicable tax laws. Accordingly, our use of the acquired net operating loss carryforwards may be limited. Further, to the extent that any single year loss
is not utilized to the full amount of the limitation, such unused loss is carried over to subsequent years until the earlier of its utilization or the expiration of the relevant carryforward period. Our net operating loss carryforwards may extend to
a period of greater than 10 years, subject to limitations and timing as prescribed by applicable tax laws and generally accepted accounting principles.



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Factors That May Affect Financial Condition And Results Of Operations



We operate in a dynamic and rapidly changing business environment that
involves substantial risk and uncertainty. The following discussion addresses the risks and uncertainties that could cause, or contribute to causing, actual results to differ materially from expectations. In evaluating our business, readers should
pay particular attention to the descriptions of risks and uncertainties described below and in other sections of this report and our other filings with the SEC.



We Are Dependent Upon Sales Of Our Concur Expense Solutions, Which Account For Greater Than 95% Of Our Total Revenues. If Demand For These Solutions Was to
Decline Materially, Our Results Of Operations Would Be Substantially Harmed.



We generated greater than 95% of our total revenues in fiscal 2004 from our Concur Expense services and software, and we expect such services and software to continue to contribute a similar percentage of our total
revenues for the foreseeable future. Our future financial performance and revenue growth is dependent upon continued market acceptance of our Concur Expense solutions, and our revenues would decline significantly if, for example, our competitors,
some of which have substantially greater resources than us, develop expense management products that achieve greater market acceptance, or we do not keep up with technological advancements in software platforms, delivery models or product features.
There can be no assurance that our services and software solutions will continue to maintain widespread market penetration or that we will continue to derive significant revenues from sales of such solutions in the future.



We Are Increasingly Dependent On A Subscription Service Business Model Which Could Fail
To Adequately Support Our Business And Operations.



Our subscription revenues are based on a business model that has a limited history and continues to evolve, and, is therefore subject to a number of risks, including: an increasing reliance on a relatively novel revenue model for our
industry; a reduction of license revenues as we focus on building our subscription business, lower gross margins and higher fixed costs associated with our subscription business, as compared to our license business, unpredictable sales cycles, and
the possibility of subscription cancellations. We began offering our software as a service on an outsourced basis over the Internet in 1999. Our subscription services delivery models have continued to evolve and, today, we anticipate that our future
financial performance and revenue growth will depend, in large part, upon the growth of our subscription services. Our subscription revenues represented 71% of total revenues in fiscal 2004, and we depend substantially on outsourced subscription
services delivery models for our anticipated revenues and cash flows. We anticipate that subscription revenues will continue to represent a significant percentage of our total revenues and that our future financial performance and revenue growth
will depend, in large part, upon the growth in customer demand for our outsourced subscription services delivery models. As such, we have invested significantly in infrastructure, operations, and strategic relationships to support these models,
which represent a significant departure from the delivery strategies that we and other enterprise software vendors have traditionally employed. Our new and evolving business model makes our business operations and prospects difficult to evaluate.



Our emphasis on building our subscription business has
contributed to reduced software license revenues in recent periods. Our license revenues have declined substantially in recent periods, due in large part to the growth of our subscription services business, resulting in license revenues in fiscal
2004 that were 45% lower than those in fiscal 2003. The limited history of our subscription business model makes it difficult to predict whether demand for subscription services will continue. If it does not, we may not be able to generate
sufficient license revenues to offset any decrease in sales of subscription services.



If our subscription services business does not grow sufficiently, our cost of revenues may exceed such revenues, which could harm our operating results. Our costs of providing subscription services are relatively
fixed in the short-term, so we may not be able to adjust our expenses quickly enough to offset any potential slowdown in subscription sales. In addition, the cycle for implementing our subscription services can be



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unpredictable because our services must be integrated with a customers existing systems. Any delays in implementation may prevent us from recognizing
subscription revenue for periods of time, even when we have already incurred costs relating to the implementation of our subscription services. Furthermore, we may experience unanticipated increases in costs associated with providing our
subscription services and software maintenance services to customers over the term of our customer contracts as a result of inflation, inaccurate internal cost projections or other factors, which may harm our operating results. Additionally, some of
our subscription services contracts contain cancellation provisions, and, as a result, we may recognize substantially less revenue than the aggregate value of those contracts over their terms. If a customer cancels or otherwise seeks to terminate a
subscription or maintenance agreement prior to the end of its term, or if we are unable to renew such an agreement at the end of its term, our operating results in future periods could be substantially harmed.



We Depend On Consulting Revenues, Which May Fluctuate Or Decline.



Our consulting revenues represented 21% of total revenues in fiscal 2004.
We anticipate that consulting revenues will continue to represent a significant component of our total revenues. The level of consulting revenues depends largely upon demand for our consulting services, which consist of system implementation and
integration, planning, data conversion, training, and documentation of procedures. Our consulting revenues could fluctuate or decline to the extent sales or upgrades of our subscription services and/or software licenses fluctuate or decline or if
third-party organizations such as systems integrators compete with us for the installation or servicing of our offerings. Our ability to increase consulting revenues will depend in large part on our ability to increase the scale of our consulting
organization, including our ability to recruit and train a sufficient number of qualified consulting personnel.



Software License Revenues Are Volatile, Which Makes Our Operating Results Difficult To Predict.



Our software license revenues represented 8% of total revenues in fiscal
2004. While software license revenues are diminishing as a percent of total revenues, they continue to contribute to our overall operating results. However, the timing and amounts of license revenues can be difficult to predict, which can lead to
variability in operating results. For example, our licensed software is typically shipped when orders are received, so license backlog at the beginning of any quarter typically represents only a small portion of the quarters expected license
revenues. This makes license revenues in any quarter difficult to forecast because they are determined by orders booked and shipped in that quarter. Moreover, we have historically recognized a substantial percentage of license revenues in the last
month of the quarter, frequently in the last week or even the last days of the quarter, and we expect this trend to continue for as long as our licensed software represents a meaningful part of our overall business. Because our expenses are
relatively fixed in the near term, any shortfall from anticipated revenues or any delay in the recognition of revenues could result in significant variations in operating results from quarter to quarter. Furthermore we find it difficult to forecast
quarterly license revenues because our sales cycle, from initial evaluation to delivery of software, is lengthy and varies substantially from customer to customer. The continuing weakness of capital spending for enterprise software contributes to
the length and unpredictability of our sales cycle for licensed products, making related revenues more difficult to predict and subjecting our operating results to greater volatility on a quarter over quarter basis.



We Face Significant Competition From Companies That Have Greater Resources Than Us And
If We Fail To Compete Effectively, Our Business Will Suffer And Be Materially Harmed.



The market for our solutions is intensely competitive and rapidly changing. The direct competition we face depends on the market segment focus and delivery model capabilities of our competitors. We also face indirect
competition from potential customers internal development efforts and, at times, have to overcome their reluctance to move away from existing paper-based systems. Our principal direct competition comes from independent vendors of Corporate
Expense Management software and services, as well as financial institutions and ERP vendors that sell products similar to ours along with their suites of other products and services. Many of our competitors have longer operating histories, greater
financial, technical, marketing, and other resources, greater name recognition, and a larger total number of customers for their products and services than we do.



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Some of our competitors, particularly major financial institutions and ERP vendors, have well-established relationships with our current and potential
customers as well as with systems integrators and other vendors and service providers. These competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to
the development, promotion, and sale of their products, than us. In addition, we anticipate the entrance of new competitors in the future. Increased competition may result in price reductions, reduced gross margins, and change in market share and
could have a material adverse effect on our business, financial condition, and results of operations.



We Are Dependent Upon Strategic Relationships With Third Parties And If We Cannot Continue To Sustain And Develop These Relationships, Our Revenues Will Decline.



We depend on strategic reseller and referral relationships to offer products
and services to a larger customer base than we can reach through direct sales, telesales, and internal marketing efforts. If we were unable to maintain our existing strategic relationships or enter into additional strategic relationships, we would
have to devote substantially more resources to the distribution, sales, and marketing of our products and services. Our success depends in part on the ultimate success of our strategic reseller and referral partners and their ability to market our
products and services successfully. Our existing strategic referral partners are not obligated to refer any potential customers to us. In addition, some of these third parties have entered, and may continue to enter, into strategic relationships
with our competitors. Further, many of our strategic partners have multiple strategic relationships, and they may not regard us as significant for their businesses. Our strategic partners may terminate their respective relationships with us, pursue
other partnerships or relationships, or attempt to develop or acquire products or services that compete with our products or services. Our strategic partners also may interfere with our ability to enter into other desirable strategic relationships.



If Our Customers Have Concerns Over The Scalability Or Security Of Our
Products, They May Not Continue To Buy Our Products And Our Revenues Will Decline.



If customers determine that our subscription services offerings are not sufficiently scalable, do not provide adequate security for the dissemination of information over the Internet or corporate extranets, or are
otherwise inadequate for Internet or extranet use or if, for any other reason, customers fail to accept our subscription services for use, our business will be harmed. As part of our subscription services, we receive credit card, travel booking,
employee, purchasing, supplier, and other financial and accounting data, through the Internet or extranets, and there can be no assurance that this information will not be subject to computer break-ins, theft, and other improper activity that could
jeopardize the security of information for which we are responsible. Any such lapse in security could expose us to litigation, loss of customers, or other harm to our business.



In addition, any person who is able to circumvent our security measures could misappropriate proprietary or confidential
customer information or cause interruptions in our operations. We may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Any general concern regarding security in the marketplace
could deter customers or prospects from using the Internet to conduct transactions that involve transmitting confidential information. Our failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general,
could significantly harm our business, operating results, and financial condition.



Privacy Concerns Are Increasing, Which Could Result In Regulatory Changes That May Harm Our Business.



Personal privacy has become a significant issue in the United States and many other countries in which we operate. The United States and various other
countries have recommended limitations on, or taken actions to limit, the use of personal information by those collecting such information. Any new or existing privacy laws, if applicable to our business, could impose additional costs and could
limit our use and disclosure of such information. If such privacy laws were deemed to apply to us, we may be required to change our activities and revise or eliminate our services, which could significantly harm our business.



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Interruption Of Our Operations Could Significantly Harm Our Business.



Significant portions of our operations depend on our ability to protect our
computer equipment and the information stored in our computer equipment, offices, and hosting facilities against damage from earthquake, floods, fires, power loss, telecommunications failures, unauthorized intrusion, and other events. We back up
software and related data files regularly and store the back-up files at various off-site locations. However, there can be no assurance that our disaster preparedness will eliminate the risk of extended interruption of our operations.



We have engaged third-party hosting facility providers to provide the hosting
facilities and related infrastructure for our subscription services. These hosting facilities are located in several locations in the United States and the United Kingdom. We do not control the operation of these hosting facilities. Despite
precautions taken at these facilities, the occurrence of a natural disaster, a decision by one of our hosting providers to close a facility without adequate notice to us, or other unanticipated problems at these facilities could result in lengthy
interruptions in our services. We also retain third-party telecommunications providers to provide Internet and direct telecommunications connections for our services. Any of these third-party providers may fail to perform their obligations
adequately. Any damage to, or failure of, our systems could result in interruptions in our service and/or litigation. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their
subscriptions and adversely affect our renewal rates. Our business will be harmed if our customers and potential customers believe our service is unreliable.



Our Reported Financial Results May Be Adversely Affected By Changes In Accounting Principles Generally Accepted In The United States.



GAAP is subject to interpretation by the FASB, the American Institute of
Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and
could affect the reporting of transactions completed before the announcement of a change. In particular, revenue recognition rules for software and service companies are complex and require significant interpretation by us. Changes in circumstances,
interpretations, or accounting principles or guidance may require us to modify our revenue recognition policies. Such modifications could impact the timing of revenue recognition and our operating results. See Managements Discussion And
Analysis Of Financial Condition And Results Of Operations regarding our critical revenue recognition policies. Further, we currently are not required to record stock-based compensation charges if the employees stock option exercise price
is equal to or exceeds the fair market value of our common stock on the grant date. However, the FASB is expected to release its final standard requiring the expensing of stock-based compensation under the fair value method in the near future. If
the final standard is released in its currently proposed form, we would incur and record significant, non-cash based, stock compensation expense, which would have a material effect on our results of operations. For example, in fiscal 2004, had we
accounted for stock-based compensation plans using a fair value method prescribed under FASB Statement No. 123, as amended by Statement No. 148, our net income would have been reduced by $6.1 million.



Compliance With New Regulations Governing Public Company Corporate Governance And
Reporting Is Uncertain And Expensive.



Many new laws,
regulations, and standards, notably those adopted in connection with the Sarbanes-Oxley Act of 2002 by the SEC, the New York Stock Exchange, and the NASDAQ Stock Market, impose new obligations on public companies, such as ours, which have increased
the scope, complexity, and cost of corporate governance, reporting, and disclosure practices and have created uncertainty for companies such as ours. These new laws, regulations, and standards are subject to varying interpretations in many cases due
to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and governance practices. Our continuing preparation for and implementation of these reforms and enhanced new disclosures has resulted in, and will



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likely continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating
activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our
external auditors audit of that assessment, which will be required for our fiscal year ending September 30, 2005, has required, and will likely continue to require, the commitment of significant financial and managerial resources. Any
unanticipated difficulties in preparing for and implementing these reforms could result in material delays in complying with these new laws, regulations, and standards or significantly increase our costs. Our ability to fully comply with these new
laws and regulations is also uncertain. Our failure to timely prepare for and implement the reforms required by these new laws, regulations, and standards could significantly harm our business, operating results, and financial condition. Further,
these laws, regulations, and standards may make it more difficult for us to attract and retain qualified members to serve on our board of directors and board committees, particularly our audit committee, and to attract and retain qualified executive
officers, which could harm our business. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.



The Growth Of The International Component Of Our Business Subjects Us To
Additional Risks Associated With Foreign Operations.



Our international operations, which are subject to risks associated with operating abroad, are becoming an increasingly important component of our business. Revenues from customers outside the United States represented approximately $8.2
million, $7.6 million, and $6.6 million in fiscal 2004, 2003, and 2002, respectively. These international operations are subject to a number of difficulties and special costs, including:



| |  |  | costs of customizing products for foreign countries;
| | - |  | ----------------------------------------------------



| |  |  | laws and business practices favoring local competitors;
| | - |  | -------------------------------------------------------



| |  |  | uncertain regulation of electronic commerce;
| | - |  | --------------------------------------------



| |  |  | compliance with multiple, conflicting, and changing governmental laws and regulations;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | longer sales cycles;
| | - |  | --------------------



| |  |  | greater difficulty in collecting accounts receivable;
| | - |  | -----------------------------------------------------



| |  |  | import and export restrictions and tariffs;
| | - |  | -------------------------------------------



| |  |  | potentially weaker protection for our intellectual property than in the United States, and practical difficulties in enforcing such rights abroad;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties staffing and managing foreign operations;
| | - |  | ------------------------------------------------------



| |  |  | multiple conflicting tax laws and regulations; and
| | - |  | --------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------



Our international operations also face foreign currency-related risks. To date, most of our revenues have been denominated in United States dollars, but
we believe that an increasing portion of our revenues will be denominated in foreign currencies. We currently do not engage in foreign exchange hedging activities and, therefore our international revenues and expenses are currently subject to the
risks of foreign currency fluctuations. In addition, our ability to expand into international markets will depend on our ability to develop and support services and products that incorporate the tax laws, accounting practices, and currencies of
applicable countries.



Our international operations also
increase our exposure to international laws and regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and potential litigation.
For example, the governments of foreign



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countries might attempt to regulate our services and products or levy sales or other taxes relating to our activities. In addition, foreign countries may
impose tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business in international markets.



We intend to continue to expand our international sales and marketing
activities and enter into relationships with additional international distribution partners. We are in the early stages of developing our indirect distribution channels in markets outside the United States. We may not be able to attract and retain
distribution partners that will be able to market our products effectively.



Our Quarterly Revenues And Operating Results May Fluctuate In Future Periods And We May Fail To Meet Expectations Of Investors And Public Market Analysts, Which Could Cause The Price Of Our Common Stock To Decline.



Our quarterly revenues and operating results may fluctuate significantly
from quarter to quarter. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied on as an indication of our future performance. If quarterly revenues or operating results fall below the
expectations of investors or public market analysts, the price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our operating results include:



| |  |  | the evolving demand for our services and software;
| | - |  | --------------------------------------------------



| |  |  | spending decisions by our customers and prospective customers;
| | - |  | --------------------------------------------------------------



| |  |  | our ability to manage expenses;
| | - |  | -------------------------------



| |  |  | the timing of new product releases;
| | - |  | -----------------------------------



| |  |  | changes in our pricing policies or those of our competitors;
| | - |  | ------------------------------------------------------------



| |  |  | the timing of execution of large contracts;
| | - |  | -------------------------------------------



| |  |  | changes in mix of our services and software offerings;
| | - |  | ------------------------------------------------------



| |  |  | the mix of sales channels through which our services and software are sold;
| | - |  | ---------------------------------------------------------------------------



| |  |  | costs of developing new products and enhancements;
| | - |  | --------------------------------------------------



| |  |  | our ability to adequately provide services and software; and
| | - |  | ------------------------------------------------------------



| |  |  | global economic and political conditions.
| | - |  | -----------------------------------------



In addition, due to the continuing weakness of capital spending for enterprise software and business services, we believe that many existing and potential
customers may reassess or reduce their planned technology and Internet-related investments and defer or reprioritize purchasing decisions. Any such reduction in business spending for technology could have a material adverse effect on our revenues
and operating results. As a result, there is increased uncertainty with respect to our expected revenues.



Our Lengthy Sales Cycle Could Adversely Affect Our Financial Results.



Because of the high costs involved over a significant period of time, customers for enterprise software and business services typically commit significant
resources to an evaluation of available solutions and require us to expend substantial time, effort, and money educating them about the value of our services and software. Our sales cycle, which is the time between initial contact with a potential
customer and the ultimate sale, is often lengthy and unpredictable. As a result, we have limited ability to forecast the timing and size of specific sales. In addition, customers may delay their purchases from a given quarter to another as they
elect to wait for new product enhancements or due to other factors. Any delay in completing, or failure to complete, sales in a particular quarter or fiscal year could harm our business and could cause our operating results to vary significantly.



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We May Not Successfully Develop Or Introduce New Products Or Enhancements To Existing Products, And, As A Result,
We May Lose Existing Customers Or Fail To Attract New Customers And Our Revenues Would Suffer.



Our future financial performance and revenue growth will depend, in part, upon the successful development, introduction, and customer acceptance of new
and enhanced versions of our products and services, and our business could be harmed if we fail to deliver enhancements to our current and future products and services that customers desire. From time to time, we experience delays in the
planned release dates of enhancements to our products and services, and we have discovered errors in new releases after their introduction. New product versions or upgrades may not be released according to schedule, or may contain errors when
released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products and services, or customer claims, including warranty claims, against us, any of which could harm our business. If we do not
deliver new product versions, upgrades, or other enhancements to existing products and services on a timely and cost-effective basis, our business will be harmed. We are also continually seeking to develop new offerings. However, we remain subject
to all of the risks inherent in product development, including unanticipated technical or other development problems, which could result in material delays in product introduction and acceptance or significantly increased costs. There can be no
assurance that we will be able to successfully develop new services or products, or to introduce in a timely manner and gain acceptance of such new products or services in the marketplace.



Our Products And Services Might Not Keep Pace With Technological Change.



We must continually modify and enhance our services
and products to keep pace with changes in hardware and software platforms, database technology, electronic commerce technical standards, and other items. As a result, uncertainties related to the timing and nature of new product announcements or
introductions, or modifications by vendors of operating systems, back-office applications, and browsers and other Internet-related applications, could harm our business.



We Rely On Third-Party Software And Services That May Be Difficult To Replace.



We license or purchase software and services provided by third parties in
order to offer some of our services and software offerings. Such third-party software and services may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain our rights to use any of these
software or services could result in delays in the sale of our services or software offerings until equivalent technology is either developed by us, or, if available, is identified, licensed, and integrated, which could harm our business.



Our Stock Price Has Experienced High Volatility In The Past, May
Continue To Be Volatile, And May Decline.



The trading
price of our common stock has fluctuated widely in the past and may do so in the future, as a result of a number of factors, many of which are outside our control, such as:



| |  |  | variations in our actual and anticipated operating results;
| | - |  | -----------------------------------------------------------



| |  |  | changes in our earnings estimates by analysts;
| | - |  | ----------------------------------------------



| |  |  | failure to achieve earnings expectations;
| | - |  | -----------------------------------------



| |  |  | the volatility inherent in stock prices within the emerging sector within which we conduct business; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the volume of trading in our common stock, including sales of substantial amounts of common stock issued upon the exercise of outstanding options and warrants.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the stock market, particularly the
NASDAQ Stock Market, has experienced extreme price and volume fluctuations that have affected the market prices of many technology and computer software companies, particularly Internet-related companies. Such fluctuations have often been unrelated
or disproportionate to the operating performance of these companies. These broad market fluctuations could adversely affect the market price of our common stock.



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Further, securities class action litigation has often been brought against companies that experience
periods of volatility in the market prices of their securities. Securities class action litigation could result in substantial costs and a diversion of our managements attention and resources. In July 2001, we and several of our current and
former officers were named as defendants in two securities class-action lawsuits based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. In April 2002, these lawsuits were consolidated.
This consolidated lawsuit is one of more than 300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In July 2003, we decided to participate in a
proposed settlement being negotiated by representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to participate in the
proposed settlement to avoid the cost and distraction of continued litigation. The proposed settlement agreement would dispose of all remaining claims against us and the individual defendants, without any admission of wrongdoing by us or the
individual defendants. The proposed settlement is subject to final approval by the parties and the court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the parties and the court fail to approve the
proposed settlement, we would continue to defend ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk
that managements distraction in dealing with this lawsuit could harm our results.



In Order To Meet Our Business Objectives We Need To Attract And Retain Qualified Personnel. We Depend Significantly On Direct Sales, Which Are Subject To Personnel Risks And May Cause Us To Miss Some Opportunities.



Our success depends in large part on our ability to attract, motivate,
and retain highly qualified personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating, and retaining key personnel. Many of our competitors have greater financial and
other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, recent changes in applicable stock exchange listing standards
relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. We rely on our direct sales force to sell our services and software in the
marketplace. We anticipate increasing our direct sales force by approximately 50% in fiscal 2005, compared to the level at September 30, 2004. There is significant competition for direct sales personnel with the advanced sales skills and technical
knowledge we need. If we were unable to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales
channels, such as domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm our business.



We May Require Additional Financing To Fund Our Operations Or Growth.



In the future, we may be required to seek additional
financing to fund our operations or growth. Factors such as the commercial success of our existing services and products, the timing and success of any new services and products, the progress of our research and development efforts, our results of
operations and cash flows, the use of cash in our stock repurchase program, the status of competitive services and products, and the timing and success of potential strategic alliances or potential opportunities to acquire or sell businesses or
assets may require us to seek additional funding sooner than we expect. There is no assurance that such funding will be available on terms that are acceptable to us, or at all. If we raise additional funds through the issuance of equity securities
or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders would be reduced. In addition, such securities could have rights, preferences, and privileges senior to those of our current stockholders. If
adequate funds were not available on acceptable terms, our ability to achieve or sustain positive cash flows, maintain current operations, fund any potential growth, take advantage of unanticipated opportunities, develop or enhance services or
products, or otherwise respond to competitive pressures would be significantly limited.



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Our Ability To Protect Our Intellectual Property Is Limited And Our Products May Be Subject To Infringement Claims
By Third Parties.



Our success depends, in part, upon
our proprietary technology, processes, trade secrets, and other proprietary information, and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of copyright, trade secret, and trademark laws,
confidentiality procedures, contractual provisions, and other similar measures to protect our proprietary information. We do not own any issued patents or have any patent applications pending. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary, and third parties may attempt to develop similar technology independently. We provide our licensed customers with access
to object code versions of our software, and to other proprietary information underlying our software. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of
some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and we expect that it will become more difficult to monitor use of our products as we increase our international presence. There
can be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim
infringement by us with respect to current or future products or other intellectual property rights. Any such claims could have a material adverse effect on our business, results of operations and financial condition. In addition, over the past
several years, we have made numerous changes in our product names. Although we own registered trademarks in the United States and have filed trademark applications in the United States and in certain other countries, we do not have assurance that
our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.



If We Acquire Companies, Products, Or Technologies, We May Face Risks Associated With Those Acquisitions.



In the future, we may acquire companies or make investments in other
companies, products, or technologies. We may not realize the anticipated benefits of our prior or future acquisitions or investments to the extent that we anticipate, or at all. We may have to incur debt or issue equity securities to pay for future
acquisitions or investments, the issuance of which could be dilutive to our existing stockholders. If any acquisition or investment is not perceived as improving our earnings per share, our stock price may decline. In addition, we may incur non-cash
amortization charges from acquisitions, which could harm our operating results. Any completed acquisitions would also require significant integration efforts, diverting our attention from our business operations and strategy.



Anti-Takeover Effects Of Our Rights Agreement, Charter Documents, And Delaware Law
Could Discourage Or Prevent A Change In Control Of Concur.



We have a shareholder rights agreement in place, under which our stockholders have special rights, in the form of additional voting and beneficial ownership, in the event that a person or group not approved by the board of directors were to
acquire, or to announce the intention to acquire 15% or more of our outstanding shares. This plan is designed to have the effect of discouraging, delaying or rendering more difficult an acquisition of us that has not been approved by our Board of
Directors.



In addition, there are provisions in our
certificate of incorporation and bylaws, as well as provisions in the Delaware General Corporation Law, that may discourage, delay or prevent a change of control. For example:



| |  |  | our Board of Directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | our stockholders do not have cumulative voting rights, and, therefore, each of our directors can only be elected by holders of a majority of our outstanding common stock;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | a special meeting of stockholders may only be called by a majority of our Board of Directors, the Chairman of our Board of Directors, or our chief executive officer;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our stockholders may not take action by written consent;
| | - |  | --------------------------------------------------------



| |  |  | our Board of Directors is divided into three classes, only one of which is elected each year; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | we require advance notice for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign currency risks.



Interest Rate Risk.    We have debt instruments
with variable rates of interest. Variable interest rate debt exposes us to differences in future cash flows resulting from changes in market interest rates. Some of the potential differences in future cash flows likely would be mitigated because all
of our debt outstanding at September 30, 2004 matures in less than one year. Variable interest rate risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% increase in interest rates. We believe such a change
would not have a material impact on our cash flows related to these debt instruments.



Foreign Currency Risk.    We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. We do not believe movements in
the foreign currencies in which we transact will significantly affect future net earnings. Foreign currency risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We
believe that such a change would not have a material impact on our cash flows of financial instruments that are sensitive to foreign currency exchange risk.



Derivatives.We do not use derivative financial instruments.



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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Consolidated Financial Statements of Concur Technologies, Inc.



|                                                                                                       |  |   
|------------------------------------------------------------------------------------------------------ |  | --
|Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm                         |  | 36
|                                                                                                       | 
|Report of Ernst & Young LLP, Independent Registered Public Accounting Firm                             |  | 37
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended September 30, 2004, 2003, and 2002           |  | 38
|                                                                                                       | 
|Consolidated Balance Sheets as of September 30, 2004 and 2003                                          |  | 39
|                                                                                                       | 
|Consolidated Statements of Stockholders Equity for the years ended September 30, 2004, 2003, and 2002 |  | 40
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003, and 2002           |  | 41
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  | 42



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Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm



The Board of Directors and Stockholders

Concur Technologies, Inc.

Redmond, Washington



We have audited the accompanying consolidated balance sheets of Concur
Technologies, Inc. and subsidiaries (the Company) as of September 30, 2004 and 2003, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the two years in the period ended September
30, 2004. Our audits also included the financial statement schedule listed in Item 15. These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule based on our audits.



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



In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30, 2004 and 2003, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2004 in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.



DELOITTE & TOUCHE LLP



Seattle, Washington

December 7, 2004



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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm



The Board of Directors and Stockholders of

Concur Technologies, Inc.



We
have audited the accompanying consolidated statements of operations, stockholders equity, and cash flow of Concur Technologies, Inc. (the Company) for the year ended September 30, 2002. Our audit also included the financial
statement schedule listed in the Index of Item 15(a). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on
our audits.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the Companys
operations and its cash flows for the year ended September 30, 2002, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the information set forth therein.



ERNST & YOUNG LLP



Seattle, Washington

November 5, 2002



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Concur Technologies, Inc.



Consolidated Statements Of Operations

(In thousands, except per share amounts)



|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                           |  | Year Ended September 30, |       
|                                                           |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|Revenues:                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Subscription                                               |  | $                        | 40,244 |   |      | $ | 33,590 |      |  | $ | 20,076  |  
|Consulting                                                 |  |                          | 11,560 |   |      |   | 14,457 |      |  |   | 15,174  |  
|License                                                    |  |                          | 4,746  |   |      |   | 8,690  |      |  |   | 9,847   |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Total revenues (1)                                         |  |                          | 56,550 |   |      |   | 56,737 |      |  |   | 45,097  |  
|                                                           |  |                          |       
|Operating expenses:                                        |  |                          |        |   |      |   |        |      |  |   |         |  
|Cost of operations (2)                                     |  |                          | 23,264 |   |      |   | 23,214 |      |  |   | 21,987  |  
|Sales and marketing                                        |  |                          | 14,329 |   |      |   | 14,549 |      |  |   | 16,669  |  
|Research and development                                   |  |                          | 8,773  |   |      |   | 10,356 |      |  |   | 10,606  |  
|General and administrative                                 |  |                          | 7,295  |   |      |   | 6,710  |      |  |   | 6,800   |  
|Amortization of intangible assets                          |  |                          | 1,140  |   |      |   | 1,140  |      |  |   | 190     |  
|In-process research and development                        |  |                          |       |   |      |   |       |      |  |   | 1,300   |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Total expenses                                             |  |                          | 54,801 |   |      |   | 55,969 |      |  |   | 57,552  |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Income (loss) from operations                              |  |                          | 1,749  |   |      |   | 768    |      |  |   | (12,455 | )
|                                                           |  |                          |       
|Interest income                                            |  |                          | 237    |   |      |   | 212    |      |  |   | 376     |  
|Interest expense                                           |  |                          | (29    | ) |      |   | (102   | )    |  |   | (199    | )
|Other income (expense), net                                |  |                          | 78     |   |      |   | 83     |      |  |   | (9      | )
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Net income (loss)                                          |  | $                        | 2,035  |   |      | $ | 961    |      |  | $ | (12,287 | )
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Net income (loss) per share (basic and diluted)            |  | $                        | 0.06   |   |      | $ | 0.03   |      |  | $ | (0.46   | )
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Shares used in calculation of net income (loss) per share: |  |                          |        |   |      |   |        |      |  |   |         |  
|Basic                                                      |  |                          | 32,595 |   |      |   | 31,265 |      |  |   | 26,571  |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  
|Diluted                                                    |  |                          | 36,815 |   |      |   | 35,440 |      |  |   | 26,571  |  
|                                                           |  |                          |        |   |      |   |        |      |  |   |         |  

---

|(1) |  | Includes sales to related parties of $849 and $1,560 in the years ended September 30, 2003 and 2002, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes payments to related parties of $386 and $1,099 in the years ended September 30, 2003 and 2002, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------





See notes to consolidated financial statements.



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Concur Technologies, Inc.



Consolidated Balance Sheets

(In thousands, except per share amount)



|                                                                                                                        |  |               |          |   |      |   |          |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                        |  | September 30, |         
|                                                                                                                        |  | 2004          |          |   | 2003 |  
|Assets:                                                                                                                 |  |               |          |   |      |   |          |  
|Current assets:                                                                                                         |  |               |          |   |      |   |          |  
|Cash and cash equivalents                                                                                               |  | $             | 23,735   |   |      | $ | 21,607   |  
|Accounts receivable, net of allowances of $690 and $499 in 2004 and 2003, respectively                                  |  |               | 10,277   |   |      |   | 7,862    |  
|Prepaid expenses                                                                                                        |  |               | 1,127    |   |      |   | 1,425    |  
|Other current assets                                                                                                    |  |               | 2,325    |   |      |   | 1,238    |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total current assets                                                                                                    |  |               | 37,464   |   |      |   | 32,132   |  
|Property and equipment, net                                                                                             |  |               | 5,003    |   |      |   | 1,331    |  
|Restricted cash                                                                                                         |  |               | 550      |   |      |   | 550      |  
|Acquired customer base intangible asset, net of amortization                                                            |  |               | 3,230    |   |      |   | 4,370    |  
|Goodwill                                                                                                                |  |               | 3,704    |   |      |   | 3,704    |  
|Deposits and other long-term assets                                                                                     |  |               | 2,948    |   |      |   | 886      |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total assets                                                                                                            |  | $             | 52,899   |   |      | $ | 42,973   |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Liabilities and stockholders equity:                                                                                   |  |               |          |   |      |   |          |  
|Current liabilities:                                                                                                    |  |               |          |   |      |   |          |  
|Accounts payable                                                                                                        |  | $             | 1,784    |   |      | $ | 1,015    |  
|Accrued compensation                                                                                                    |  |               | 1,664    |   |      |   | 945      |  
|Other accrued liabilities                                                                                               |  |               | 2,461    |   |      |   | 2,518    |  
|Current portion of long-term obligations                                                                                |  |               | 252      |   |      |   | 768      |  
|Current portion of deferred revenues                                                                                    |  |               | 11,576   |   |      |   | 9,905    |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total current liabilities                                                                                               |  |               | 17,737   |   |      |   | 15,151   |  
|Long-term obligations, net of current portion                                                                           |  |               |         |   |      |   | 199      |  
|Long-term deferred revenues, net of current portion                                                                     |  |               | 5,017    |   |      |   | 2,015    |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total liabilities                                                                                                       |  |               | 22,754   |   |      |   | 17,365   |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Commitments and contingencies (Notes 5 and 13)                                                                          |  |               |         |   |      |   |         |  
|                                                                                                                        |  |              
|Stockholders equity:                                                                                                   |  |               |          |   |      |   |          |  
|Convertible preferred stock, par value $0.001 per share: Authorized shares  5,000; No shares issued or outstanding     |  |               |         |   |      |   |         |  
|Common stock, par value $0.001 per share: Authorized shares  60,000; Issued and outstanding shares  32,981 and
32,142 |  |               | 33       |   |      |   | 32       |  
|Additional paid-in capital                                                                                              |  |               | 239,778  |   |      |   | 237,370  |  
|Accumulated other comprehensive income                                                                                  |  |               | 93       |   |      |   |         |  
|Accumulated deficit                                                                                                     |  |               | (209,759 | ) |      |   | (211,794 | )
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total stockholders equity                                                                                              |  |               | 30,145   |   |      |   | 25,608   |  
|                                                                                                                        |  |               |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                              |  | $             | 52,899   |   |      | $ | 42,973   |  
|                                                                                                                        |  |               |          |   |      |   |          |  



See notes to
consolidated financial statements.



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Concur Technologies, Inc.



Consolidated Statements Of Stockholders Equity

(In thousands, except share data)



|                                                                               |  |              |  |                          |    |                      |        |         |                    |            |   |                                      |   |                          |   |  |   |          |   |  |   |    |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------ |  | ------------------------ | -- | -------------------- | ------ | ------- | ------------------ | ---------- | - | ------------------------------------ | - | ------------------------ | - |  | - | -------- | - |  | - | -- |  | - | ------- | -
|                                                                               |  | Common Stock |  | AdditionalPaid-InCapital |    | Common StockIssuable |        |         | AccumulatedDeficit |            |   | Accumulated OtherComprehensiveIncome |   | TotalStockholdersEquity |  
|                                                                               |  | Shares       |  | Amount                   |    |                      | Shares |         |                    | Amount     |   |                                      |   |                         
|Balance at October 1, 2001                                                     |  | 25,814,422   |  | $                        | 26 |                      | $      | 223,219 |                    |           |   |                                      | $ |                         |   |  | $ | (200,468 | ) |  | $ |   |  | $ | 22,777  |  
|Issuance of common stock in connection with employee stock purchase plan       |  | 258,224      |  |                          |   |                      |        | 182     |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 182     |  
|Issuance of common stock from exercise of stock options                        |  | 82,946       |  |                          |   |                      |        | 73      |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 73      |  
|Common stock issuable in connection with acquisition                           |  |             |  |                          |   |                      |        |        |                    | 4,160,410  |   |                                      |   | 8,952                    |   |  |   |         |   |  |   |   |  |   | 8,952   |  
|Net loss                                                                       |  |             |  |                          |   |                      |        |        |                    |           |   |                                      |   |                         |   |  |   | (12,287  | ) |  |   |   |  |   | (12,287 | )
|                                                                               |  |              |  |                          |    |                      |        |         |                    |            |   |                                      |   |                          |   |  |   |          |   |  |   |    |  |   |         |  
|Balance at September 30, 2002                                                  |  | 26,155,592   |  |                          | 26 |                      |        | 223,474 |                    | 4,160,410  |   |                                      |   | 8,952                    |   |  |   | (212,755 | ) |  |   |   |  |   | 19,697  |  
|Issuance of common stock in connection with employee stock purchase plan       |  | 310,133      |  |                          |   |                      |        | 249     |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 249     |  
|Issuance of common stock from exercise of stock options                        |  | 980,964      |  |                          | 1  |                      |        | 2,842   |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 2,843   |  
|Issuance of common stock in connection with acquisition, net of issuance costs |  | 4,695,304    |  |                          | 5  |                      |        | 10,805  |                    | (4,160,410 | ) |                                      |   | (8,952                   | ) |  |   |         |   |  |   |   |  |   | 1,858   |  
|Net income                                                                     |  |             |  |                          |   |                      |        |        |                    |           |   |                                      |   |                         |   |  |   | 961      |   |  |   |   |  |   | 961     |  
|                                                                               |  |              |  |                          |    |                      |        |         |                    |            |   |                                      |   |                          |   |  |   |          |   |  |   |    |  |   |         |  
|Balance at September 30, 2003                                                  |  | 32,141,993   |  |                          | 32 |                      |        | 237,370 |                    |           |   |                                      |   |                         |   |  |   | (211,794 | ) |  |   |   |  |   | 25,608  |  
|Issuance of common stock in connection with employee stock purchase plan       |  | 133,273      |  |                          |   |                      |        | 755     |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 755     |  
|Issuance of common stock from exercise of stock options                        |  | 705,425      |  |                          | 1  |                      |        | 1,653   |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   |   |  |   | 1,654   |  
|Foreign currency translation adjustments                                       |  |             |  |                          |   |                      |        |        |                    |           |   |                                      |   |                         |   |  |   |         |   |  |   | 93 |  |   | 93      |  
|Net income                                                                     |  |             |  |                          |   |                      |        |        |                    |           |   |                                      |   |                         |   |  |   | 2,035    |   |  |   |   |  |   | 2,035   |  
|                                                                               |  |              |  |                          |    |                      |        |         |                    |            |   |                                      |   |                          |   |  |   |          |   |  |   |    |  |   |         |  
|Balance at September 30, 2004                                                  |  | 32,980,691   |  | $                        | 33 |                      | $      | 239,778 |                    |           |   |                                      | $ |                         |   |  | $ | (209,759 | ) |  | $ | 93 |  | $ | 30,145  |  
|                                                                               |  |              |  |                          |    |                      |        |         |                    |            |   |                                      |   |                          |   |  |   |          |   |  |   |    |  |   |         |  



See notes to
consolidated financial statements.



40



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Concur Technologies, Inc.



Consolidated Statements Of Cash Flows

(In thousands)



|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                  |  | Year Ended September 30, |       
|                                                                                                  |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|Operating activities:                                                                             |  |                          |        |   |      |   |        |      |  |   |         |  
|Net income (loss)                                                                                 |  | $                        | 2,035  |   |      | $ | 961    |      |  | $ | (12,287 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                          |        |   |      |   |        |      |  |   |         |  
|Amortization of intangible assets                                                                 |  |                          | 1,140  |   |      |   | 1,140  |      |  |   | 190     |  
|In-process research and development                                                               |  |                          |       |   |      |   |       |      |  |   | 1,300   |  
|Depreciation                                                                                      |  |                          | 1,890  |   |      |   | 2,835  |      |  |   | 5,840   |  
|Provision for allowance for accounts receivable                                                   |  |                          | 781    |   |      |   | 387    |      |  |   | (217    | )
|Changes in operating assets and liabilities, net of acquisition:                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Accounts receivable                                                                               |  |                          | (3,176 | ) |      |   | 937    |      |  |   | 683     |  
|Prepaid expenses, deposits, and other assets                                                      |  |                          | (2,841 | ) |      |   | (615   | )    |  |   | 945     |  
|Accounts payable                                                                                  |  |                          | 764    |   |      |   | (721   | )    |  |   | (265    | )
|Accrued liabilities                                                                               |  |                          | 575    |   |      |   | (2,127 | )    |  |   | (5,869  | )
|Deferred revenues                                                                                 |  |                          | 4,663  |   |      |   | 1,899  |      |  |   | 1,359   |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) operating activities                                               |  |                          | 5,831  |   |      |   | 4,696  |      |  |   | (8,321  | )
|                                                                                                  |  |                          |       
|Investing activities:                                                                             |  |                          |        |   |      |   |        |      |  |   |         |  
|Purchases of property and equipment                                                               |  |                          | (5,554 | ) |      |   | (1,262 | )    |  |   | (1,615  | )
|Purchases of marketable securities                                                                |  |                          |       |   |      |   |       |      |  |   | (3,959  | )
|Maturities and sales of marketable securities                                                     |  |                          |       |   |      |   | 2,024  |      |  |   | 6,000   |  
|Acquisition of Captura Software, Inc., net of cash acquired                                       |  |                          |       |   |      |   | (550   | )    |  |   | 1,151   |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Net cash (used in) provided by investing activities                                               |  |                          | (5,554 | ) |      |   | 212    |      |  |   | 1,577   |  
|                                                                                                  |  |                          |       
|Financing activities:                                                                             |  |                          |        |   |      |   |        |      |  |   |         |  
|Proceeds from issuance of common stock from exercise of stock options                             |  |                          | 1,654  |   |      |   | 2,843  |      |  |   | 73      |  
|Proceeds from issuance of common stock from employee stock purchase plan                          |  |                          | 755    |   |      |   | 249    |      |  |   | 182     |  
|Proceeds from borrowings                                                                          |  |                          | 289    |   |      |   | 915    |      |  |   | 722     |  
|Payments on borrowings and capital leases                                                         |  |                          | (959   | ) |      |   | (1,754 | )    |  |   | (1,887  | )
|Decrease (increase) in restricted cash balances                                                   |  |                          |       |   |      |   | 700    |      |  |   | (300    | )
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) financing activities                                               |  |                          | 1,739  |   |      |   | 2,953  |      |  |   | (1,210  | )
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Effect of foreign currency exchange rates in cash and cash equivalents                            |  |                          | 112    |   |      |   |       |      |  |   |        |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                              |  |                          | 2,128  |   |      |   | 7,861  |      |  |   | (7,954  | )
|Cash and cash equivalents at beginning of year                                                    |  |                          | 21,607 |   |      |   | 13,746 |      |  |   | 21,700  |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Cash and cash equivalents at end of year                                                          |  | $                        | 23,735 |   |      | $ | 21,607 |      |  | $ | 13,746  |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                                 |  |                          |        |   |      |   |        |      |  |   |         |  
|Cash paid for interest                                                                            |  | $                        | 39     |   |      | $ | 103    |      |  | $ | 185     |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  
|Common stock issued in connection with acquisition, net of issuance costs                         |  | $                        |       |   |      | $ | 1,858  |      |  | $ | 8,952   |  
|                                                                                                  |  |                          |        |   |      |   |        |      |  |   |         |  



See notes to
consolidated financial statements.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements

September 30, 2004



Note 1.    Description of the Company and Summary of Significant
Accounting Policies



Description of the Company



Concur Technologies, Inc. is a leading provider of business services and
software solutions that automate processes involved in the management of corporate expenses. Our core purpose is to use innovation to help our customers drive down their costs associated with corporate expense management. Our solutions are designed
to automate and streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater insight to their spending patterns through comprehensive analytics. We provide our services and software
through flexible subscription services and license delivery models, and market and sell our solutions worldwide through a direct sales organization as well as through indirect distribution channels.



Throughout these financial statements Concur Technologies, Inc. is referred
to as Concur, we, us, and our.



Segment Information



We operate in and report
on one segment (Corporate Expense Management software and services) based upon the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 131, Disclosure about
Segments of an Enterprise and Related Information.



Principles of
Consolidation



The consolidated financial statements
include the accounts of Concur and its wholly-owned subsidiaries. All intercompany accounts and transactions were eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires us to
make estimates and assumptions affecting the amounts reported in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may have a material impact on our financial statements and accompanying notes.
Examples of estimates and assumptions include the determination of certain provisions, including allowances for accounts receivable, product warranties, estimating useful lives of property and equipment, valuing and estimating useful lives of
intangible assets, valuing assets and liabilities acquired through business combinations, deferring certain revenues and costs, estimating expected lives of customer relationships, and estimating tax valuation allowances.



Reclassifications



We have made certain reclassifications to prior period amounts to conform to the current period presentation. These
reclassifications include, but are not limited to, reclassifying software maintenance revenues from consulting revenues into subscription revenues, and presentation of amounts previously reported in cost of sales under expenses as cost of
operations.



Revenue Recognition Policy



We recognize revenues in accordance with accounting standards for software
and service companies including American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, the consensus
reached in Emerging Issues Task



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



Force (EITF) Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements that Include the Right to Use Software
Stored on Another Entitys Hardware, the consensus reached in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the consensus reached in EITF Issue No. 03-5, Applicability of AICPA Statement of Position 97-2
to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software (EITF 03-5), Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 104, Revenue Recognition (SAB
104), SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and related interpretations, including AICPA Technical Practice Aids.



We generate our revenues from the delivery of subscription services (which include software maintenance services),
consulting services, and the sale of software licenses.



Generally, we recognize revenue when:



| |  |  | evidence of an arrangement exists;
| | - |  | ----------------------------------



| |  |  | delivery has occurred;
| | - |  | ----------------------



| |  |  | the fees are fixed or determinable; and
| | - |  | ---------------------------------------



| |  |  | collection is considered probable.
| | - |  | ----------------------------------



If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize
revenues as payments become due from the customer. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance
criteria, as applicable.



In contractual arrangements that
include the provision of multiple elements, we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the arrangement. Multiple
element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been
negotiated together and, therefore, are accounted for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we measure and allocate the
total arrangement fee among each of the elements based on their fair value or, if necessary, vendor-specific objective evidence of fair value (VSOE). VSOE is determined by the price charged when an element is sold separately or, in the
case of an element not yet sold separately, the price set by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.



Subscription Revenues:



Our subscription revenues are typically recognized monthly as the service is
provided to the customer and consist of:



| |  |  | monthly fees paid for subscription services;
| | - |  | --------------------------------------------



| |  |  | amortization of related set-up fees;
| | - |  | ------------------------------------



| |  |  | amortization of fees paid for software maintenance services under software license arrangements; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the amortized portion of the related license and consulting fees in certain multiple element subscription arrangements where VSOE does not exist for an undelivered subscription
element.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Notes to Consolidated Financial Statements(Continued)



Set-up fees paid by customers in connection with subscription services, as well as the associated
direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected lives of the customer relationships, which generally range from two to five years. For those
subscription service offerings that have been commercially available for only a short period of time, the contractual lives are used as the best estimate of the expected lives of the customer relationships. We continue to evaluate and adjust the
length of these amortization periods as we gain more experience with customer contract renewals and contract cancellations.



Software maintenance services include technical support and the right to receive unspecified upgrades and enhancements on a when-and-if available basis.
Fees for software maintenance services are typically billed annually in advance of performance with provisions for subsequent automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms,
which typically are one year.



Subscription revenues are
adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.



Consulting Revenues:



Consulting revenues consist of fees for professional services, which consist of system implementation and integration, planning, data conversion,
training, and documentation of procedures. Consulting service fees are typically billed and recognized as revenue on a time-and-materials basis. In some instances, we sell consulting services under milestone or fixed-fee contracts and, in such
cases, recognize consulting revenues on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price
adjustments and sales credits issued.



In service arrangements
including both consulting and subscription services, but not a license of our software, we recognize consulting revenues as they are performed if the consulting services qualify as a separate unit of accounting within the arrangement. The consulting
services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the subscription services, and delivery or performance of the subscription
services is considered probable and substantially within our control. We have determined that, in our service arrangements of this type, the consulting services typically qualify as a separate unit of accounting and, accordingly, the consulting
revenues are recognized as the services are performed. If the consulting services do not qualify as a separate unit of accounting, the related revenues are combined with the subscription revenues, and recognized ratably over the subscription service
period.



License Revenues:



License revenues consist of fees earned from, and allocable to, grants of
licenses to use our software products. We recognize license revenues when evidence of a license arrangement exists, we have delivered the software, the amount of the transaction is fixed or determinable, collection is probable, and VSOE exists for
any undelivered elements of the arrangement. Elements included in our multiple-element software arrangements consist of various licensed software products and services such as software maintenance services, consulting services, and subscription
services.



In software license arrangements that include rights
to multiple elements, we allocate the total arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on VSOE and the residual amounts of revenue are allocated to the
delivered elements. If



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



sufficient VSOE does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until
the earlier of the point at which such sufficient VSOE does exist or all elements of the arrangement have been delivered. If the only undelivered element is software maintenance, the entire fee is recognized ratably as subscription revenue.



In software license arrangements where we also provide
consulting services, license revenues generally are recognized upon delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the
performance of the consulting services, and the consulting services are not essential to the functionality of the software. If we determine that the consulting services are essential to the functionality of the software, or payment of the license
fees is dependent upon the performance of the consulting services, then both the license and consulting fees are recognized on a percentage-of-completion basis. We typically do not consider the consulting services we provide in such arrangements to
be essential to the functionality of the software and, therefore, license revenues are typically recognized upon delivery of the software and consulting revenues are recognized as the services are performed.



In arrangements where we license our software and also host the licensed
software for our customer, a software element is only considered present if our customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for our
customer to either operate the software on its own hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of license revenues described above, we
recognize license revenues when the software is delivered, and the subscription hosting revenues are recognized as the hosting service is provided. The hosting set-up fees, as well as the associated direct and incremental costs, are deferred and
recognized ratably over the hosting service period. If we determine that a separate software element as described above is not present, we combine the software license fees with the subscription hosting fees and recognize them ratably over the
subscription service period, as subscription revenue.



Portions
of our revenues are generated from sales made through our reseller partners. When we assume a majority of the business risks associated with performance of the contractual obligations, we record the revenues on a gross basis, and amounts paid to our
reseller partners are recognized as cost of operations. Our assumption of such business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement, and are the
primary obligor in the arrangement. When our reseller partner assumes the majority of the business risks associated with the performance of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller
partner.



Stock-Based Compensation



We issue stock options to employees and outside directors pursuant to our
stock option plans and provide employees with the right to purchase stock pursuant to our employee stock purchase plan (ESPP and, collectively, referred to as stock-based compensation plans). We account for our stock-based
compensation plans under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. Under this method,
no stock-based compensation expense has been reflected in our results of operations for any of the fiscal years presented, as all options granted under these plans had exercise prices equal to the fair market value of the underlying common stock on
the date of grant, and any purchase discounts under the ESPP were within statutory limits.



SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148),
requires companies that



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



choose to continue to follow APB 25 to provide pro forma disclosure of the impact of accounting for stock-based compensation using the fair value method of
SFAS 123. For purposes of these pro forma disclosures, the estimated fair value of the options is amortized over the related vesting periods. The estimated fair value of the purchases under the ESPP is amortized over the related purchase periods,
ranging from six to twenty-four months. The following table illustrates the effect on net income (loss) and related per share amounts if we had accounted for our stock-based compensation plans under the fair value method of accounting of SFAS 123,
as amended:



|                                                      |  |                                       |        |   |      |   |        |      |  |   |         |  
|----------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                      |  | Year Ended September 30,              |       
|                                                      |  | 2004                                  |        |   | 2003 |   |        | 2002 | 
|                                                      |  | (in thousands, except per share data) |       
|Net income (loss) as reported                         |  | $                                     | 2,035  |   |      | $ | 961    |      |  | $ | (12,287 | )
|Add: Stock-based compensation expense, as reported    |  |                                       |       |   |      |   |       |      |  |   |        |  
|Deduct: Pro forma compensation expense under SFAS 123 |  |                                       | (6,107 | ) |      |   | (1,885 | )    |  |   | (2,305  | )
|                                                      |  |                                       |        |   |      |   |        |      |  |   |         |  
|Pro forma net loss                                    |  | $                                     | (4,072 | ) |      | $ | (924   | )    |  | $ | (14,592 | )
|                                                      |  |                                       |        |   |      |   |        |      |  |   |         |  
|Net income (loss) per share:                          |  |                                       |        |   |      |   |        |      |  |   |         |  
|Basic and diluted, as reported                        |  | $                                     | 0.06   |   |      | $ | 0.03   |      |  | $ | (0.46   | )
|Basic and diluted, pro forma                          |  | $                                     | (0.12  | ) |      | $ | (0.03  | )    |  | $ | (0.55   | )



We estimate the fair
value of our options and ESPP shares using the Black-Scholes option valuation model, which is one of several methods that can be used to estimate option values. The Black-Scholes model was developed for use in estimating the fair value of short-term
traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including our expected stock price volatility.



We estimated the following fair values of options and rights granted under
our stock-based compensation plans at the date of grant using the Black-Scholes model with the following weighted-average assumptions:



|                                         |  |                          |      |   |      |   |      |      |  |   |      |  
|---------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                         |  | Year Ended September 30, |     
|Employee and Director Stock Option Plans |  | 2004                     |      |   | 2003 |   |      | 2002 | 
|Expected life in years from grant date   |  |                          | 4.0  |   |      |   | 4.4  |      |  |   | 4.4  |  
|Risk-free interest rate                  |  |                          | 2.8  | % |      |   | 2.6  | %    |  |   | 3.9  | %
|Volatility                               |  |                          | 0.79 |   |      |   | 0.85 |      |  |   | 0.96 |  
|Dividend yield                           |  |                          |     |   |      |   |     |      |  |   |     |  
|Estimated weighted-average fair value    |  | $                        | 6.14 |   |      | $ | 2.10 |      |  | $ | 0.92 |  
|                                         | 
|                                         |  | Year Ended September 30, |     
|Employee Stock Purchase Plan             |  | 2004                     |      |   | 2003 |   |      | 2002 | 
|Expected life in years from grant date   |  |                          | 1.3  |   |      |   | 1.5  |      |  |   | 1.0  |  
|Risk-free interest rate                  |  |                          | 1.3  | % |      |   | 2.4  | %    |  |   | 2.7  | %
|Volatility                               |  |                          | 0.78 |   |      |   | 1.03 |      |  |   | 1.10 |  
|Dividend yield                           |  |                          |     |   |      |   |     |      |  |   |     |  
|Estimated weighted-average fair value    |  | $                        | 4.60 |   |      | $ | 0.91 |      |  | $ | 0.47 |  



Cash and Cash Equivalents



Highly liquid financial instruments purchased with
maturities of three months or less at purchase are reported as cash equivalents.



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Notes to Consolidated Financial Statements(Continued)



Fair Values of Financial Instruments



Concur has the following financial instruments: cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, long-term debt, and capital lease obligations. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximates fair value based on the liquidity of these
financial instruments and/or based on their short-term nature. The carrying value of long-term debt and capital lease obligations at fiscal year end approximated fair value based on the market interest rates available to Concur for debt of similar
risk and maturities.



Research and Development Costs



Research and development costs associated with computer software products to
be sold, leased, or otherwise marketed are expensed as incurred until technological feasibility has been established. Technological feasibility is established upon completion of a working model; thereafter, all software production costs are
capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product, with an annual minimum equal to the straight-line amortization over
the remaining estimated economic life of the product. To date, the time period between the establishment of technological feasibility and completion of software development has been short, and as a result no significant development costs have been
incurred during that period. Accordingly, Concur has not capitalized any research and development costs to date associated with computer software products to be sold, leased, or otherwise marketed.



Internal-Use Software



Concur capitalizes certain costs of software developed or obtained for internal use in accordance with AICPA SOP 98-1,
Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use (SOP 98-1). We capitalize software development costs when application development begins, it is probable that the project will be completed, and
the software will be used as intended. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. Our policy provides for the capitalization of
certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects, as well as external direct costs of materials and services associated with developing or obtaining internal use
software. Capitalizable personnel costs are limited to the time directly spent on such projects. As of September 30, 2004 and 2003, net capitalized software costs incurred internally, and designated for internal use purposes, totaled approximately
$1.4 million and $150,000, respectively. These capitalized costs are being ratably amortized, using the straight-line method, over the estimated useful lives of the related applications which typically range from three to five years. The capitalized
costs are included in Property and Equipment on our balance sheet.



Property and Equipment



We carry property and
equipment at cost and provide for depreciation and amortization using the straight-line method for financial reporting purposes over their estimated useful lives which range from two to five years. Depreciation expense includes amounts amortized for
assets recorded under capital leases. Leasehold improvements are amortized over the shorter of the lease term or expected useful life of the improvements.



Advertising and Marketing Costs



Costs of marketing materials and advertising expenditures are charged to operations when the materials are used or the advertising is first released.
Advertising costs were approximately $186,000, $115,000, and $304,000, in the fiscal years ended September 30, 2004, 2003, and 2002, respectively.



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Notes to Consolidated Financial Statements(Continued)



Income Taxes



We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which utilizes the liability method of accounting for
income taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting bases of assets and liabilities. We establish valuation allowances when necessary to reduce deferred tax assets to amounts
expected to be realized.



Allowance for Accounts Receivable



We record an estimated provision for sales allowances to subscription and
service revenues in the period in which the related revenues are recorded. Sales allowances are based on historical experience, including a review of our experience related to price adjustments and credits issued.



We make judgments as to our ability to collect outstanding receivables, and
provide an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an analysis of historical bad debt
experience and current economic trends.



Warranty Claims



Our software license contracts typically include an industry-standard
software performance warranty provision. We account for potential warranty claims in accordance with guidance prescribed by SFAS No. 5, Accounting for Contingencies(SFAS 5). Historically, we have experienced minimal warranty
claims. Our standard license contracts typically do not include contingencies such as rights of return or conditions of acceptance.



Deferred Revenues and Deferred Costs



As described above in Revenue Recognition Policy, we defer certain of our revenues received and related direct and incremental costs paid and
recognize them ratably over the applicable service period. We categorize deferred revenues on our Consolidated Balance Sheet as current if we expect to recognize such revenue within the following twelve months. Deferred costs totaled $4.7
million and $1.6 million at September 2004 and 2003, respectively. These totals included amounts classified as current totaling $2.3 million and $0.9 million at September 2004 and 2003, respectively, which are included in other current assets on our
Consolidated Balance Sheet.



Business Combinations and Valuation of
Intangible Assets



Concur accounts for business
combinations in accordance with SFAS No. 141, Business Combinations (SFAS 141). SFAS 141 requires business combinations to be accounted for using the purchase method of accounting and includes specific criteria for recording
intangible assets separate from goodwill. Results of operations of acquired businesses are included in the financial statements of the acquiring company from the date of acquisition. Net assets of the acquired company are recorded at their fair
value at the date of acquisition and amounts allocated to in-process research and development are expensed in the period of acquisition. As required by SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), we do not
amortize goodwill, but instead test goodwill for impairment periodically and would record any necessary impairment in accordance with SFAS 142. Identifiable intangibles, such as the acquired customer base, are amortized over their expected economic
lives in proportion to their expected future cash flows.



Impairment of
Goodwill and Certain Other Long-Lived Assets



We test
goodwill for impairment in accordance with SFAS 142. SFAS 142 requires that goodwill not be amortized, but instead tested for impairment at the reporting unit level at least annually and more frequently upon



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Notes to Consolidated Financial Statements(Continued)



the occurrence of certain events, as defined by SFAS 142. We have only one reporting unit. The annual goodwill impairment test is a two-step process. First,
we determine if the carrying value of our related reporting unit exceeds fair value, which would indicate that goodwill may be impaired. If we then determine that goodwill may be impaired, we compare the implied fair value of the goodwill to its
carrying amount to determine if there is an impairment loss. We performed our initial test for impairment as of October 1, 2002, the date of adoption of SFAS 142, and our required annual tests in March of each successive year, and determined in each
case that goodwill was not impaired.



Concur accounts for the
impairment of long-lived assets other than goodwill in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). In accordance with SFAS 144, we evaluate long-lived assets,
including intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset or
group of assets. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. We do not have any long-lived assets, including intangible assets other than goodwill, which we consider
to be impaired.



Net Income (Loss) Per Share



We calculate basic net income (loss) per share by dividing net income (loss)
for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common
stock outstanding during the period, plus any dilutive effect from stock-based compensation plans and warrants during the period, under the treasury stock method. The computation of basic and diluted net income (loss) per share is as follows:



|                                                             |  |                                       |        |      |   |        |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------- | ------ | ---- | - | ------ |  | - | ------- | -
|                                                             |  | Year ended September 30,              |       
|                                                             |  | 2004                                  |        | 2003 |   | 2002   | 
|                                                             |  | (in thousands, except per share data) |       
|Net income (loss)                                            |  | $                                     | 2,035  |      | $ | 961    |  | $ | (12,287 | )
|                                                             |  |                                       |        |      |   |        |  |   |         |  
|Weighted average shares of common stock outstanding (1)      |  |                                       | 32,595 |      |   | 31,265 |  |   | 26,571  |  
|Add: Dilutive effect of stock-based compensation plans (2)   |  |                                       | 4,220  |      |   | 4,175  |  |   |        |  
|Add: Dilutive effect of warrants (3)                         |  |                                       |       |      |   |       |  |   |        |  
|                                                             |  |                                       |        |      |   |        |  |   |         |  
|Dilutive weighted average shares of common stock outstanding |  |                                       | 36,815 |      |   | 35,440 |  |   | 26,571  |  
|                                                             |  |                                       |        |      |   |        |  |   |         |  
|Basic and diluted net income (loss) per share                |  | $                                     | 0.06   |      | $ | 0.03   |  | $ | (0.46   | )

---

|(1) |  | Shares related to our 2002 acquisition of Captura Software, Inc. were included in the computation of weighted average shares outstanding for fiscal 2003 and the shares issuable as
of September 30, 2002 were included from the July 31, 2002 acquisition date.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | For the fiscal years ended September 30, 2004, 2003 and 2002, 1.1 million, 1.0 million and 3.0 million shares attributable to outstanding stock options and rights granted under our
stock-based compensation plans were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options and rights were greater than or equal to the average price of the common shares, and therefore their
inclusion would have been anti-dilutive.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | For the fiscal years ended September 30, 2004, 2003 and 2002, 1.4 million, 2.5 million and 3.5 million shares attributable to outstanding warrants, described in Note 8, were
excluded from the calculation of diluted earnings per share because the exercise prices of the warrants were greater than or equal to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Notes to Consolidated Financial Statements(Continued)



Concentrations of Credit Risk



Financial instruments that potentially subject Concur to concentrations of credit risk consist primarily of cash equivalents
and accounts receivable. These instruments are generally unsecured and uninsured. We maintain the majority of our cash balances with one financial institution. Accounts receivable are typically unsecured and are from revenues earned from customers
across several different geographic areas, primarily located in the United States, operating in a wide variety of industries. No single customer accounted for greater than 10% of Concurs revenues in any of the periods presented. No customer
represented greater than 10% of outstanding trade accounts receivable at either September 30, 2004 or 2003. We typically do not require collateral or other security to support credit sales but provide allowances for sales and doubtful accounts based
on historical experience and specific identification.



Foreign Currency
Translation



Concur has subsidiaries located in the United
Kingdom and Australia. The functional currency of the foreign subsidiaries is the local currency in the country in which the subsidiary is located. We translate assets and liabilities denominated in foreign currencies to U.S. dollars at the exchange
rate in effect on the balance sheet date. We translate revenues and expenses at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are included in other comprehensive income. Gains and losses on
foreign currency transactions are included in our consolidated statements of operations as incurred and were insignificant for all periods presented.



Recently Issued Accounting Standards



In November 2002, the EITF published its consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides guidance on
how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. In applying this consensus, generally, separate contracts with the same customer that are entered into at or near
the same time are presumed to have been negotiated as a package and should, therefore, be evaluated as a single contractual arrangement. EITF 00-21 addresses how contract consideration should be measured and allocated to the separate deliverables in
the arrangement. The provisions of EITF 00-21 became effective for Concur on July 1, 2003, and apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Prior to the adoption, for those arrangements that included
both subscription and consulting services and no software license elements, the consulting revenue was typically deferred and recognized over the expected lives of the customer relationships. Under EITF 00-21, the consulting services are recognized
as performed if they qualify as a separate unit of accounting within the arrangement. The consulting services qualify as a separate unit of accounting if they have value to the customer on a standalone basis, there is objective and reliable evidence
of the fair value of the subscription services, and delivery or performance of the subscription services is considered probable and substantially in the control of Concur. We have determined that, in arrangements that include both consulting and
subscription services and no software license elements, the consulting services qualify as a separate unit of accounting, and accordingly, the consulting services are recognized as performed. The application of the consensus reached in EITF 00-21
did not have a material impact on our consolidated financial position or results of operations.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 was effective for all financial instruments
entered into or modified after May 31, 2003, and was effective as of October 1, 2003. The adoption of SFAS 150 had no impact on our consolidated financial position, results of operations or cash flows.



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Notes to Consolidated Financial Statements(Continued)



In July 2003, the EITF reached a consensus on EITF 03-5, applicability of AICPA Statement of
Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software. In August, 2003, the FASB ratified the EITFs consensus. EITF 03-5 addresses whether non-software deliverables included in an arrangement
that contains software that is more than incidental to the products or services as a whole are included within the scope of SOP 97-2. Software-related elements include software products and services such as those listed in SOP 97-2, as well as any
non-software deliverable(s) for which a software deliverable is essential to its functionality. If the software element that is more than incidental to the products or services as a whole is not essential to the functionality of any of the unrelated
elements, the unrelated elements would not be considered software-related and, therefore, would be excluded from the scope of SOP 97-2. The provisions of EITF 03-5 became effective for us on October 1, 2003. The application of the consensus reached
in EITF 03-5 did not have a material effect on our consolidated financial position, results of operations or cash flows.



Note 2.    Property and Equipment



Property and equipment consisted of the following (in thousands):



|                              |  |               |         |   |      |   |         |  
|----------------------------- |  | ------------- | ------- | - | ---- | - | ------- | -
|                              |  | September 30, |        
|                              |  | 2004          |         |   | 2003 |  
|Computer hardware             |  | $             | 11,211  |   |      | $ | 9,855   |  
|Computer software             |  |               | 9,528   |   |      |   | 6,073   |  
|Furniture and equipment       |  |               | 656     |   |      |   | 655     |  
|Leased equipment              |  |               | 5,766   |   |      |   | 6,008   |  
|Leasehold improvements        |  |               | 866     |   |      |   | 943     |  
|                              |  |               |         |   |      |   |         |  
|Property and equipment, gross |  |               | 28,027  |   |      |   | 23,534  |  
|                              |  |               |         |   |      |   |         |  
|Less accumulated depreciation |  |               | (23,024 | ) |      |   | (22,203 | )
|                              |  |               |         |   |      |   |         |  
|Property and equipment, net   |  | $             | 5,003   |   |      | $ | 1,331   |  
|                              |  |               |         |   |      |   |         |  



Note
3.    Acquisitions and Intangible Asset



We made no acquisitions in fiscal 2004 or 2003.



In
fiscal 2002 we acquired Captura Software, Inc. (Captura). We accounted for this acquisition under the purchase method of accounting, in accordance with SFAS 141. Results of Capturas operations have been included in our combined statement of
operations beginning August 1, 2002. Prior to our acquisition, Captura was a privately-held corporation providing corporate expense management. Concurs intangible assets resulting from the Captura acquisition were comprised of the acquired
customer base intangible asset and goodwill.



Amortization of
intangible asset represents the allocation of the acquired customer base intangible asset from the Captura acquisition. The related amortization expense reflected in our results of operations totaled $1.1 million, $1.1 million, and $0.2 million for
the fiscal years ended September 30, 2004, 2003, and 2002, respectively.



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Notes to Consolidated Financial Statements(Continued)



The gross and net carrying amounts of the acquired customer base intangible asset at September 30,
2004 and September 30, 2003 were as follows:



|                                             |  |                |        |   |      |   |        |  
|-------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                             |  | September 30,  |       
|                                             |  | 2004           |        |   | 2003 |  
|                                             |  | (in thousands) |       
|Acquired customer base intangible asset:     |  |                |        |   |      |   |        |  
|Gross carrying amount                        |  | $              | 5,700  |   |      | $ | 5,700  |  
|Accumulated amortization                     |  |                | (2,470 | ) |      |   | (1,330 | )
|                                             |  |                |        |   |      |   |        |  
|Acquired customer base intangible asset, net |  | $              | 3,230  |   |      | $ | 4,370  |  
|                                             |  |                |        |   |      |   |        |  
|Estimated remaining amortization expense:    |  |                |        |   |      |   |        |  
|Fiscal 2005                                  |  | $              | 1,140  |   |      |   |        |  
|Fiscal 2006                                  |  | $              | 1,140  |   |      |   |        |  
|Fiscal 2007                                  |  | $              | 950    |   |      |   |        |  



Note 4.    Debt
Obligations



Our debt outstanding at September 30, 2004
and 2003 consisted of:



|                                                       |  |                |      |   |      |   |      |  
|------------------------------------------------------ |  | -------------- | ---- | - | ---- | - | ---- | -
|                                                       |  | 2004           |      |   | 2003 |  
|                                                       |  | (In thousands) |     
|Bank equipment credit facility                         |  | $              | 107  |   |      | $ | 664  |  
|Financing of directors and officers insurance policy |  |                | 98   |   |      |   | 97   |  
|                                                       |  |                |      |   |      |   |      |  
|Total debt                                             |  |                | 205  |   |      |   | 761  |  
|                                                       |  |                |      |   |      |   |      |  
|Less current portion                                   |  |                | (205 | ) |      |   | (654 | )
|                                                       |  |                |      |   |      |   |      |  
|Long-term debt, net of current portion                 |  | $              |     |   |      | $ | 107  |  
|                                                       |  |                |      |   |      |   |      |  



The total amount of
debt outstanding as of September 30, 2004 matures in fiscal 2005.



Our Consolidated Balance Sheets include the above amounts for total debt in the applicable captions for Current portions of long-term obligations and Long-term obligations. The current portions of long-term obligations
also include deferred rent expense related to office leases of $47,000 as of September 30, 2004 and capital lease obligations of $114,000 as of September 30, 2003, respectively. Long-term obligations include deferred rent expense related to office
leases of $92,000 as of September 30, 2003.



In March 2002, we
entered into a loan and security agreement (Agreement) with a bank for a $1.0 million equipment credit facility (Term I Advance). The Agreement for the Term I Advance allowed for borrowings in the amount of actual equipment
purchases made through December 2002. As of September 30, 2004, the outstanding indebtedness under the Term I Advance was approximately $90,000, bears interest at the banks prime rate (4.75% at September 30, 2004), and matures in December
2004.



In September 2002, we amended the terms of Agreement to
add Captura as a borrower, and to include an additional term loan (Term II Advance) of $0.4 million, with the proceeds used to refinance certain indebtedness owed by Captura to another creditor. As of September 30, 2004, the outstanding
indebtedness under the Term II Advance was approximately $16,000, bears interest at the banks prime rate, and matures in October 2004. There were no additional borrowings available under this additional term loan as of September 30, 2004.



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Notes to Consolidated Financial Statements(Continued)



In September 2003, we amended the terms of the Agreement to add a revolving line of credit
(Revolver) in an amount not to exceed the lesser of 80% of eligible accounts receivable or $5.0 million, with interest at the banks prime rate. Any advances under the Revolver became due and payable on September 23, 2004. In
September 2004 we amended the Agreement to extend the Revolvers availability to March 31, 2005, at which time any advances become due and payable. The other terms of the Revolver remain the same. There were no amounts borrowed under the
Revolver at September 30, 2004.



We also amended the terms of
the Agreement in September 2003 to add an additional equipment facility (Term III Advance) for advances in the amount of actual equipment purchases up to $1.0 million through September 2004, with interest at the banks prime rate,
maturing September 2006. In September 2004 we amended the Agreement to extend the Term III Advances availability to March 31, 2005, with any amounts borrowed due on March 31, 2007. The other terms of the Term III Advance remain the same. There
were no amounts borrowed under the Term III Advance at September 30, 2004.



All advances under the Agreement call for equal monthly principal payments plus accrued interest. We may prepay any advance without penalty or premium. The Agreement is secured by a blanket lien against all corporate
assets. Concur must also maintain its principal depository and operating accounts with the bank or one of its affiliates. Additionally, under the terms of the Agreement, we are prohibited from paying any dividends or making certain other types of
distributions without the banks approval, except for distributions or dividends payable solely in Concurs securities. The Agreement carries certain covenants that require we maintain a minimum adjusted quick ratio and a minimum level of
tangible net worth. Concur was in compliance with all applicable covenants as of September 30, 2004.



In March 2004, we entered into an arrangement to finance the premium for our current directors and officers liability insurance policy. The
loan under this financing agreement bears interest at 5.4% and matures in December 2004. As of September 30, 2004, the balance under the arrangement was approximately $98,000.



Note 5.    Commitments



We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating
lease that expires on May 31, 2005. Total rent expense for fiscal 2004, 2003, and 2002 was $1.9 million, $1.9 million, and $2.1 million, respectively. We are required to provide a $50,000 letter of credit as security for our headquarters lease. In
September 2004, we entered into a definitive lease agreement for a successor facility at a different location in Redmond, Washington. We expect to move our Redmond operations into this successor facility before June 1, 2005. This new lease provides
for an eight-year term with an option to renew for an additional five years.



Future minimum payments under non-cancelable contracts are as follows (in thousands):



|                                |  |                 |        |                           |   |      
|------------------------------- |  | --------------- | ------ | ------------------------- | - | -----
|                                |  | OperatingLeases |        | ThirdPartyHostingServices
|Fiscal year ended September 30: |  |                 |        |                           |   |      
|2005                            |  | $               | 1,645  |                           | $ | 1,953
|2006                            |  |                 | 850    |                           |   | 1,600
|2007                            |  |                 | 933    |                           |   | 1,400
|2008                            |  |                 | 1,099  |                           |   |     
|2009                            |  |                 | 1,133  |                           |   |     
|2010 and thereafter             |  |                 | 4,598  |                           |   |     
|                                |  |                 |        |                           |   |      
|Total future minimum payments   |  | $               | 10,258 |                           | $ | 4,953
|                                |  |                 |        |                           |   |      



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Notes to Consolidated Financial Statements(Continued)



Deferred rent expense relating to office leases was $47,000 and $92,000 as of September 30, 2004 and
2003, respectively. These amounts have been included in short-term or long-term obligations, as appropriate, in our Consolidated Balance Sheets.



At September 30, 2004 and 2003, restricted cash included $500,000 to secure the daily transactions processed in connection with our middle-market
subscription services.



Note 6.    Income Taxes



Our recorded provision for income taxes (zero in all
three years presented) differs from the amount computed by applying the statutory federal income tax rate to our net income or loss. The sources and tax effects of the differences are as follows:



|                                                   |  |                          |   |  |       |   |  |       |   
|-------------------------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | --
|                                                   |  | Year Ended September 30, |  
|                                                   |  | 2004                     |   |  | 2003  |   |  | 2002  |   
|Statutory rate                                     |  | 34.0                     | % |  | 34.0  | % |  | (34.0 | )%
|State and local taxes, net of federal income taxes |  | 3.8                      |   |  | 3.0   |   |  | (2.0  | ) 
|Amounts not deductible for tax purposes            |  | 6.2                      |   |  | 10.2  |   |  | 1.0   |   
|In-process research and development                |  |                         |   |  |      |   |  | 3.6   |   
|Foreign rate differentials                         |  | 7.7                      |   |  | 4.0   |   |  | 0.1   |   
|Tax credits                                        |  | (19.5                    | ) |  | (51.0 | ) |  | (3.9  | ) 
|Expiration of state net operating losses           |  | 5.7                      |   |  | 5.9   |   |  | 0.2   |   
|Change in valuation allowance                      |  | (37.9                    | ) |  | (6.1  | ) |  | 35.0  |   
|                                                   |  |                          |   |  |       |   |  |       |   
|Effective tax rate                                 |  | 0.0                      | % |  | 0.0   | % |  | 0.0   | % 
|                                                   |  |                          |   |  |       |   |  |       |   



Deferred income tax
assets and liabilities reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are also recorded for
the future tax benefit of net operating losses and tax credit carryforwards. Significant components of our deferred tax assets and liabilities at September 30, 2004 and 2003 are as follows (in thousands):



|                                         |  |      |          |   |      |   |          |  
|---------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                         |  | 2004 |          |   | 2003 |  
|Deferred tax assets:                     |  |      |          |   |      |   |          |  
|Net operating loss carryforwards         |  | $    | 95,827   |   |      | $ | 96,205   |  
|Foreign net operating loss carryforwards |  |      | 3,452    |   |      |   | 3,033    |  
|Tax credit carryforwards                 |  |      | 6,331    |   |      |   | 5,933    |  
|Property and equipment                   |  |      |         |   |      |   | 1,094    |  
|Deferred revenue                         |  |      | 6,025    |   |      |   | 4,180    |  
|Other                                    |  |      | 379      |   |      |   | 325      |  
|                                         |  |      |          |   |      |   |          |  
|Total deferred tax assets                |  |      | 112,014  |   |      |   | 110,770  |  
|                                         |  |      |          |   |      |   |          |  
|Deferred tax liabilities:                |  |      |          |   |      |   |          |  
|Intangible assets                        |  |      | (586     | ) |      |   | (934     | )
|Property and equipment                   |  |      | (265     | ) |      |   |         |  
|                                         |  |      |          |   |      |   |          |  
|Total deferred tax liabilities           |  |      | (851     | ) |      |   | (934     | )
|                                         |  |      |          |   |      |   |          |  
|Net deferred tax asset                   |  |      | 111,163  |   |      |   | 109,836  |  
|Less: valuation allowance                |  |      | (111,163 | ) |      |   | (109,836 | )
|                                         |  |      |          |   |      |   |          |  
|Net deferred tax asset                   |  | $    |         |   |      | $ |         |  
|                                         |  |      |          |   |      |   |          |  



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Notes to Consolidated Financial Statements(Continued)



We have established a valuation allowance in the full amount of the net deferred tax asset balance as
sufficient uncertainty exists regarding the ability to realize such tax assets in the future. The net increases in the valuation allowance for the years ended September 30, 2004 and 2003 were $1.3 million and $1.8 million, respectively. A portion of
the allowance increases relate to tax deductions from the exercise of stock options which are included in the net operating loss.



At September 30, 2004, we had federal net operating loss carryforwards in the amount of $266.8 million, which will expire in the years 2008 to 2024. At
September 30, 2004, we had state net operating loss carryforwards in the amount of $109.6 million, which will expire in the years 2005 to 2024, with $14.2 million expiring in 2005 and $11.7 million in 2006. Limitations on the use of the federal and
state net operating losses exist under Internal Revenue Code Section 382. Future changes of control as defined under IRC Section 382 may result in additional limitations on the use of these net operating losses. As of September 30, 2004 we
had foreign net operating loss carryforwards in the amount of $11.5 million, which have no expiration date.



The tax benefit for stock option deductions in excess of financial reporting deductions is recognized as an increase in Additional Paid-In Capital
on our Consolidated Balance Sheet. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the valuation allowance release attributable to stock option deductions will be recognized as
an increase in Additional Paid-In Capital.



A portion of
the valuation allowance has been established against deferred tax assets and liabilities recorded in our 2002 Captura acquisition. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the valuation
allowance release attributable to these deferred tax assets will first reduce the goodwill and unamortized intangible assets recorded in the acquisition.



Note 7.    Stock Option Plans and Employee Stock Purchase Plan



Concurs 1994 Stock Option Plan (the 1994 Plan) provided for grants of incentive stock options to employees
and nonqualified stock options to employees, directors, and other eligible participants. All of the shares of our common stock that remained available for issuance under the 1994 Plan when the 1998 Equity Incentive Plan (the 1998 Plan)
became effective, and any shares issued under the 1994 Plan and forfeited after the effective date of the 1998 Plan, are eligible for issuance under the 1998 Plan. We no longer grant stock options under the 1994 Plan.



In 1998, our Board adopted the 1998 Equity Incentive Plan (the 1998
Plan), the 1998 Director Stock Option Plan (the Director Plan), and the 1998 Employee Stock Purchase Plan (the ESPP). The 1998 Plan, as amended, authorizes issuance of up to 8,490,000 shares of common stock upon the
exercise of stock options or otherwise pursuant to the 1998 Plan. The Director Plan, as amended, authorizes issuance of up to 890,000 shares of common stock upon the exercise of stock options.



In 1999, our Board adopted the 1999 Stock Incentive Plan (the 1999
Plan). The 1999 Plan provides for the granting of options to acquire up to 1,500,000 shares of common stock and imposes a limitation on the number of such options that may be granted to officers.



Our granted stock options vest at various rates as determined by our Board,
typically over four years, and remain exercisable for a period not to exceed ten years.



As of September 30, 2004, the ESPP authorized the issuance of up to 1,859,964 shares of common stock, subject to automatic annual increases as stated in the ESPP. During fiscal 2004, 2003, and 2002, employees
purchased 133,273, 310,133, and 258,224 shares, respectively, under the ESPP. As of September 30, 2004, there are 190,599 shares available for purchase under the ESPP. The purchase of shares of common stock by employees under the ESPP is limited
under the terms of the plan to the actual number of shares available for purchase during the specific period.



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Notes to Consolidated Financial Statements(Continued)



In December 2001, Concur offered a voluntary stock option exchange program to its employees. The
program allowed eligible employees, at their discretion before January 4, 2002, to elect to cancel unexercised, unvested stock options with an exercise price equal to or greater than $1.30 per share that were previously granted to them under the
1994 Plan, 1998 Plan, and 1999 Plan. Any option granted within the six months preceding December 3, 2001 to an employee who elected to participate in the program was automatically cancelled, and those cancelled options with an exercise price equal
to or greater than $1.30 per share became eligible for exchange under the program. Each participating employee was eligible to receive a replacement option to purchase a number of shares equal to two-thirds of the number of shares subject to
eligible cancelled options, provided that the participating employee remained employed by Concur on the date the replacement options were granted. The replacement options were to be granted at least six months and one day after January 4, 2002, the
date that the cancelled options were accepted for exchange. Approximately 350,000 options were cancelled under the program. The replacement grant date occurred on July 15, 2002, and we issued options to purchase approximately 230,000 shares of
common stock, each with an exercise price of $1.87 per share, the closing price of our common stock as reported on the NASDAQ Stock Market on that date. No stock compensation charges resulted from the implementation of the program.



A summary of our stock option activity under the 1994 Plan, the 1998 Plan,
the 1999 Plan, and the Director Plan is as follows:



|                             |  |                    |   |                    |                              |                    |         |            |   |                              |   |         |  |            |                              |  |   |      
|---------------------------- |  | ------------------ | - | ------------------ | ---------------------------- | ------------------ | ------- | ---------- | - | ---------------------------- | - | ------- |  | ---------- | ---------------------------- |  | - | -----
|For the Year Ended:          |  | September 30, 2004 |   | September 30, 2003 |                              | September 30, 2002
|                             |  | Options            |   |                    | WeightedAverageExercisePrice |                    | Options |            |   | WeightedAverageExercisePrice |   | Options |  |            | WeightedAverageExercisePrice
|Balance at beginning of year |  | 6,655,624          |   |                    | $                            | 4.27               |         | 6,701,440  |   |                              | $ | 4.42    |  | 6,003,000  |                              |  | $ | 7.09 
|Granted                      |  | 1,296,496          |   |                    |                              | 10.55              |         | 1,984,274  |   |                              |   | 3.28    |  | 1,832,885  |                              |  |   | 1.32 
|Exercised                    |  | (705,425           | ) |                    |                              | 2.34               |         | (980,964   | ) |                              |   | 2.90    |  | (82,946    | )                            |  |   | 0.88 
|Canceled                     |  | (275,104           | ) |                    |                              | 7.57               |         | (1,049,126 | ) |                              |   | 4.53    |  | (1,051,499 | )                            |  |   | 14.55
|                             |  |                    |   |                    |                              |                    |         |            |   |                              |   |         |  |            |                              |  |   |      
|Balance at end of year       |  | 6,971,591          |   |                    |                              | 5.50               |         | 6,655,624  |   |                              |   | 4.27    |  | 6,701,440  |                              |  |   | 4.42 
|                             |  |                    |   |                    |                              |                    |         |            |   |                              |   |         |  |            |                              |  |   |      
|Exercisable at end of year   |  | 4,364,329          |   |                    |                              | 4.95               |         | 3,585,013  |   |                              |   | 5.68    |  | 3,465,713  |                              |  |   | 6.18 
|                             |  |                    |   |                    |                              |                    |         |            |   |                              |   |         |  |            |                              |  |   |      



Information regarding
the weighted-average remaining contractual life and weighted-average exercise price of options outstanding and options exercisable at September 30, 2004 for selected exercise price ranges is as follows:



|                         |  |                     |  |                                           |  |                                |       |                   |           |                                |   |      
|------------------------ |  | ------------------- |  | ----------------------------------------- |  | ------------------------------ | ----- | ----------------- | --------- | ------------------------------ | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                      
|Range of Exercise Prices |  | NumberOutstanding   |  | Weighted AverageRemainingContractual Life |  | Weighted AverageExercise Price |       | NumberExercisable |           | Weighted AverageExercise Price
|$  0.13    0.38         |  | 535,611             |  | 2.6 years                                 |  | $                              | 0.30  |                   | 531,892   |                                | $ | 0.30 
|0.69    0.85            |  | 855,462             |  | 7.1                                       |  |                                | 0.85  |                   | 583,746   |                                |   | 0.85 
|0.91    1.63            |  | 776,904             |  | 6.4                                       |  |                                | 1.23  |                   | 694,301   |                                |   | 1.22 
|1.69    1.78            |  | 1,105,716           |  | 8.0                                       |  |                                | 1.78  |                   | 517,697   |                                |   | 1.78 
|1.80    4.00            |  | 474,125             |  | 7.4                                       |  |                                | 2.49  |                   | 289,882   |                                |   | 2.67 
|4.01    5.00            |  | 896,243             |  | 6.0                                       |  |                                | 4.91  |                   | 839,393   |                                |   | 4.97 
|5.10  10.28             |  | 835,576             |  | 8.7                                       |  |                                | 9.08  |                   | 160,888   |                                |   | 7.76 
|10.30  12.07            |  | 697,054             |  | 9.4                                       |  |                                | 11.12 |                   | 46,980    |                                |   | 11.23
|12.15  23.25            |  | 709,400             |  | 5.1                                       |  |                                | 15.71 |                   | 614,050   |                                |   | 16.27
|23.69  34.00            |  | 85,500              |  | 4.5                                       |  |                                | 29.04 |                   | 85,500    |                                |   | 29.04
|                         |  |                     |  |                                           |  |                                |       |                   |           |                                |   |      
|                         |  | 6,971,591           |  | 6.9                                       |  |                                | 5.50  |                   | 4,364,329 |                                |   | 4.95 
|                         |  |                     |  |                                           |  |                                |       |                   |           |                                |   |      



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Notes to Consolidated Financial Statements(Continued)



Note 8.    Stockholders Equity



Shares Reserved



Concur has reserved shares of common stock for future issuance as follows:



|                                   |  |                   
|---------------------------------- |  | ------------------
|                                   |  | September 30, 2004
|Outstanding stock options          |  | 6,971,591         
|Stock options available for grant: |  |                   
|1999 Plan                          |  | 550,130           
|1998 Plan                          |  | 2,823,548         
|Director Plan                      |  | 439,417           
|Employee Stock Purchase Plan       |  | 190,599           
|Warrants to purchase common stock  |  | 1,400,000         
|                                   |  |                   
|Total shares reserved              |  | 12,375,285        
|                                   |  |                   



Private Placement to SAFECO and
Nortel



In 2000, we entered into an agreement with SAFECO
Corporation and Nortel Networks, Inc. for the purchase of 1,073,929 and 429,573 shares, respectively, of Concurs common stock at a purchase price of $23.28 per share, which was the closing price of our common stock on that date. We also
entered into strategic marketing and distribution agreements with SAFECO Life Insurance Company (SAFECO) and Nortel Networks Corporation (Nortel) under which SAFECO and Nortel agreed to resell certain of our products through
their respective distribution networks and agreed to undertake joint marketing activities with Concur to promote certain of its products. Revenues generated from the joint marketing activities, if any, would be shared between Concur and the
respective reseller. Through September 30, 2004, we have not recognized any revenue under these arrangements.



Under the terms of these agreements, we granted SAFECO and Nortel warrants to purchase up to 3,750,000 and 1,500,000 shares of our common stock,
respectively, for a total of 5,250,000. The warrants become exercisable only if the warrant holder achieves certain annual milestones relating to revenue, derived in connection with the arrangements described above, through August 2005. The exercise
price will be the greater of $30.26 or 50% of the fair value of the common stock price on prescribed dates. In the event these milestones are achieved or the achievement becomes probable, we may be required to record a non-cash charge throughout the
remaining related service period to the extent that the fair value of our common stock exceeds the exercise price of the warrants at that time. We have not recorded any expense associated with these agreements to date and it is uncertain whether
these milestones will be achieved in the future. As of September 30, 2004, 3,850,000 warrants under these agreements have expired. The remaining 1,400,000 outstanding warrants expire on August 15, 2005.



Stock Repurchase Program



In January 2003, our Board of Directors authorized a stock repurchase
program under which we may purchase up to one million shares of our outstanding stock over a two-year period. Stock purchases under the stock repurchase program may be made from time to time in the open market based on market conditions. Any
purchases would be made at the then-current market prices, and repurchased shares would be retired. No purchases have been made under this program as of September 30, 2004.



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Notes to Consolidated Financial Statements(Continued)



Note 9.    Comprehensive Income (Loss)



SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income (loss) and its components in the financial statements. Components of comprehensive income (loss) were as follows:



|                                         |  |                          |       |      |   |      |  |   |         |  
|---------------------------------------- |  | ------------------------ | ----- | ---- | - | ---- |  | - | ------- | -
|                                         |  | Year Ended September 30, |      
|                                         |  | 2004                     |       | 2003 |   | 2002 | 
|                                         |  | (in thousands)           |      
|Net income (loss)                        |  | $                        | 2,035 |      | $ | 961  |  | $ | (12,287 | )
|Other comprehensive income:              |  |                          |       |      |   |      |  |   |         |  
|Foreign currency translation adjustments |  |                          | 93    |      |   |     |  |   |        |  
|                                         |  |                          |       |      |   |      |  |   |         |  
|Total comprehensive income (loss)        |  | $                        | 2,128 |      | $ | 961  |  | $ | (12,287 | )
|                                         |  |                          |       |      |   |      |  |   |         |  



Note
10.    International Revenues



We
license and market our products primarily in the United States and operate in a single industry segment. No single customer accounted for more than 10% of our total revenues in fiscal 2004, 2003 or 2002. Information regarding revenues by geographic
region for the past three fiscal years is as follows (in thousands):



|               |  |      |        |            |       |   |      |   |            |  |       |      |  |   |       
|-------------- |  | ---- | ------ | ---------- | ----- | - | ---- | - | ---------- |  | ----- | ---- |  | - | ------
|               |  | 2004 |        | Percentage |       |   | 2003 |   | Percentage |  |       | 2002
|Country:       |  |      |        |            |       |   |      |   |            |  |       |      |  |   |       
|United States  |  | $    | 48,398 |            | 85.6  | % |      | $ | 49,105     |  | 86.6  | %    |  | $ | 38,512
|Europe         |  |      | 4,820  |            | 8.5   | % |      |   | 4,714      |  | 8.3   | %    |  |   | 4,393 
|Other          |  |      | 3,332  |            | 5.9   | % |      |   | 2,918      |  | 5.1   | %    |  |   | 2,192 
|               |  |      |        |            |       |   |      |   |            |  |       |      |  |   |       
|Total revenues |  | $    | 56,550 |            | 100.0 | % |      | $ | 56,737     |  | 100.0 | %    |  | $ | 45,097
|               |  |      |        |            |       |   |      |   |            |  |       |      |  |   |       



Note
11.    Related-Party Transactions



In
November 1998, Concur entered into a strategic alliance agreement with ADP, Inc., a subsidiary of Automatic Data Processing, Inc. (ADP), under which ADP agreed to refer potential customers for Corporate Expense Management software
products and services exclusively to the Company until December 2001. Concur and ADP also agreed to jointly market our Corporate Expense Management products and services to ADP customers. In May 2000, Concur and ADP entered into a second agreement
under which ADP will market certain co-branded versions of our ASP products on a commission basis. In July 2002, the agreement was amended such that ADP is assuming the majority of the business risks associated with all new ADP sales. As a result
subscription revenues from new customer contracts after May 2002 are being recorded on a net basis. Contracts sold prior to this amendment are accounted for on a gross basis. This change did not have a material effect on our results of operations.
An officer of ADP held a seat on our Board of Directors from March 1999 to December 2002. Total costs under these agreements prior to the board members departure were $0.4 million and $1.1 million for fiscal 2003 and 2002, respectively.



In December 2000, Concur recorded $1.3 million in license
revenue from an agreement to license Concur Expense to a customer that employed a person who served as a member of Concurs Board of Directors between January 2001 and May 2003. Total revenues from this customer prior to the board members
departure were $0.8 million and $1.4 million in fiscal 2003 and 2002, respectively.



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Notes to Consolidated Financial Statements(Continued)



Note 12.    Royalty Agreements



Concur has entered into various agreements that allow us to incorporate
licensed technology into our products or that allow the right to sell separately the licensed technology. We incur royalty fees under these agreements that are based on a predetermined fee per license sold. Royalty costs incurred under these
agreements are recognized as licensed products are sold and are included in cost of operations expenses. These amounts totaled approximately $391,000, $526,000, and $414,000 for the years ended September 30, 2004, 2003, and 2002, respectively.



Note 13.    Contingencies



Litigation



In July 2001, we and several of our current and former officers were named as defendants in two securities class-action
lawsuits filed in the United States District Court for the Southern District of New York. In April 2002, these lawsuits were consolidated. The consolidated complaint generally alleges claims against us, several of our current and former officers,
and the underwriters of our initial public offering in December 1998, based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. The plaintiffs in this lawsuit seek damages in unspecified
amounts, which, if awarded, could be substantial. This lawsuit is one of more than 300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In October
2002, the court dismissed the individual defendants from the consolidated lawsuit, without prejudice, pursuant to a stipulated agreement between the parties. In February 2003, the presiding judge denied a motion to dismiss all claims. In July 2003,
we decided to participate in a proposed settlement being negotiated by representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have
decided to participate in the proposed settlement to avoid the cost and distraction of continued litigation. We do not believe that the proposed settlement will have any material adverse effect on our business, financial condition, or results of
operations. The proposed settlement is expected to be funded by a group of insurers on behalf of the issuer defendants. The proposed settlement agreement would dispose of all remaining claims against us and the individual defendants, without any
admission of wrongdoing by us or the individual defendants. The proposed settlement is subject to final approval by the parties and the court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the
parties and the court fail to approve the proposed settlement, we would continue to defend ourselves vigorously.



Product Warranty and Indemnification Obligations



We provide services and software solutions to our customers under sales contracts, which usually include a limited warranty regarding product and service
performance and a limited indemnification of customers against losses, expenses, and liabilities from damages that may be awarded against them if our services or software are found to infringe upon a patent, copyright, trademark, or other
proprietary right of a third party. The contracts generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain time and geography-based scope
limitations and a right for us to replace an infringing product. We also enter into similar limited indemnification terms in agreements with certain strategic business partners and vendors. We account for potential warranty claims in accordance with
the guidance in SFAS 5, and base our estimates on historical experience and current expectations. To date, we have experienced minimal warranty claims and have not had to reimburse any customers for any losses related to the limited indemnification
described above.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



Note 14.    Retirement 401(k) Plan



Concurs 401(k) Profit Sharing and Trust Plan (the Plan) is
a defined contribution plan that is available to substantially all employees. Participating employees may contribute up to 80% of their pretax gross earnings, subject to statutory limits. Concur reserves the right to amend the Plan at any time.
There are no matching contributions by Concur, and no profit sharing contributions have been made in any of the periods presented.



Note 15.    Quarterly Financial Results (Unaudited)



Summarized unaudited quarterly financial results for each of the two fiscal years in the period ended September 30, 2004 are as follow (in thousands,
except per share amounts):



|                                                |  |              |        |   |               |   |        |              |  |               |        |        |   |        |  |   |       
|----------------------------------------------- |  | ------------ | ------ | - | ------------- | - | ------ | ------------ |  | ------------- | ------ | ------ | - | ------ |  | - | ------
|                                                |  | FirstQuarter |        |   | SecondQuarter |   |        | ThirdQuarter |  | FourthQuarter |        | Annual
|Fiscal 2004                                     |  |              |        |   |               |   |        |              |  |               |        |        |   |        |  |   |       
|Revenue                                         |  | $            | 13,393 |   |               | $ | 13,240 |              |  | $             | 14,457 |        | $ | 15,460 |  | $ | 56,550
|Income from operations                          |  |              | 517    |   |               |   | 117    |              |  |               | 596    |        |   | 519    |  |   | 1,749 
|Net income                                      |  |              | 598    |   |               |   | 205    |              |  |               | 654    |        |   | 578    |  |   | 2,035 
|Net income per share (basic and diluted)        |  |              | 0.02   |   |               |   | 0.01   |              |  |               | 0.02   |        |   | 0.02   |  |   | 0.06  
|                                                |  |              |        |   |               |   |        |              |  |               |        |        |   |        |  |   |       
|Fiscal 2003                                     |  |              |        |   |               |   |        |              |  |               |        |        |   |        |  |   |       
|Revenue                                         |  | $            | 14,596 |   |               | $ | 13,810 |              |  | $             | 14,174 |        | $ | 14,157 |  | $ | 56,737
|Income (loss) from operations                   |  |              | (22    | ) |               |   | (475   | )            |  |               | 322    |        |   | 943    |  |   | 768   
|Net income (loss)                               |  |              | (13    | ) |               |   | (429   | )            |  |               | 399    |        |   | 1,004  |  |   | 961   
|Net income (loss) per share (basic and diluted) |  |              | (0.00  | ) |               |   | (0.01  | )            |  |               | 0.01   |        |   | 0.03   |  |   | 0.03  



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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A.    CONTROLS AND PROCEDURES



Evaluation Of Disclosure Controls And Procedures.



Regulations under the Securities Exchange Act of 1934 require public companies, including our company, to maintain disclosure controls and procedures, which are defined to mean a companys controls and other procedures that
are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Our Chief Executive Officer and our Chief Financial Officer, based on their evaluation of our disclosure controls and procedures as of the end of the period covered by of this report, concluded that
our disclosure controls and procedures were effective for this purpose.



Changes In Internal Control Over Financial Reporting.



Regulations under the Securities Exchange Act of 1934 require public companies, including our company, to evaluate any change in our internal control over financial reporting, which is defined as a process to provide reasonable
assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. In connection with their evaluation of our
disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the three-month period
ended September 30, 2004 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Limitation On Effectiveness Of Controls.



It should be noted that any system of controls, including disclosure controls and procedures and internal controls over financial reporting, however well
designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Control
systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.



ITEM 9B.    OTHER INFORMATION



None.



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PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



We will furnish to the Securities and Exchange Commission a definitive Proxy Statement (the Proxy Statement) not later than 120 days after the
close of the fiscal year ended September 30, 2004. The information required by this item is incorporated herein by reference to the Proxy Statement.



We have adopted a written Code of Business Conduct and Ethics that applies to all Concur employees. The Code of Business Conduct and Ethics is available
on our corporate website at www.concur.com.



ITEM 11.    EXECUTIVE COMPENSATION



The information required by this item is incorporated herein by reference to the Proxy Statement.



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information required by this item is incorporated herein by reference to the Proxy Statement.



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information required by this item is incorporated herein by reference to the Proxy Statement.



ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required by this item is incorporated herein by reference to the Proxy Statement.



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PART IV



ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULE



| | (a) |  | The following documents are filed as part of this report:
| | --- |  | ---------------------------------------------------------



|   |  |                                                                                                                                                                                                                                                           |  |   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|1. |  | Financial Statements                                                                                                                                                                                                                                      |  |   
|   |  | Consolidated Financial Statements of Concur Technologies, Inc.                                                                                                                                                                                            |  |   
|   |  | Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm                                                                                                                                                                            |  | 36
|   |  | Report of Ernst & Young LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                |  | 37
|   |  | Consolidated Statements of Operations for the years ended September 30, 2004, 2003 and 2002                                                                                                                                                               |  | 38
|   |  | Consolidated Balance Sheets as of September 30, 2004 and 2003                                                                                                                                                                                             |  | 39
|   |  | Consolidated Statements of Stockholders Equity for the years ended September 30, 2004, 2003, and 2002                                                                                                                                                    |  | 40
|   |  | Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003, and 2002                                                                                                                                                              |  | 41
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                |  | 42
|   |  |                                                                                                                                                                                                                                                          
|2. |  | Schedule                                                                                                                                                                                                                                                  |  |   
|   |  | The following financial statement schedule for the years ended September 30, 2004, 2003, and 2002 should be read in conjunction with the
consolidated financial statements of Concur Technologies, Inc. filed as part of this Annual Report on Form 10-K: |  |   
|   |  |                                                                                                                                                                                                                                                          
|   |  | Schedule II
Valuation and Qualifying Accounts                                                                                                                                                                                                            |  | 67
|   |  |                                                                                                                                                                                                                                                          
|   |  | Schedules other than that listed above have been omitted since they are either not required, not applicable, or because the information
required is included in the consolidated financial statements or the notes thereto.                               |  |   



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|   |  |          |  | 
|-- |  | -------- |  | 
|3. |  | Exhibits |  | 



|              |  |                                                                                                                                 |  |                           |  |           |  |                     |  |               |  |              
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------------------- |  | ------------- |  | -------------
|              |  |                                                                                                                                 |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                             |  | Form                      |  | File No.  |  | Date of FirstFiling |  | ExhibitNumber |  | FiledHerewith
|3.01          |  | Registrants Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on December 24, 1998. |  | S-8                       |  | 333-70455 |  | 01/12/99            |  | 4.03          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|3.02          |  | Certificate of Designations of Series A Junior Preferred Stock of Registrant.                                                   |  | 8-A                       |  | 000-25137 |  | 04/23/01            |  | 3.2           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|3.03          |  | Registrants Amended and Restated Bylaws, as adopted on April 17, 2001.                                                         |  | 8-K                       |  | 000-25137 |  | 04/23/01            |  | 4.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.01          |  | Specimen Stock Certificate representing shares of Registrants Common Stock.                                                    |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 4.01          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.02          |  | Third Amended and Restated Information and Registration Rights Agreement dated May 26, 1999.                                    |  | 8-K                       |  | 000-25137 |  | 06/15/99            |  | 2.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.03          |  | Amendment to Third Amended and Restated Information and Registration Rights Agreement dated March 23, 2000.                     |  | 10-K                      |  | 000-25137 |  | 12/29/00            |  | 4.03          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.04          |  | Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001.                                                  |  | 8-A                       |  | 000-25137 |  | 04/23/01            |  | 4.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.01         |  | Registrants Amended and Restated 1994 Stock Option Plan and related documents.*                                                |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.01         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.02         |  | Registrants Amended 1998 Equity Incentive Plan.*                                                                               |  | 10-Q                      |  | 000-25137 |  | 05/14/04            |  | 10.01         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.03         |  | Registrants 1998 Employee Stock Purchase Plan and related documents.*                                                          |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.03         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.04         |  | Registrants Amended 1998 Directors Stock Option Plan.*                                                                         |  | 10-Q                      |  | 000-25137 |  | 05/14/04            |  | 10.02         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.05         |  | Registrants 401(k) Profit Sharing and Trust Plan.*                                                                             |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.05         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.06         |  | Registrants 1999 Stock Incentive Plan.*                                                                                        |  | S-8                       |  | 333-31190 |  | 02/28/00            |  | 4.09          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.07         |  | Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. *                     |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.06         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.08         |  | Facility Lease, dated October 31, 1997, between Registrant and CarrAmerica Realty Corporation, as amended on April 10, 1998.    |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.14         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.09         |  | Third Amendment to Lease, dated February 11, 1999, between Registrant and CarrAmerica Realty Corporation.                       |  | S-1                       |  | 333-74685 |  | 03/19/99            |  | 10.27         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.10         |  | Sublease, dated February 1, 1999, between Registrant and Emerging Technology Solutions, Inc. (ETSI).                            |  | S-1                       |  | 333-74685 |  | 03/19/99            |  | 10.28         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.11         |  | Facility Sublease Agreement, dated September 23, 1999, between Registrant and Cardiac Pacemakers, Inc.                          |  | 10-K                      |  | 000-25137 |  | 12/29/99            |  | 10.35         |  |              



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|              |  |                                                                                                                           |  |                           |  |           |  |                     |  |               |  |              
|------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------------------- |  | ------------- |  | -------------
|              |  |                                                                                                                           |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                       |  | Form                      |  | File No.  |  | Date of FirstFiling |  | ExhibitNumber |  | FiledHerewith
|10.12         |  | Office Lease Agreement, dated as of September 30, 2004, between Registrant and BTC U.S. L.L.C.                            |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|10.13         |  | Stock Purchase Agreement, dated February 22, 2000, among the Company, SAFECO Corporation and Nortel Networks, Inc.        |  | 10-K                      |  | 000-25137 |  | 12/29/00            |  | 10.31         |  |              
|              |  |                                                                                                                           |  |                           |  |          
|10.14         |  | Letter Agreement, dated April 19, 2000, between Registrant and John F. Adair.*                                            |  | 10-K                      |  | 000-25137 |  | 12/21/01            |  | 10.20         |  |              
|              |  |                                                                                                                           |  |                           |  |          
|10.15         |  | Description of Compensatory Arrangements Between Registrant and Non-Employee Directors.                                   |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|21.01         |  | List of Registrants subsidiaries.                                                                                        |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|23.01         |  | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.                                          |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|23.02         |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|31.01         |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a).                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|31.02         |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a).                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|32.01         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|32.02         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** |  |                          |  |          |  |                    |  |              |  | X            

---

|* |  | Represents a management agreement or compensatory plan.
|- |  | -------------------------------------------------------

|** |  | This certification is not deemed filed for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



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



|                  |  |                           |  |                                                                             
|----------------- |  | ------------------------- |  | ----------------------------------------------------------------------------
|                  |  | CONCUR TECHNOLOGIES, INC.
|                  |  |                          
|December 14, 2004 |  | By:                       |  | /s/    S. STEVEN
SINGH                                                      
|                  |  |                           |  | S. Steven Singh President, Chief Executive Officer and Chairman of the Board



Pursuant to the
requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:



|                                                |  |                                                                                            |  |                  
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -----------------
|Name                                            |  | Title                                                                                      |  | Date             
|                                                |  |                                                                                           
|/s/    S. STEVEN SINGHS. Steven Singh           |  | President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    JOHN F. ADAIRJohn F. Adair               |  | Chief Financial Officer (Principal Financial and Accounting Officer)                       |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    MICHAEL W.
HILTONMichael W.
Hilton       |  | Director                                                                                   |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    NORMAN A.
FOGELSONGNorman A.
Fogelsong   |  | Director                                                                                   |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    MICHAEL J.
LEVINTHALMichael J.
Levinthal |  | Director                                                                                   |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    ROBERT FINZIRobert Finzi                 |  | Director                                                                                   |  | December 14, 2004
|                                                |  |                                                                                           
|/s/    WILLIAM W.
CANFIELDWilliam W.
Canfield   |  | Director                                                                                   |  | December 14, 2004



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SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS



CONCUR TECHNOLOGIES, INC.



September 30, 2004



(in thousands)



|                                           |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|------------------------------------------ |  | ---------------------------- | ----- | ------------------------------------ | - | ---- | ------------------------------------ |  | ------------ | --- |  | ---------------------- | ---- | - |  | - | -----
|Description                                |  | Balance atBeginningof Period |       | AdditionsCharged toCosts andExpenses |   |      | AdditionsCharged toOtherAccounts (1) |  | Deduction(2) |     |  | Balance atEnd ofPeriod
|Year ended September 30, 2004:             |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Deducted from asset accounts:              |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Allowances for sales and doubtful accounts |  | $                            | 499   |                                      | $ |     |                                      |  | $            | 781 |  | $                      | (590 | ) |  | $ | 690  
|Year ended September 30, 2003:             |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Deducted from asset accounts:              |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Allowances for sales and doubtful accounts |  |                              | 1,020 |                                      |   | (145 | )                                    |  |              | 532 |  |                        | (908 | ) |  |   | 499  
|Year ended September 30, 2002:             |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Deducted from asset accounts:              |  |                              |       |                                      |   |      |                                      |  |              |     |  |                        |      |   |  |   |      
|Allowances for sales and doubtful accounts |  |                              | 1,769 |                                      |   | (255 | )                                    |  |              | 38  |  |                        | (532 | ) |  |   | 1,020

---

|(1) |  | Amounts charged against revenues for estimated sales returns.
|--- |  | -------------------------------------------------------------

|(2) |  | Uncollectible accounts written off, net of recoveries.
|--- |  | ------------------------------------------------------



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EXHIBIT INDEX



|              |  |                                                                                                                                 |  |                           |  |           |  |                     |  |               |  |              
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------------------- |  | ------------- |  | -------------
|              |  |                                                                                                                                 |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                             |  | Form                      |  | File No.  |  | Date of FirstFiling |  | ExhibitNumber |  | FiledHerewith
|3.01          |  | Registrants Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on December 24, 1998. |  | S-8                       |  | 333-70455 |  | 01/12/99            |  | 4.03          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|3.02          |  | Certificate of Designations of Series A Junior Preferred Stock of Registrant.                                                   |  | 8-A                       |  | 000-25137 |  | 04/23/01            |  | 3.2           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|3.03          |  | Registrants Amended and Restated Bylaws, as adopted on April 17, 2001.                                                         |  | 8-K                       |  | 000-25137 |  | 04/23/01            |  | 4.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.01          |  | Specimen Stock Certificate representing shares of Registrants Common Stock.                                                    |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 4.01          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.02          |  | Third Amended and Restated Information and Registration Rights Agreement dated May 26, 1999.                                    |  | 8-K                       |  | 000-25137 |  | 06/15/99            |  | 2.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.03          |  | Amendment to Third Amended and Restated Information and Registration Rights Agreement dated March 23, 2000.                     |  | 10-K                      |  | 000-25137 |  | 12/29/00            |  | 4.03          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|4.04          |  | Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001.                                                  |  | 8-A                       |  | 000-25137 |  | 04/23/01            |  | 4.1           |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.01         |  | Registrants Amended and Restated 1994 Stock Option Plan and related documents.*                                                |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.01         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.02         |  | Registrants Amended 1998 Equity Incentive Plan.*                                                                               |  | 10-Q                      |  | 000-25137 |  | 05/14/04            |  | 10.01         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.03         |  | Registrants 1998 Employee Stock Purchase Plan and related documents.*                                                          |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.03         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.04         |  | Registrants Amended 1998 Directors Stock Option Plan.*                                                                         |  | 10-Q                      |  | 000-25137 |  | 05/14/04            |  | 10.02         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.05         |  | Registrants 401(k) Profit Sharing and Trust Plan.*                                                                             |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.05         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.06         |  | Registrants 1999 Stock Incentive Plan.*                                                                                        |  | S-8                       |  | 333-31190 |  | 02/28/00            |  | 4.09          |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.07         |  | Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. *                     |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.06         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.08         |  | Facility Lease, dated October 31, 1997, between Registrant and CarrAmerica Realty Corporation, as amended on April 10, 1998.    |  | S-1                       |  | 333-62299 |  | 08/26/98            |  | 10.14         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.09         |  | Third Amendment to Lease, dated February 11, 1999, between Registrant and CarrAmerica Realty Corporation.                       |  | S-1                       |  | 333-74685 |  | 03/19/99            |  | 10.27         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.10         |  | Sublease, dated February 1, 1999, between Registrant and Emerging Technology Solutions, Inc. (ETSI).                            |  | S-1                       |  | 333-74685 |  | 03/19/99            |  | 10.28         |  |              
|              |  |                                                                                                                                 |  |                           |  |          
|10.11         |  | Facility Sublease Agreement, dated September 23, 1999, between Registrant and Cardiac Pacemakers, Inc.                          |  | 10-K                      |  | 000-25137 |  | 12/29/99            |  | 10.35         |  |              



68



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##### Table of Contents

|              |  |                                                                                                                           |  |                           |  |           |  |                     |  |               |  |              
|------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | --------- |  | ------------------- |  | ------------- |  | -------------
|              |  |                                                                                                                           |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                       |  | Form                      |  | File No.  |  | Date of FirstFiling |  | ExhibitNumber |  | FiledHerewith
|10.12         |  | Office Lease Agreement, dated as of September 30, 2004, between Registrant and BTC U.S. L.L.C.                            |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|10.13         |  | Stock Purchase Agreement, dated February 22, 2000, among the Company, SAFECO Corporation and Nortel Networks, Inc.        |  | 10-K                      |  | 000-25137 |  | 12/29/00            |  | 10.31         |  |              
|              |  |                                                                                                                           |  |                           |  |          
|10.14         |  | Letter Agreement, dated April 19, 2000, between Registrant and John F. Adair.*                                            |  | 10-K                      |  | 000-25137 |  | 12/21/01            |  | 10.20         |  |              
|              |  |                                                                                                                           |  |                           |  |          
|10.15         |  | Description of Compensatory Arrangements Between Registrant and Non-Employee Directors.                                   |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|21.01         |  | List of Registrants subsidiaries.                                                                                        |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|23.01         |  | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.                                          |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|23.02         |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|31.01         |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a).                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|31.02         |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a).                              |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|32.01         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** |  |                          |  |          |  |                    |  |              |  | X            
|              |  |                                                                                                                           |  |                           |  |          
|32.02         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** |  |                          |  |          |  |                    |  |              |  | X            

---

|* |  | Represents a management agreement or compensatory plan.
|- |  | -------------------------------------------------------

|** |  | This certification is not deemed filed for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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