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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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



For the fiscal year ended September 30, 2003



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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|Delaware                                                       |  | 91-1608052                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



6222 185th Avenue
NE Redmond, Washington 98052

(Address of principal executive offices)



(425) 702-8808

(Registrants telephone number, including area code)



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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



As of December 8, 2003, 32,321,003 shares of Common Stock of
the Registrant were outstanding. As of March 31, 2003, the last business day of the Registrants most recently completed second fiscal quarter, the aggregate market value of the shares held by non-affiliates of the Registrant (based upon the
closing price of the Registrants Common Stock on March 31, 2003 of $5.10 per share) was approximately $94.5 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, 2003, are incorporated by reference in Part III hereof.



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CONCUR TECHNOLOGIES, INC.



FORM 10-K

SEPTEMBER 30, 2003



INDEX



|           |  |                                                                                                |  | Page
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I     |  |                                                                                               
|           |  |                                                                                               
|ITEM 1.    |  | BUSINESS                                                                                       |  | 3   
|           |  |                                                                                               
|ITEM 2.    |  | PROPERTIES                                                                                     |  | 12  
|           |  |                                                                                               
|ITEM 3.    |  | LEGAL PROCEEDINGS                                                                              |  | 12  
|           |  |                                                                                               
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 12  
|           | 
|PART II    |  |                                                                                               
|           |  |                                                                                               
|ITEM 5.    |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          |  | 13  
|           |  |                                                                                               
|ITEM 6.    |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                           |  | 14  
|           |  |                                                                                               
|ITEM 7.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 15  
|           |  |                                                                                               
|ITEM 7A.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 36  
|           |  |                                                                                               
|ITEM 8.    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  | 37  
|           |  |                                                                                               
|ITEM 9.    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  | 68  
|           |  |                                                                                               
|ITEM 9A.   |  | CONTROLS AND PROCEDURES                                                                        |  | 68  
|           | 
|PART III   |  |                                                                                               
|           |  |                                                                                               
|ITEM 10.   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  | 68  
|           |  |                                                                                               
|ITEM 11.   |  | EXECUTIVE COMPENSATION                                                                         |  | 68  
|           |  |                                                                                               
|ITEM 12.   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  | 68  
|           |  |                                                                                               
|ITEM 13.   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 68  
|           |  |                                                                                               
|ITEM 14.   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  | 68  
|           | 
|PART IV    |  |                                                                                               
|           |  |                                                                                               
|ITEM 15.   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K                                 |  | 69  
|           | 
|SIGNATURES |  | 73                                                                                            



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PART I



ITEM 1.    BUSINESS



Special Note Regarding Forward-Looking Statements



This Annual Report on Form 10-K contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. You
can identify these statements 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. Examples of sections containing forward-looking statements include Business and Managements Discussion And Analysis Of Financial Condition And Results Of
Operations. These forward-looking statements involve many risks and uncertainties. Examples of such risks and uncertainties are described under Factors That May Affect Financial Condition And Results Of Operations and elsewhere in
this report, as well as in our other filings with the United States Securities and Exchange Commission. You should be aware that 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.



Overview



Concur Technologies, Inc. is a leading provider of Corporate Expense Management solutions. Our solutions are designed to automate and streamline business
processes, reduce operating costs, improve internal controls, and empower businesses to apply greater intelligence to their spending patterns. Our solutions include the Concur Expense services and software for automating travel and entertainment expense management,
Concur Payment services and software for
automating employee requests for vendor payments, and value-added services and software to complement our core solutions, including Concur Imaging Service, Concur Travel Integration, Concur Business Intelligence, Concur Total Access, and Concur Transaction Assessment Module.



Our solutions are designed to accommodate a wide range of customer business needs, technical requirements, and budget objectives for businesses worldwide.
We provide our solutions as a subscription service to customers on an outsourced basis over the Internet or through a dedicated telecommunications connection. Our service offerings range from highly-configurable to standardized solutions. We also
license our software to customers that want highly-configurable solutions, which are typically installed at the customers premises, managed by the customers, and accessed over a corporate intranet.



Since 1996, companies in over 60 countries have contracted to use our
market-leading solutions. Our customers include six of the top 10 Global 100 companies, including Ford Motor Company and General Motors, and 32 of the top 100 Fortune 1000 companies, including AT&T, Citigroup, Delphi Corporation, DuPont, Pfizer,
and SBC Communications. Our strategic relationships include more than 50 leading companies, such as ADP, Microsoft Business Solutions, U.S. Bank, Accenture, EDS, VISA, MasterCard, and Worldspan.



We are incorporated under the laws of the state of Delaware. Our executive
offices are located at 6222 185th Avenue Northeast, Redmond, Washington 98052 and our telephone number is (425) 702-8808.



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 through our Internet website, as soon as reasonably practicable after they have been so filed or furnished. These reports include, but are not limited to, the following: our annual report on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports. Information on our website does not constitute part of this Report.



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Concur, the Concur logo, Concur Expense, Concur Payment, Concur Imaging Service, Concur Travel
Integration, Concur Business Intelligence, Concur Total Access, Concur Transaction Assessment Module, Concur Offline Access, and Concur Voice Access 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.



The
Corporate Expense Management Market



We believe a
significant market opportunity exists for products and services that automate and streamline processes involved in the management of corporate expenses. We call the marketplace for these products and services the Corporate Expense
Management market. We believe two major trends are currently driving 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.
| | - |  | ---------------------------------------------------------------------



In todays business climate, companies are seeking innovative ways to reduce costs and improve operational efficiency. Next to payroll, corporate
travel and entertainment expense is the second-largest controllable expense within an organization, according to META Group, an information technology research and consulting firm. However, for most companies, the management of corporate expenses
involves manual, paper-based processes that require action by many individuals. Such manual, paper-based processes are time-consuming, inefficient, and costly because they involve the manual re-keying of data, manual tracking of forms and approvals,
and limited data capture and reporting. By automating the expense management process, companies can realize significant cost savings. According to a 2002 study conducted by 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 less than $18 per report, an average savings of $30 per report. One of our customers, DuPont,
recently reported savings in excess of $46 million over the past four years from increased operational efficiencies, tax reclassification, and negotiated vendor rates by using our solutions.



Companies are also seeking ways to improve the reliability of their financial
data and visibility into their financial processes to ensure the integrity of their financial statements, particularly since the enactment of the Sarbanes-Oxley Act of 2002 and related regulations. Under these new governmental requirements, public
companies are required to establish and maintain appropriate internal controls and procedures for financial management and reporting. By automating the expense management process and enhancing the reporting of captured data, companies can
significantly improve the reliability of their financial data and visibility into their financial processes to reduce the potential for fraud and improve their 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 intelligence to their spending patterns. Our subscription service and software solutions include:



| |  |  | Concur Expense solutions for travel and entertainment expense management.
| | - |  | -------------------------------------------------------------------------



| |  |  | Concur Payment solutions for the management of employee requests for vendor payments.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Value-added solutions that integrate with Concur Expense and Concur Payment, such as Concur Imaging Service for imaging of receipts and invoices, Concur Travel Integration for
end-to-end integration of the travel planning process, Concur Business Intelligence for enhanced business intelligence reporting, Concur Total Access for expense data entry by voice, laptop, or handheld device when not connected to the Internet, and
Concur Transaction Assessment Module for the detection of fraudulent expense transactions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our solutions benefit many groups within an enterprise, including corporate management, information
technology professionals, and employees. 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. Our solutions also enable management to access information for purposes of internal controls compliance, trend analysis, vendor negotiation, and financial planning. For information technology professionals, our solutions provide simple,
Web-based functionality for the administration, management, and monitoring of our products. This facilitates the management of employee information, database maintenance, and data interoperability. For employees, our solutions 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.



We offer our solutions to customers through our subscription services and license delivery models.



| |  |  | Subscription Services.    We provide our solutions as a subscription service to customers on an outsourced basis over the Internet or a dedicated
telecommunications connection. We offer a variety of service offerings that range from highly-configurable to mostly standardized solutions that are tailored to meet the needs of different customer segments. We generally offer our subscription
services on either a transaction basis, where a customer is authorized to use our solutions based on the number of transaction reports submitted by operation of the service, or an authorized-user basis, where a customer is
authorized to use our solutions based on the number of users that are authorized to submit transaction reports by operation of the service. Some customers of our subscription services purchase (or have previously purchased) an up-front license for
our software, and pay recurring subscription fees for our hosting and application management services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | License.    We 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. We generally offer licenses for our software on either a transaction basis or an authorized-user basis.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our subscription services models offer distinct advantages over traditional
software licensing. Because our services are provided on a subscription basis, customers pay for the services as they receive the benefits of using them. This reduces the financial risk associated with traditional on-premise enterprise software
licensing, which often requires significant up-front and continuing costs associated with licensing, installing, and maintaining the software application in-house. 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.



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. It provides information for managing expenses while improving internal controls and business policy compliance, reimbursement speed, and expense report accuracy. By
streamlining the expense management process, our customers can achieve a substantial reduction in manual processing, increased internal controls and business policy compliance, and enhanced access to expense data to facilitate better decision
making. We also provide Captura Expense subscription services and software to a number of our customers, as a result of our acquisition of Captura Software, Inc. in 2002. These Captura Expense solutions offer similar features and functionality to
the Concur Expense solutions.



Report
Preparation.    Our intuitive, easy-to-use interface for the creation of expense reports by end users reduces the amount of time required to create these reports, while reducing errors and improving policy



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compliance. To speed expense entry and improve accuracy, corporate charge or credit card information can be used to automatically populate the expense report
with key information, including transaction date, type, vendor, location, method of payment, amount, and currency conversion. Employees then supply any additional expense-related information using the user interface. To eliminate the task of sorting
receipts, Concur Expense allows users to enter data in any order. Commonly-incurred expense information is retained and can be used to help complete the next expense report. Other features include simple checkbook-style input screens,
integrated help screens, the ability to create attendees lists, mileage reimbursement tracking, and automatic flagging of non-compliant and incomplete entries.



Report Routing and Approval.    Concur Expense allows the each customer to determine how expense
reports should be processed based on customizable workflow rules. Once a report is submitted, the workflow policies defined by the company are applied, and, if manager approval is required, the designated approver receives an e-mail message
containing a link to the application, where all reports awaiting approval are listed. Our solutions can be configured to route the report for approval based on cost center, dollar limit, or other criteria. Items that do not comply with corporate
policy can be flagged for review, allowing approvers to reduce review time. Approvers can reject individual line items, while allowing the rest of the report to continue in the approval process. 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.



Report Processing.    Concur Expense streamlines back-office processing of expense reports. Because all expense reports are
prepared electronically, the processing department no longer needs to check the arithmetic of each report manually. Businesses can reduce the time spent auditing reports by choosing to audit only those reports flagged as non-compliant with corporate
expense policy. Concur Expense reduces the number of status inquiries between employees and processing departments by updating the status of reports in the database, and alerting employees via e-mail to the status of their reports. It also allows
significant time savings by posting expense report information to the customers enterprise resource planning (ERP) or accounting package used by our customers, eliminating the need for manual re-entry of the data. In addition,
Concur Expense helps companies claim reimbursement of tax credits by tracking value added tax, goods and services tax, and other international taxes.



Data Capture and Reporting for Analysis.    Concur Expense offers business intelligence capabilities by capturing and reporting
data for analysis, which gives companies greater visibility into their financial processes and allows them to make more informed business decisions, reduce the potential for fraud, and improve their compliance with governmental requirements, such as
the internal controls reporting and certification requirements of the Sarbanes-Oxley Act. Concur Expense can be configured for business policy rules, which guides employees to make business-compliant decisions, flags transactions for appropriate
approval, and allows for auditing when exceptions occur. Companies can use captured data to analyze trends, influence budget decisions, improve forecasting, and monitor for fraudulent activity.



Concur Payment Solutions



Concur Payment 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 accounts payable system integration. The
combination of increased productivity and availability of valuable data for improved cost management generates cost savings for our customers.



Streamlined Processing for Reduced Operational Costs.    Concur Payment can provide a rapid return on investment by automating
the vendor payment request process from payment request preparation, account coding, and approval to payment tracking and integration with a companys accounts payable system. It eliminates paper forms and manual processing, which, in turn,
provides reductions in processing costs and the use of valuable resources.



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Automation for Increased Employee Productivity and Improved Vendor
Relations.    For many companies, processing vendor payments is a paper-intensive, error-prone task. Concur Payment automates the entire process from submissions to approval. Employees and a customers accounts payable
department are spared the administrative burden associated with employee-initiated requests and can capture the details of the payment request in advance, making information more readily available and allowing issues and questions to be resolved
quickly and efficiently. By eliminating processing steps, Concur Payment also facilitates more timely payment to vendors, which enhances vendor management and relationships. Current information about each vendor payment is readily available to the
employee making the request, as well as the accounts payable department, which facilitates ongoing tracking of the requests and prompt answers to vendor inquiries on payment status.



Intuitive Interface for an Improved User Experience.    An intuitive, easy-to-use interface for
the payment request process reduces the amount of time required to create payment requests. Users are prompted for all necessary information, such as vendor data, account codes, special handling instructions, and payment details. The payment request
is then electronically routed for approval and, once approved, it is automatically sent to the financial system for payment. Users have access to instant online status updates.



Improved Cost Control with Better Business Intelligence.    With access to comprehensive payment
details, companies have the ability to analyze trends, influence budget decisions, and improve forecasting. The availability of detailed payment data provides the accounts payable department with the ability to better manage vendors, which can
result in cost savings. Our solutions provide the insight and technology to help companies leverage the data they collect, allowing them to make informed, cost-saving decisions within the company.



Value-Added Solutions



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



Concur Imaging Service.    The Concur Imaging Service provides companies with the ability to capture, store, archive and
retrieve employee receipts and vendor invoices electronically. This enables our customers using our Concur Expense solutions to reduce the costs of handling paper receipts and invoices. Users can simply fax receipts and invoices to a designated
Concur Imaging Service telephone number, and the user, approval managers, and accounting staff can then view electronic copies of the receipts and invoices online through Concur Expense. There is no postage, no need to store paper receipts and
invoices in a central location, and no need to physically handle the enormous amounts of paper associated with expense reporting and invoice processing. Receipts or invoices and the associated supporting documentation are available online throughout
the approval, payment, and audit processes.



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. Users can access their
corporate travel-booking tool to plan a trip. The itinerary is downloaded to Concur Expense and can be used to create a pre-trip authorization request, or to attach a printable version of the itinerary to the expense report. No re-keying is
necessary. The user can review this information, add any additional expenses, and submit the expense report for approval. The captured itinerary data is then integrated for enhanced business intelligence reporting.



Concur Business Intelligence.    Through our
strategic relationship with Cognos Inc., a leading global provider of business intelligence solutions, we offer Concur Business Intelligence to give customers enhanced reporting capabilities with respect to the data gathered by Concur Expense,
providing 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.



Concur Total Access.    Concur
Total Access enables users to enter expense report data when disconnected from the Internet. Concur Total Access includes Concur Offline Access, which is a fully-functioning client



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software application that can be installed on a users laptop computer, allows the user to create and manage expense reports on the laptop when
disconnected from the Internet. Upon reconnection, Concur Offline Access synchronizes with the customers Concur Expense solution, uploading new expense transactions that were created offline. Concur Total Access also includes Concur Access for
Palm®, which allows users to enter expense
transactions using handheld computers, such as a personal digital assistant, or PDA, device running the Palm OS® operating system. These transactions are loaded into Concur Expense when the user synchronizes the PDA device, and the transactions can then be incorporated into an expense report and
routed for approval and payment. Concur Total Access also includes the Concur Voice Access Service, which uses voice recognition technology to allow users to call in their expenses transactions while they are traveling.



Concur Transaction Assessment Module.    The
Concur Transaction Assessment Module provides fraud detection capability to customers of our Concur Expense solutions, adding an additional layer of oversight and intelligence to the expense reporting process. Through our strategic relationship with
ACL Services, a global provider of audit and data analysis technology, we have introduced the Concur Transaction Assessment Module to help customers reduce the potential for expense-related fraud and comply with the internal controls reporting and
certification requirements of the Sarbanes-Oxley Act. The solution is comprised of a set of tests that recognize patterns in the data, including excessive and duplicate claims and threshold amounts, providing administrators with the ability to
review cumulative expense information to identify potential fraudulent activity and deter unauthorized use.



Professional Services



Our professional services organization offers consulting, customer support, and training services in connection with our Corporate Expense Management solutions.



Consulting.    We offer consulting services in connection with implementation of our solutions to
assist customers in maximizing their return on investment in our solutions. Our consulting staff meets with customers prior to implementation to review the customers existing business processes and information technology infrastructure, and to
provide advice on ways to improve these processes, leveraging industry best practices and our experience in the Corporate Expense Management market. Our consultants also install, configure, and test our applications and integrate them with our
customers existing systems, as well as help customers develop a strategy for enterprise-wide deployment of our applications. After deployment, our consultants 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. For our license offerings, most 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 training programs for our services and software. These programs are tailored to particular user groups, such as administrators, help desk personnel, or trainers.
Training can be either Web-based or offered onsite for the customer. Additionally, training simulations can be designed to meet the specific needs of each customer. All training programs are designed to assist our customers with managing the
transition to our products and services and minimizing help desk calls.



Customers



Since 1996, companies in over 60
countries have contracted to use our market-leading solutions. Our customers include six of the top 10 Global 100 companies, including Ford Motor Company and General Motors,



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and 32 of the top 100 Fortune 1000 companies, including AT&T, Citigroup, Delphi Corporation, DuPont, Pfizer, and SBC Communications. No customer
accounted for 10% or more of our total revenues in fiscal 2003, 2002, or 2001.



Sales and Marketing



We market our solutions
worldwide to companies ranging from large-market companies with 2,000 or more employees to middle-market companies with less than 2,000 employees. In the large market, we sell our solutions primarily through our direct sales organization, with field
sales professionals located in metropolitan areas throughout the United States, the United Kingdom, and Australia. 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 sales efforts in the large market involve
contact with multiple decision makers, frequently including the prospective customers chief financial officer, vice president of finance, controller, and corporate travel manager. While the average large-market sales cycle varies
substantially, for initial sales it has generally ranged from six to twelve months.



In the middle market, we sell our solutions through both our direct sales organization and strategic relationships with third parties. Our middle market sales efforts frequently include contact with the prospective
customers chief financial officer, vice president of finance, or controller. While the average sales cycle varies substantially from customer to customer, for initial sales it has generally ranged from two to six months. We have several
strategic relationships focused primarily on middle market sales opportunities. In 2000, we entered into a strategic relationship with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., a global payroll solutions and computing services
provider. Sales through our ADP channel in fiscal 2003 represented more than 75% of our overall new unit sales of subscription services in the middle market. In 2001, we entered into a strategic relationship with Microsoft Business Solutions, a
leading provider of business management solutions, under which Microsoft Business Solutions is authorized to resell our subscription services in the middle market through its global value-added reseller network. More recently, in 2003, we entered
into a strategic relationship with U.S. Bank, a leading provider of corporate banking service and the leading issuer of Visa corporate card products, under which U.S. Bank is authorized to resell our subscription services in the middle market.



Our marketing programs are designed to position and promote
the Concur brands widely in our target markets and to extend the product leadership position 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, Web-site marketing, seminars and webinars, public relations campaigns, speaking engagements and forums, and industry analyst
visibility initiatives. We actively participate and sponsor finance and shared-service conferences and we demonstrate and promote our products at trade shows targeted to accounting, finance, information technology, and travel executives.



We actively communicate with our existing customers in order to enhance
customer satisfaction, gain input for our 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. Through these forums, as well as frequent one-on-one communications, we are able to stay abreast of emerging trends and provide information to customers to help them maximize their return on
investment from our solutions.



Product Development



We believe we pioneered the development of automated subscription services
and software for the Corporate Expense Management market and are a leading provider in that market today. We believe that we were



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one of the first vendors to introduce a travel and entertainment expense reporting software application, and one of the first vendors to deliver Corporate
Expense Management solutions under a subscription services model.



Our software engineering organization is responsible for developing new services and software as well as enhancing our existing services and software. We believe that a technically skilled, quality-oriented, and highly productive software
engineering organization will be important for the success of new product offerings. As of September 30, 2003, we employed 83 people in research and development. Our software engineering team is organized into six disciplines: development, quality
assurance, documentation, product design, configuration management, and program management. Members from each of these disciplines, along with a product manager from our marketing department, form separate product teams that work closely with sales,
marketing, professional services, customers, and prospects to further understand market needs and requirements. When required, we also use independent development firms or contractors 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. 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.



Competition



The market for our subscription services and software solutions is highly
competitive and subject to rapid change. 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 services and software, and from financial
institutions and providers of ERP software that sell, along with their 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 Systems, IBM, JD Edwards, Necho Systems Corporation, Oracle Corporation, Outtask, Inc., PeopleSoft, Inc., SAP AG, and Wells Fargo Bank. We also expect to face competition from new entrants including financial institutions and ERP vendors
that do not already market products similar to ours.



We
believe that the principal competitive factors considered in selecting Corporate Expense Management services and software are functionality, interoperability with existing information technology infrastructure, ability to deliver solutions on an
outsourced basis, price, and an installed base of referenceable customers. With respect to functionality, we believe that we offer products with generally more features than other competing products, and that we have often been the first to offer
many new features. Our products were designed and built to interoperate with existing information technology systems and to operate as a service on an outsourced basis. 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 the customer-hosted and -managed software products provided by many of our competitors. Overall, we believe that our products are competitively
priced when compared to our competitors products, and that our installed base of customers for expense management solutions is larger than that of our primary competitors.



Although we believe we offer highly competitive services and software, many of our competitors have longer operating
histories, greater financial, technical, marketing, and other resources, greater name recognition, and a larger number of total customers for their products and services. Moreover, a number 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. In addition, these competitors may 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 we can. It is also possible that new competitors or alliances among
competitors or other third parties may



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emerge and rapidly acquire market share. Increased competition may result in price reductions, reduced gross margins, and change in market share, any of
which could harm our business.



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. Currently, we do not own any issued patents or have any patent applications pending. As part of our efforts 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. These agreements generally contain restrictions on 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.



Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology
that we consider proprietary, and third parties may attempt to develop similar technology independently. In particular, 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, effective protection of intellectual property rights may be unavailable or limited in
certain countries. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws in the United States.



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 prove adequate to secure all necessary intellectual property rights or
to protect us from claims by third parties, either domestically or in foreign countries. There also can be no assurance that any of our copyrights or trademarks will not be challenged and invalidated.



While we are not aware that our products, trademarks, copyrights, or other
proprietary rights infringe the proprietary rights of third parties, third parties may assert infringement claims against us in the future with respect to current or future products. Further, we expect that providers of expense management services
and software may become subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. From time to time, we hire employees and retain
consultants who have worked for independent software vendors or other companies developing products similar to those offered by us. Such vendors or companies may claim that our products are based on their products and that we have misappropriated
their intellectual property. Any such claims, with or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements with third parties. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which would have a material adverse effect upon our business and financial position.



Employees



As of September 30, 2003, we had approximately 313 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.



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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. As of
September 30, 2003, we also leased sales offices in Atlanta, Chicago, Dallas, London, Miami, New York, Phoenix, and Sydney.



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 executives, 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 2003.



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PART II



ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



Market Information



Our common stock is traded on the NASDAQ National Market under the symbol CNQR. The following table sets forth the range of the high and low
closing sales prices by quarter for fiscal 2002 and 2003, as reported on the NASDAQ National Market:



|                                      |  | High |        | Low
|------------------------------------- |  | ---- | ------ | ---
|Fiscal year ended September 30, 2002: |  |      |        |    
|First Quarter                         |  | $    | 1.870  |    
|Second Quarter                        |  | $    | 3.780  |    
|Third Quarter                         |  | $    | 3.520  |    
|Fourth Quarter                        |  | $    | 2.600  |    
|                                      |  |     
|Fiscal year ended September 30, 2003: |  |      |        |    
|First Quarter                         |  | $    | 3.840  |    
|Second Quarter                        |  | $    | 5.100  |    
|Third Quarter                         |  | $    | 10.290 |    
|Fourth Quarter                        |  | $    | 13.080 |    



On September 30, 2003,
there were approximately 400 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 2004.



Recent Sales of Unregistered Securities



None.



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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA



The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and Notes thereto and
Managements Discussion And Analysis Of Financial Condition And Results Of Operations that are included with this report.



|                                                           |  | Year Ended September 30,              |       
|---------------------------------------------------------- |  | ------------------------------------- | ------
|                                                           |  | 2003                                  |       
|                                                           |  | (in thousands, except per share data) |       
|Consolidated Statements of Operations                      |  |                                       |       
|Revenues, net:                                             |  |                                       |       
|Subscription                                               |  | $                                     | 21,604
|Service                                                    |  |                                       | 26,443
|License                                                    |  |                                       | 8,690 
|                                                           |  |                                       |       
|Gross revenues                                             |  |                                       | 56,737
|License returns & allowances                               |  |                                       |      
|                                                           |  |                                       |       
|Net revenues                                               |  |                                       | 56,737
|Cost of revenues:                                          |  |                                       |       
|Subscription                                               |  |                                       | 11,093
|Service                                                    |  |                                       | 11,576
|License                                                    |  |                                       | 545   
|                                                           |  |                                       |       
|Total cost of revenues                                     |  |                                       | 23,214
|                                                           |  |                                       |       
|Gross profit                                               |  |                                       | 33,523
|Operating expenses:                                        |  |                                       |       
|Sales and marketing                                        |  |                                       | 14,549
|Research and development                                   |  |                                       | 10,356
|General and administrative                                 |  |                                       | 6,710 
|Acquisition and restructuring charges                      |  |                                       | 1,140 
|                                                           |  |                                       |       
|Total operating expenses                                   |  |                                       | 32,755
|                                                           |  |                                       |       
|Income (loss) from operations                              |  |                                       | 768   
|Other income, net                                          |  |                                       | 193   
|                                                           |  |                                       |       
|Net income (loss)                                          |  | $                                     | 961   
|                                                           |  |                                       |       
|Net income (loss) per share:                               |  |                                       |       
|Basic                                                      |  | $                                     | 0.03  
|                                                           |  |                                       |       
|Diluted                                                    |  | $                                     | 0.03  
|                                                           |  |                                       |       
|Shares used in calculation of net income (loss) per share: |  |                                       |       
|Basic                                                      |  |                                       | 31,265
|                                                           |  |                                       |       
|Diluted                                                    |  |                                       | 35,440
|                                                           |  |                                       |       
|                                                           | 
|                                                           |  | September 30,                         |       
|                                                           |  | 2003                                  |       
|                                                           |  | (in thousands)                        |       
|Consolidated Balance Sheet Data                            |  |                                       |       
|Cash, cash equivalents and marketable securities           |  | $                                     | 20,207
|Working capital                                            |  | $                                     | 16,981
|Total assets                                               |  | $                                     | 42,973
|Long-term obligations, net of current portion              |  | $                                     | 199   
|Total stockholders equity                                 |  | $                                     | 25,608



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



The following discussion and analysis provides information which 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 thereto that are included with this report.



Overview



Concur Technologies, Inc. is a leading provider of Corporate Expense Management solutions. Our solutions are designed to automate and streamline business
processes, reduce operating costs, improve internal controls, and empower businesses to apply greater intelligence to their spending patterns. Our subscription service and software solutions include:



| |  |  | Concur Expense solutions for travel and entertainment expense management.
| | - |  | -------------------------------------------------------------------------



| |  |  | Concur Payment solutions for the management of employee requests for vendor payments.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Value-added solutions that integrate with Concur Expense and Concur Payment, such as Concur Imaging Service for imaging of receipts and invoices, Concur Travel Integration for end-to-end integration of the travel planning process, Concur Business
Intelligence for enhanced business intelligence
reporting, Concur Total Access for expense data
entry by voice, laptop, or handheld device when not connected to the Internet, and Concur Transaction Assessment Module for the detection of fraudulent expense transactions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our solutions are designed to accommodate a wide range of customer business needs, technical requirements, and budget
objectives for businesses worldwide through our flexible subscription services and license delivery models.



| |  |  | Subscription Services.    We provide our solutions as a subscription service to customers on an outsourced basis over the Internet or a dedicated
telecommunications connection. We offer a variety of service offerings that are tailored to the needs of different customer segments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Large-Market Subscription Services.    We offer both highly-configurable and standardized subscription services offerings that are marketed primarily to
large-market companies with 2,000 or more employees. We generally offer these services on either a transaction basis, under which a customer is authorized to use our solutions based on the number of transaction reports submitted by
operation of the service, or an authorized-user basis, under which a customer is authorized to use our solutions based on the number of users that are authorized to submit transaction reports by operation of the service. Fees typically
include a one-time set-up fee and recurring subscription fees for the service. Some customers of these subscription services purchase (or have previously purchased) an up-front license for our software. In those cases, the customer typically pays a
one-time set-up fee and recurring subscription fees only for our hosting and application management services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Middle-Market Subscription Services.    We offer standardized subscription services offerings that are marketed primarily to middle-market companies with
less than 2,000 employees. We typically offer these services on an authorized user basis. Fees typically include a one-time set-up fee and recurring subscription fees for the service.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | License.    We 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. We generally offer licenses for our software on either a transaction basis or an authorized-user basis.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We were incorporated in 1993 and began selling travel and entertainment expense management software in
fiscal 1995. In fiscal 1996, we released a client-server based edition of Concur Expense, and in fiscal 1998, we released a Web-based version of Concur Expense. This product has accounted for a majority of Concur Expense license revenues in every
year since its release.



In October 1999, we began offering
Concur Expense as a subscription service, principally to mid-size companies that wanted a standardized solution provided on an outsourced basis over the Internet. In December 1999, we introduced additional outsourced subscription services, for large
companies that wanted a highly configurable solution provided on an outsourced basis. Today, we refer to these outsourced subscription services as the Concur Expense Service. As a complement to our Concur Expense solutions, we began offering our
Concur Payment solutions in May 2000 to accommodate the demand for the management of employee requests for vendor payments.



In March 2001, we sold our Concur Human Resources product line to MBH Solutions, Inc. as part of our efforts to focus more on our Concur Expense products
and services. The transaction consisted of the sale of certain assets to, and assumption of certain obligations by, MBH Solutions, Inc. We added Concur Human Resources to our product offerings through our acquisition of Seeker Software, Inc. in June
1999.



In July 2002, we completed our acquisition of Captura
Software, Inc. (Captura). Prior to the acquisition, Captura was a privately-held corporation that provided hosted Corporate Expense Management solutions under outsourced subscription services and license models. Following the
acquisition, Capturas operations were consolidated into our operations at our headquarters in Redmond, Washington.



Critical Accounting Policies and Estimates



Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. 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. Critical accounting policies and estimates are defined as those most important to the financial statement presentation and that require the most difficult,
subjective, or complex judgments. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources. Under different assumptions and/or conditions, actual results of operations may materially differ. We periodically re-evaluate our critical accounting policies and
estimates, including those related to revenue recognition, provision for doubtful accounts and sales returns, expected lives of customer relationships, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and
property and equipment, provision for income taxes, valuation of deferred tax assets and liabilities, and contingencies and litigation reserves. We presently believe the following critical accounting policies involve the most significant judgments
and estimates used in the preparation of our consolidated financial statements.



Revenue Recognition.    We recognize revenue 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 Force Issue (EITF) 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 (EITF 00-3), the consensus reached in EITF Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables (EITF 00-21), the United States Securities Exchange Commission (SEC) Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB 101), SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type Contracts,and related interpretations including AICPA Technical Practice Aids. We also utilize interpretative guidance from regulatory and accounting bodies which
include, but are not limited to, the SEC, the AICPA, the Financial Accounting Standards Board (FASB), and various professional organizations.



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We derive our revenues from the delivery of subscription services, software maintenance services,
consulting and training services, and the sale of licensed software.



Subscription revenues consist of monthly fees paid for services provided under our subscription delivery models, together with related value-added services and the amortization of one-time set-up fees in connection with those services.
Monthly subscription fees are recognized as the service is provided to the customer. In arrangements that include only subscription services, set-up fees are recorded to deferred revenue and recognized over the subscription service period. The
associated direct and incremental costs, such as labor and commissions, are deferred and expensed over the subscription service period. In certain subscription offerings, the subscription service period is open-ended and, therefore, the date upon
which the monthly fees will end is undetermined. For these offerings, the subscription set-up fees, as well as the associated direct and incremental costs, are typically deferred and recognized over the expected lives of the customer relationships,
which are typically two to five years, based on the particular service offering and our experience in delivering that offering. We continue to evaluate and adjust the length of these amortization periods as we gain more experience with customer
contract renewals and contract cancellations. Based on that experience, it is possible that, in the future, the estimates of expected customer lives may change and, in such event, the period over which such subscription set-up fees are amortized
will be adjusted. Any such change in estimated expected customer lives will affect our future results of operations. Additionally, subscription revenues are adjusted for estimates in sales allowances on subscription revenues, which are based on our
historical collection experience.



Service revenues consist of
fees for software maintenance and consulting services. Software maintenance services relate to software license arrangements, and 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 deferred and recognized ratably over the respective maintenance terms, which are typically one year. Consulting services consist of system implementation and integration, planning, data conversion,
training, and documentation of procedures. Consulting service fees are primarily billed and recognized as revenue on a time-and-materials basis. In some instances, we sell our consulting services under milestone or fixed-fee contracts, and in such
cases, consulting revenues are recognized on a percentage-of-completion basis. Additionally, service revenues are adjusted for estimates in sales allowances on service revenues, which are based on the respective historical collection experience.



In service arrangements that include both consulting and
subscription services, but not the license of software, we apply the provisions of a new accounting pronouncement, which applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. This new accounting pronouncement
provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. This pronouncement addresses how contract consideration should be measured and allocated to the
separate deliverables in an arrangement. Under this new guidance, 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 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 in our control. We have determined that, in these arrangements, the consulting services qualify as a separate unit of accounting and, accordingly, the consulting revenue is recognized as the services are performed. 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. Prior to the adoption of this new accounting pronouncement, the consulting revenue in
these arrangements was typically deferred and recognized over the expected lives of the customer relationships.



License revenues consist of all fees earned from granting customers licenses to use our software products. We recognize license revenues when we obtain a
contract signed by the customer, we have delivered the software, the amount of the transaction is fixed or determinable, collection is probable, and vendor-specific objective evidence of fair value exists for any undelivered element of the
arrangement. Elements are deliverables



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such as products and services contractually provided for in an 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. 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 evaluated as a single contractual arrangement.



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 revenue is allocated to undelivered
elements based on vendor-specific objective evidence of their fair value and the residual amounts of revenue are allocated to the delivered elements. Vendor-specific objective evidence is based on the price charged when an element is sold separately
or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction. We are required to exercise judgment in
deciding how to interpret the evidence of fair value to determine the arrangement consideration to allocate 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, software license revenues are generally recognized upon delivery of the
software, provided that the above criteria 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 licensed software. If we
determine that the consulting services are essential to the functionality of the licensed software, or payment of the software license fees is dependent upon the performance of the consulting services, both the software license and consulting fees
are recognized under the percentage of completion method of contract accounting. In our judgment, our consulting services are typically not considered essential to the functionality of the software and, therefore, revenues related to software
licenses are typically recognized upon delivery of the software and revenues related to consulting services are recognized as the services are performed. If collection is not considered probable, revenue is recognized when the fees are collected. If
the fees are not fixed or determinable, revenue is recognized as payments become due from the customer. Accordingly, our judgments as to whether consulting services should be considered essential to the functionality of the licensed software, and
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, revenues are
recognized upon the earlier of satisfaction of the acceptance/performance criteria or the expiration of the period, if applicable.



In software license arrangements where we also provide subscription hosting services for licensed software products, a software element is only present in
a subscription hosting arrangement if the 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 the customer to either run 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 software license criteria mentioned above, then the license revenue is recognized when the software is delivered, and
the subscription revenues are recognized as delivered. The subscription set-up fees therefore are recognized in full upon commencement of the subscription services. The associated direct and incremental set-up costs, such as labor and commissions,
are matched with the related subscription revenues, and therefore, are treated as deferred costs and then fully expensed upon commencement of the subscription services. Subscription usage fees are recognized monthly as the service is provided to the
customer. If the arrangement does not meet the criteria above, we combine the license fees with the total subscription fees and recognize them over the subscription service period. Our judgment as to whether we meet the criteria above could have a
material affect on the timing of our revenue recognition and results of operations.



Portions of our revenues are generated from sales made through our reseller partners. Where we assume a majority of the business risks associated with performance of the contractual obligations, we record the
associated revenues on a gross basis, with amounts paid to our reseller partners being recognized as cost of sales.



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Our assumption of such business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, we establish
pricing of the arrangement, and we are the primary obligor in the arrangement. Where our reseller partner assumes the majority of the business risks associated with the performance of the contractual obligations, we record associated revenues net of
the amounts paid to our reseller partner. Therefore, 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
revenues.



Our software license contracts typically include an
industry-standard software performance warranty provision. We account for potential warranty claims in accordance with the guidance prescribed by the FASB in its Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies. Historically, we have experienced minimal warranty claims. Our ability to estimate the quantity and amount of any potential future software warranty claims requires judgment, and could have a material affect on our results of
operations and financial position. Our standard software license contracts typically do not include contingencies such as rights of return or conditions of acceptance.



Recently Issued Accounting Pronouncements.    In July 2003, the EITF reached a consensus on 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). On August 13, 2003, the FASB ratified the EITFs consensus. This
issue addresses whether non-software deliverables (elements) 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. In interpreting
EITF 03-5, we have determined that, in software arrangements that also include various subscription services, the software element is not essential to the functionality of the subscription services. Currently, in accordance with SOP 97-2, in those
software arrangements that also include various subscription services, we defer and then recognize the subscription set-up fees in full upon commencement of the subscription services. The associated direct and incremental costs, such as labor and
commissions, are matched with the related subscription revenues, and therefore, are treated as deferred costs and then fully expensed upon commencement of the subscription services. When EITF 03-5 is adopted, because we have determined that the
software element is not essential to the functionality of the subscription services, the subscription set-up fees as well as the associated direct and incremental costs, such as labor and commissions, will be matched with the subscription monthly
revenue and recognized over the subscription service period. The provisions of EITF 03-5 will become effective for us on October 1, 2003. We are currently evaluating the impact that the application of this consensus will have on our consolidated
financial position and results of operations.



Allowances
for Sales and Doubtful Accounts.    We record an estimated provision for sales allowances to subscription and service 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 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 current economic trends. If the data used to
estimate the allowance provided for doubtful accounts does not adequately reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be materially
affected.



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Business Combinations and Valuation of Intangible Assets.    We account for
business combinations in accordance with SFAS No. 141, Business Combinations(SFAS 141) and the related acquired intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS
142). In accordance with SFAS 141, the cost of the acquired company is allocated to the identifiable tangible and intangible assets and liabilities acquired, and any remaining amount is classified as goodwill. Certain intangible assets, such
as the acquired customer base, are amortized over their expected economic lives in proportion to their expected future cash flows, while in-process research and development costs, if any, are expensed at the acquisition date. In accordance with SFAS
142, goodwill is not amortized, but instead goodwill is tested for impairment at least annually and, if impaired, the value of goodwill is adjusted accordingly. Our future operating performance will be impacted by amortization of intangible assets
and potential impairment charges related to goodwill. The allocation of the purchase price of the acquired company to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future
cash flows expected to be generated by the acquired assets and the appropriate discount rate for these cash flows. Should different conditions prevail, material write-downs of intangible assets and/or goodwill could occur.



Impairment of Goodwill and Certain Other Long-Lived
Assets.    Under SFAS 142, we are required to test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain
circumstances. We have determined that we have only one reporting unit. Goodwill is tested for impairment annually in a two-step process. First, we determine if the carrying value of the reporting unit exceeds its fair value, which would indicate
that goodwill may be impaired. If we 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 the required annual test, in March 2003, and determined in each case that goodwill was not impaired. Application of the goodwill impairment test requires judgment, including the identification
of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of the goodwill assigned to each reporting unit. Significant judgments that are required to estimate the
fair value of reporting units include estimating future cash flows, determining appropriate discount rates, and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting
unit and the impairment of goodwill, if any.



Stock-Based
Compensation.    We have elected to continue to account for our employee stock-based compensation plans using the intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations, as opposed to the fair value method allowed by SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no stock-based employee compensation cost has been reflected in our net income (loss) for any of the fiscal
years presented, as all options granted under these plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant.



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 in each jurisdiction, 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. In the event we determine that we will not be able to realize all or part of our net deferred tax assets, an adjustment would be made in the period
such determination is made. We recorded no income tax expense in any of the periods presented, as we have experienced significant operating losses to date, as well as assumed significant net operating loss carryforwards from acquisitions. If
utilized, the benefit of our total net operating loss carryforwards may be applied, in part, to reduce the recorded value of goodwill, as well as to reduce future tax expense. 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. These carryforwards would also be subject to limitations, as prescribed by applicable tax laws. 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.



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Results of Operations



Revenues



|             |  | Years Ended September 30,
|------------ |  | -------------------------
|             |  | 2003                     
|             |  | (dollars in thousands)   
|Subscription |  | $                        
|Service      |  |                          
|License      |  |                          
|             |  |                          
|Net revenues |  | $                        
|             |  |                          



We derive our revenues
from the delivery of subscription services, software maintenance services, consulting and training services, and licensed software.



Subscription Revenues.    Subscription revenues consist of monthly fees paid for subscription services and the amortization of
set-up fees in connection with those services. Large-market subscription revenues contributed approximately 75% and 45% of the absolute dollar increase in fiscal 2003 and in fiscal 2002, respectively. The acquisition of Captura in July 2002
accounted for the majority of the fiscal 2003 increase in large-market subscription revenues. In fiscal 2002, the increase was primarily a result of the increasing size of the customer base contributing to our recurring revenue stream. Middle-market
subscription services contributed approximately 25% and 55% of the absolute dollar increase in subscription revenues in fiscal 2003 and in fiscal 2002, respectively. These increases were primarily attributable to continued growth in our customer
base for middle-market subscription services, which was largely driven by growth of our indirect sales channels as our relationships with strategic partners became more established.



We have a strategic relationship with ADP, under which ADP markets our middle-market subscription services to its existing
customers and to potential new customers. Sales through this channel commenced in the fourth quarter of fiscal 2000. In May 2002, we amended our agreement with ADP to transfer to ADP the majority of the business risks associated with any new
customers signed through this channel. As a result, we are recording subscription revenues from new customer contracts after May 2002 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. More than 75% of new customer contracts for middle-market subscription services during fiscal 2002 and 2003 occurred through ADP. We expect subscription revenues to continue to grow in fiscal 2004 as a
result of the growing demand for subscription services delivered to the large market, continued development of our existing strategic relationships, and the addition of new strategic relationships.



Service Revenues.    Service revenues consist of
fees for software maintenance and consulting services. Maintenance revenues are affected by the number of new license customers added as well as the retention rate for annual maintenance contracts of existing customers. Consulting revenues are
affected by implementation of our solutions for new customers and implementation of upgrades and enhancements to these solutions for existing customers. The modest increase in service revenues in fiscal 2003 reflects an increase in maintenance
revenues of approximately $2.2 million, partially offset by a decrease in consulting revenues of approximately $0.7 million. The modest increase in service revenues in fiscal 2002 was almost entirely attributed to increased maintenance revenues. The
growth in maintenance revenues in these periods reflects continued growth in our overall installed customer base compared to the corresponding prior year periods, as well as high retention rates of our existing customers. The modest decrease in
consulting revenues in fiscal 2003 was due in part to reduced demand for consulting services, which stemmed from a decrease in new license sales in the period. We expect future service revenues to fluctuate based on new sales of our products and
services and the related consulting and maintenance services provided, as well as the demand for upgrades and enhancements to our products.



License Revenues.    License revenues consist of software license fees. The decreases in license revenues in fiscal 2003 and
fiscal 2002 reflect a trend in large-market prospects to select our subscription services model,



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rather than our license model, as the market demand for our outsourced services continues to grow. We believe this trend is in part related to the
markets growing acceptance of outsourced services, limited information technology capital budgets, and limited information technology resources available to manage such business-critical services in a traditional self-hosted license model. We
expect future license revenues as a percentage of total revenues to continue to decline in fiscal 2004 as a result of the trend in typical license customers to purchase our solutions through our large-market subscription services.



International Revenues.    We market our software
and services through our direct sales organization in the United States, the United Kingdom, and Australia, and through strategic referral and reseller arrangements in the United States and international markets. Revenues from licenses and services
to customers outside the United States were $7.6 million, $6.6 million, and $4.4 million in fiscal 2003, 2002, and 2001, respectively. Historically, as a result of the relatively small amount of our international sales, fluctuations in foreign
currency exchange rates have not had a material effect on our operating results. As our products and services become more widely accepted in international markets and in particular with the expansion of international functionality within our
products and services, we expect international revenues to continue to grow, both in total dollars and as a percentage of total revenues.



Revenue Concentrations.    A substantial amount of our revenues has been derived from the sales of Concur Expense and related
services. Revenues from Concur Expense and related services represented approximately 80%, 95%, and 95% of our total revenues in fiscal 2003, 2002, and 2001, respectively. We anticipate that revenues from Concur Expense and related services will
continue to represent a significant portion of our total revenues in fiscal 2004. No single customer accounted for more than 10% of our revenues in any of the periods presented.



Cost of Revenues



|                                    |  | Years Ended September 30, |       
|----------------------------------- |  | ------------------------- | ------
|                                    |  | 2003                      |       
|                                    |  | (dollars in thousands)    |       
|Cost of subscription revenues       |  | $                         | 11,093
|Percentage of subscription revenues |  |                           | 51.3  
|Cost of service revenues            |  | $                         | 11,576
|Percentage of service revenues      |  |                           | 43.8  
|Cost of license revenues            |  | $                         | 545   
|Percentage of net license revenues  |  |                           | 6.3   
|                                    |  |                           |       
|Total cost of revenues              |  | $                         | 23,214
|Percentage of net revenues          |  |                           | 40.9  



Cost of
Subscription Revenues.    Cost of subscription revenues consists primarily of salaries and related expenses, server and storage fees, telecommunication charges, strategic referral and reseller fees, and amortization of
related deferred set-up costs. The $1.1 million increase in cost of subscription revenues in fiscal 2003 reflects a $1.3 million increase in infrastructure costs, such as telecommunication and server storage fees, resulting from the addition of the
Captura customer base. The $1.3 million increase in cost of subscription revenues in fiscal 2002 reflects increases in various costs to support a larger customer base, totaling $1.2 million. Of this amount, $0.7 million related to increased
infrastructure costs, primarily due to our investment in infrastructure to accommodate the current and future growth of our subscription business. Additionally, referral and reseller fees increased $0.5 million as a result of the increase in sales
generated through our strategic partners. The cost of subscription revenues as a percentage of subscription revenues decreased in fiscal 2003 and fiscal 2002 primarily due to the low incremental cost incurred to host each additional new customer. We
expect the cost of subscription revenues to increase modestly in fiscal 2004 as we expect the incremental cost to support our anticipated customer growth to remain low.



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Cost of Service Revenues.    Cost of service revenues is comprised primarily
of the salaries and related expenses (including travel and entertainment expenses) associated with employees and contractors who provide maintenance and consulting services. There have been no material changes in total cost of service revenues in
fiscal 2003. The decrease in cost of service revenues in fiscal 2002 was primarily due to a decrease in consulting services personnel, which was made possible by improvements in our solutions and implementation methodology that enable us to provide
consulting services more efficiently. In addition, this decrease reflects personnel reductions related to our sale of Concur Human Resources in fiscal 2001, as well as our company-wide cost reduction efforts. Cost of service revenues, both in
absolute dollars and as a percentage of service revenues, may vary between periods due to changes in the level and mix of services provided as well as volatility of license sales.



Cost of License Revenues.    Cost of license revenues consists mainly of royalties for
sub-licensing third-party software, and, to a lesser extent, the costs of manuals, media, and duplication for our licensed products. There have been no material changes in cost of license revenues in any of the years presented. We expect that the
cost of license revenues will continue to fluctuate modestly in relation to changes in the overall demand for our license products as well as the cost for sub-licensing third-party software.



Operating Expenses



|                                      |  | Years Ended September 30, |       
|------------------------------------- |  | ------------------------- | ------
|                                      |  | 2003                      |       
|                                      |  | (dollars in thousands)    |       
|Sales and marketing                   |  | $                         | 14,549
|Percentage of net revenues            |  |                           | 25.6  
|Research and development              |  | $                         | 10,356
|Percentage of net revenues            |  |                           | 18.3  
|General and administrative            |  | $                         | 6,710 
|Percentage of net revenues            |  |                           | 11.8  
|Acquisition and restructuring charges |  | $                         | 1,140 
|Percentage of net revenues            |  |                           | 2.0   
|                                      |  |                           |       
|Total operating expenses              |  | $                         | 32,755
|Percentage of net revenues            |  |                           | 57.7  



Sales and
Marketing.    Sales and marketing expenses consist of salaries and related expenses (including sales commissions and travel and entertainment expenses) as well as allocated overhead costs, all associated with our sales and
marketing personnel, and, to a lesser extent, costs of advertising, trade shows, and other promotional activities. Salaries and related expenses together with allocated overhead costs represented approximately $1.6 million and $7.3 million of the
decreases in sales and marketing expenses in fiscal 2003 and fiscal 2002, respectively. These decreases were primarily due to personnel reductions that we were able to effect as a result of measures taken to improve our direct sales forces
productivity and an increase in the productivity of supporting our indirect sales channels, as well as additional reductions related to our sale of Concur Human Resources in fiscal 2001. The remainder of the absolute dollar decreases in sales and
marketing expenses were attributable to reductions in costs incurred for advertising and other promotional activities. We expect total sales and marketing expenses in fiscal 2004 to continue to decrease as a percentage of total revenues as existing
subscription revenues are not expected to have any incremental sales and marketing costs.



Research and Development.    Research and development expenses consist of salaries and related expenses as well as allocated overhead costs, all associated with employees and contractors
engaged in software engineering, program management, and quality assurance. There were no material changes in total research and development expenses in fiscal 2003. The decrease in research and development expenses in fiscal 2002 was primarily
related to a reduction in the number of outside contractors and employees engaged in research and development, primarily due to the sale of our Concur Human resources product line in fiscal 2001. In fiscal 2004,



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we anticipate modest increases in research and development resources as we continue to focus on product innovation and enhancement. However, we expect our
total research and development costs to remain relatively consistent with those from fiscal 2003, as we expect expense relating to additional resources to be offset by reductions in overhead and other related costs.



General and Administrative.    General and
administrative expenses consist of salaries and related expenses as well as allocated overhead costs associated with employees and contractors in finance, human resources, legal, information technology, and facilities, and to a lesser extent, the
provision for bad debts. There were no material changes in total general and administrative expenses in fiscal 2003. Approximately 75% of the absolute dollar decrease in general and administrative expenses in fiscal 2002 was due to our company-wide
efforts to reduce costs, which included reductions in salaries and related expenses for employees and contractors, as well as associated overhead costs. Reductions in bad debt expense represented approximately 15% of the absolute dollar decrease in
general and administrative expenses in fiscal 2002. During fiscal 2004, we expect general and administrative expenses to increase from fiscal 2003 as a result of increased public company compliance expenses, including costs of complying with the
laws and regulations related to the Sarbanes-Oxley Act.



Acquisition and Restructuring Charges.    Acquisition and restructuring charges include in-process research and development, amortization of intangibles, and restructuring costs. Acquisition charges in fiscal 2003
represented amortization of the acquired customer base intangible asset in connection with our July 2002 acquisition of Captura. This intangible is being ratably amortized over five years, consistent with the expected cash flows from the underlying
customer contracts. Acquisition charges in fiscal 2002 consisted of a one-time write-off of acquired in-process research and development costs totaling $1.3 million, as well as amortization of the acquired customer base intangible asset.
Restructuring charges in fiscal 2001 consisted of restructuring costs of approximately $0.9 million related to the sale of our Concur Human Resources product line, offset by a gain of approximately $0.2 million on the sale of these assets, and a
reduction of approximately $0.5 million in the amount accrued for our June 2000 restructuring as a result of changes in the estimated amounts required for severance and related benefits, facilities, and product marketing commitments.



Interest Income and Interest Expense



|                 |  | Years Ended September 30,
|---------------- |  | -------------------------
|                 |  | 2003                     
|                 |  | (dollars in thousands)   
|Interest income  |  | $                        
|Interest expense |  | $                        



Interest Income
and Interest Expense.    The decreases in interest income in fiscal 2003 and fiscal 2002 were due to the decreases in cash, cash equivalents and marketable securities upon which we earn interest, and to a lesser extent, to
lower interest rates earned on our investment portfolio. The decrease in interest expense in both fiscal 2003 and fiscal 2002 were primarily due to lower outstanding interest-bearing obligations related to bank borrowings and capital lease
obligations.



Provision for Income
Taxes.    No provision for federal and 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.



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Selected Quarterly Financial Data (Unaudited)



|                                                           |  | Fiscal 2003                           |        |        | Fiscal 2002 |       
|---------------------------------------------------------- |  | ------------------------------------- | ------ | ------ | ----------- | ------
|For the quarter ended:                                     |  | Sept 30                               |        | Jun 30 |             | Mar 31
|                                                           |  | (in thousands, except per share data) |       
|Revenues:                                                  |  |                                       |        |        |             |       
|Subscription                                               |  | $                                     | 5,725  |        | $           | 5,491 
|Service                                                    |  |                                       | 6,295  |        |             | 6,140 
|License                                                    |  |                                       | 2,137  |        |             | 2,543 
|                                                           |  |                                       |        |        |             |       
|Total revenues                                             |  |                                       | 14,157 |        |             | 14,174
|Cost of Revenues:                                          |  |                                       |        |        |             |       
|Subscription                                               |  |                                       | 2,631  |        |             | 2,596 
|Service                                                    |  |                                       | 2,693  |        |             | 2,826 
|License                                                    |  |                                       | 157    |        |             | 114   
|                                                           |  |                                       |        |        |             |       
|Total cost of revenues                                     |  |                                       | 5,481  |        |             | 5,536 
|                                                           |  |                                       |        |        |             |       
|Gross profit                                               |  |                                       | 8,676  |        |             | 8,638 
|Operating Expenses:                                        |  |                                       |        |        |             |       
|Sales and marketing                                        |  |                                       | 3,468  |        |             | 3,654 
|Research and development                                   |  |                                       | 2,348  |        |             | 2,627 
|General and administrative                                 |  |                                       | 1,632  |        |             | 1,750 
|In-process research and development                        |  |                                       |       |        |             |      
|Amortization of intangible assets                          |  |                                       | 285    |        |             | 285   
|                                                           |  |                                       |        |        |             |       
|Total operating expenses                                   |  |                                       | 7,733  |        |             | 8,316 
|                                                           |  |                                       |        |        |             |       
|Income (loss) from operations                              |  |                                       | 943    |        |             | 322   
|Other income, net                                          |  |                                       | 61     |        |             | 77    
|                                                           |  |                                       |        |        |             |       
|Net income (loss)                                          |  | $                                     | 1,004  |        | $           | 399   
|                                                           |  |                                       |        |        |             |       
|Net income (loss) per share:                               |  |                                       |        |        |             |       
|Basic                                                      |  | $                                     | 0.03   |        | $           | 0.01  
|                                                           |  |                                       |        |        |             |       
|Diluted                                                    |  | $                                     | 0.03   |        | $           | 0.01  
|                                                           |  |                                       |        |        |             |       
|Shares used in calculation of net income (loss) per share: |  |                                       |        |        |             |       
|Basic                                                      |  |                                       | 32,062 |        |             | 31,433
|                                                           |  |                                       |        |        |             |       
|Diluted                                                    |  |                                       | 36,717 |        |             | 35,630
|                                                           |  |                                       |        |        |             |       



Financial Condition



Our total assets were $43.0 million and $39.7 million at September 30,
2003, and 2002, respectively, representing an increase of $3.3 million, or 8.3%. The increase consisted primarily of greater cash and cash equivalents balances at September 30, 2003, partially offset by decreases in marketable securities and
restricted cash balances, as well as depreciation of property and equipment. Cash, cash equivalents, marketable securities, and restricted cash totaled $22.2 million as of September 30, 2003, compared to $17.0 million at September 30, 2002,
representing an increase of $5.2 million, or 30.6%.



Our
accounts receivable balance, net of allowances for sales and doubtful accounts of $0.5 million and $1.0 million, was $7.9 million and $8.9 million as of September 30, 2003 and 2002, respectively, representing a decrease of $1.0 million, or 11.2%.
Average days sales outstanding in accounts receivable was 51 days and



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64 days for the quarters ended September 30, 2003 and 2002, respectively, and 51 days and 72 days for the years ended September 30, 2003 and 2002,
respectively. This improvement in days sales outstanding was primarily the result of improved collections of outstanding accounts receivable, as well as a full year of revenue recognized for Captura customers in fiscal 2003, as opposed to only
two months of revenue from these customers recognized in fiscal 2002.



Our total current liabilities were $15.2 million and $17.6 million as of September 30, 2003 and 2002, respectively, representing a decrease of $2.4 million, or 13.6%. This decrease consisted primarily of a reduction in accounts payable and
accrued liabilities, including accrued costs relating to the acquisition of Captura, totaling $4.0 million, or 47.6%, offset by an increase in deferred revenues resulting from growth in license and maintenance revenues resulting from the continued
growth of our installed license customer base.



Liquidity and Capital
Resources



Our sources of liquidity as of September 30,
2003 consisted principally of cash and cash equivalents totaling $21.6 million. Our operating activities provided $4.7 million in fiscal 2003 and used $8.3 million and $22.4 million in fiscal 2002 and 2001, respectively. The increase in our cash
flow from operations in fiscal 2003 as compared to prior years was primarily a result of continual improvement in our operating results. For fiscal 2002 and 2001, net cash used by operating activities was primarily a result of funding normal,
ongoing operations.



Our investing activities provided $0.2
million, $1.6 million, and $37.6 million in fiscal 2003, 2002, and 2001, respectively. Investing activities have consisted primarily of purchases of property and equipment, and purchases and related maturities of marketable securities. Property and
equipment acquisitions were lower in fiscal 2003, compared to the corresponding prior year period, primarily due to the build-out of our hosting infrastructure in fiscal 2002. However, acquisition costs paid in fiscal 2003 largely offset the
decrease in purchases from fiscal 2002. Cash provided by investing activities was substantially lower in fiscal 2002 than in fiscal 2001, primarily as a result of decreased investments in and maturities of our marketable securities portfolio.



Our financing activities provided $3.0 million in fiscal 2003
and used $1.2 million and $4.8 million in fiscal 2002 and 2001, respectively. Financing activities have consisted primarily of payments made on existing loans and capital leases, offset by the issuance of common stock from the exercise of stock
options and in connection with our employee stock purchase plan, and by proceeds from borrowings under our equipment credit facility.



In March 2002, we entered into a loan and security agreement with a bank for a $1.0 million equipment credit facility (Term I Advance). The
loan and security agreement for the Term I Advance allowed for borrowings in the amount of actual equipment purchases made through December 2002. As of September 30, 2003, the outstanding indebtedness under the Term I Advance was approximately $0.5
million, bears interest at the banks prime rate (4.0% at September 30, 2003), and matures in December 2004.



In September 2002, we amended the terms of the loan and security agreement to add Captura as a borrower, and to include a one time additional term loan
(Term II Advance) of $0.4 million, the proceeds of which were used to refinance certain indebtedness owed by Captura to another creditor. As of September 30, 2003, the outstanding indebtedness under the Term II Advance was approximately
was $0.2 million, bears interest at the banks prime rate (4.0% at September 30, 2003), and matures in October 2004.



In September 2003, we amended the terms of the loan and security agreement to add a revolving line of credit in an amount not to exceed the lesser of 80%
of eligible accounts receivable or $5.0 million, bearing interest at a rate equal to the banks prime rate (4.0% at September 30, 2003). Amounts under this line of credit may be repaid and reborrowed at any time prior to September 2004, at
which time all amounts outstanding under this line of credit are due and payable. As of September 30, 2003, no amounts were outstanding under this line of credit. We also added an additional equipment facility (Term III Advance) for
borrowings in the amount of



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actual equipment purchases up to $1.0 million, made through September 2004. The Term III Advance bears interest at a rate equal to the banks prime rate
(4.0% at September 30, 2003), and matures in September 2006. As of September 30, 2003, no amounts were outstanding under the Term III Advance. This amendment also eliminated the restricted cash balance requirement of $1.4 million.



In December 2002, we financed our directors and officers
insurance policy renewal. Borrowings bear interest at 6.25% and mature in November 2003. As of September 30, 2003, the balance owed on this policy was $97,000.



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 had been made as of September 30, 2003.



The following are contractual commitments associated with our long-term debt, capital lease, operating lease, and purchase obligations, as of September 30, 2003:



|                            |  | Payments due by period
|--------------------------- |  | ----------------------
|Contractual Commitments     |  | Less than 1 year      
|                            |  | (in thousands)        
|Long-term debt obligations  |  | $                     
|Capital lease obligations   |  |                       
|Operating lease obligations |  |                       
|Purchase Obligations (1)    |  |                       
|                            |  |                       
|Total                       |  | $                     
|                            |  |                       

---

|(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 believe that our cash and cash
equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. In the future, we may seek additional funds to support our business needs and may seek to raise such
additional funds through private or public sales of securities, strategic relationships, bank debt, lease financing arrangements, or other available means. 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. If adequate funds are not available or are not available on acceptable terms to meet our
business needs, our business may be harmed.



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 some of 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 Securities
and Exchange Commission.



We Rely Heavily On Sales Of Concur Expense
Solutions.



Since 1997, we have generated a
substantial portion of our revenues from our Concur Expense subscription services and software solutions. We believe that sales of our Concur Expense solutions will continue to account



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for a large portion of our revenues for the foreseeable future. Our future financial performance and revenue growth will depend, in large part, upon the
successful development, introduction, and customer acceptance of new and enhanced versions of our Concur Expense solutions, and our business could be harmed if we fail to deliver the enhancements that customers want with respect to our current and
future offerings. There can be no assurance that our services and software solutions will achieve widespread market penetration or that we will derive significant revenues from sales of such solutions.



We Depend On Subscription Services Revenues; Our Future Growth Is Substantially
Dependent On Customer Demand For Our Subscription Services Delivery Models.



Revenues from our subscription services delivery models represented 38.1% of total revenues for fiscal 2003. 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. To maintain positive margins for our
subscription services, our subscription revenues will need to continue to grow more rapidly than the cost of such revenues. There can be no assurance that we will be able to maintain positive gross margins in our subscription services delivery
models in future periods. If our subscription services business does not grow sufficiently, we could fail to meet expectations for our results of operations, which could harm our business.



In addition, the cycle for implementing our subscription services can be
unpredictable because our service 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 to customers over the term of our subscription services 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 agreement prior to the end of its term, our operating results could be substantially harmed.



We Depend On Services Revenues; Services Revenues And Services Revenue Margins May
Fluctuate Or Decline.



Our services revenues
represented 46.6% of total revenues for fiscal 2003. We anticipate that services revenues will continue to represent a significant percentage of our total revenues. The level of services revenues depends largely upon demand for our consulting
services and ongoing renewals of customer maintenance contracts by our installed customer base. Our consulting revenues could fluctuate or decline to the extent sales of our subscription services and/or software fluctuate or decline or if
third-party organizations such as systems integrators compete with us for the installation or servicing of our offerings. In addition, our retention rates of customer maintenance contracts may decline in the future. Our ability to increase services
revenues will depend in large part on our ability to increase the scale of our services organization, including our ability to recruit and train a sufficient number of qualified services personnel. To the extent that our costs of operating a
professional services organization increase, we may not be able to maintain our current margins in this part of our business.



We Depend On Software License Revenues, Which Makes Our Operating Results Difficult To Predict.



Our software license revenues represented 15.3% of total revenues for fiscal
2003. 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



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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. General weakened economic
conditions have, in recent periods, resulted in more customers restricting their total capital expenditures including expenditures for software licenses. Delays such as this can contribute 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.



Our Revenue Recognition Policy May Change And Affect Our Earnings.



We believe our current revenue recognition policies and practices are consistent with applicable accounting standards.
However, revenue recognition rules for software and service companies are complex and require significant interpretations by management. Changes in circumstances, interpretations, or accounting 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 current
revenue recognition policies.



We Face Significant Competition.



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. 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.



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 such equipment, our offices,
and our hosting facilities against damage from fire, power loss, telecommunications failures, unauthorized intrusion, and other events. We backup software and related data files regularly and store the backup 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. In connection with our subscription services, we have engaged third-party hosting facility providers to provide the
hosting facilities and certain related infrastructure for such services. We also retain third-party telecommunications providers to provide Internet and direct telecommunications connections for our services. These providers may fail to perform
their obligations adequately. Any damage or failure that interrupts our operations or destroys some or all of our data or the data of our customers, whether due to natural disaster or otherwise, could expose us to litigation, loss of customers, or
other harm to our business.



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We Depend Significantly On Direct Sales.



We market our solutions worldwide to companies ranging from large-market companies with 2,000 or more employees to
middle-market companies with less than 2,000 employees. In the large market, we sell our solutions primarily through our direct sales organization. We believe that 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.



It Is Important For Us To Continue To Develop And Maintain Strategic Relationships.



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. For example, more than 75% of our new unit sales of subscription services to middle-market companies in fiscal 2003 occurred through our relationship with ADP, Inc., one of
our strategic reseller partners. 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.



Our Business Is Difficult To Evaluate.



We incorporated in 1993 and began licensing travel and entertainment expense management software in 1995 under a traditional
software licensing model. Since that time, our business model and operating plan have evolved significantly. More recently, in 1999, we introduced our subscription services delivery models, offering our software as a service on an outsourced basis
over the Internet. Today, we anticipate that our future financial performance and revenue growth will depend, in large part, upon the growth of our subscription services. Our evolving business model makes our business operations and prospects
difficult to evaluate. Investors in our securities should consider all the risks and uncertainties that are commonly encountered by companies in this stage of business operations, particularly companies, such as ours, that are in emerging and
rapidly evolving markets.



There Are Risks Associated With
International 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 $7.6 million, $6.6 million, and
$4.4 million in fiscal 2003, 2002, and 2001, 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;
| | - |  | -----------------------------------------------------



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| |  |  | 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.



We must also customize
our services and products for international markets. For example, 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 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.



It Is Important For Us To Continue To
Manage Changing Business Conditions.



Our future
operating results will depend, in part, on our ability to manage changing business conditions, including such conditions as the general economic slowdown, reduced investment in information technology by customers and prospective customers, and
reduced business travel and entertainment budgets. If we are unable to manage changing business conditions effectively, our business, financial condition, and results of operations could be materially and adversely affected. Failure to manage our
operations with reduced staffing levels may strain our management, financial, and other resources, and could have a material adverse effect on our business, financial condition, and results of operations.



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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; and
| | - |  | ------------------------------------------------------



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



In addition, due to the continuing slowdown in the general economy and general uncertainty of the current geopolitical environment, we believe that many
existing and potential customers are reassessing or reducing their planned technology and Internet-related investments and deferring purchasing decisions. Further delays or reductions 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 solutions 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. 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.



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



Many new laws and regulations, notably those adopted in connection with the Sarbanes-Oxley Act, impose new obligations on public companies. Preparing for and implementing these reforms and enhanced new disclosures, requires us to incur
significant additional accounting and legal costs. Any unanticipated difficulties in preparing for and implementing these reforms could result in material delays in complying with these new laws and regulations 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 and regulations could significantly harm our business, operating results, and
financial condition.



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We May Not Successfully Develop Or Introduce New Products Or Enhancements To Existing Products.



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 Concur Expense and other solutions, and our business could be harmed if we fail to deliver enhancements to our current and future solutions that
customers desire. We have experienced delays in the planned release dates of our software and upgrades, and we have discovered software defects in new releases after their introduction. New product versions or upgrades may not be released according
to schedule, or may contain defects when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our services and products, or customer claims against us, any of which could harm our business. If we
do not deliver new product versions, upgrades, or other enhancements to existing services and products 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 services or products in the marketplace.



Our Products 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, and electronic commerce technical standards. 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.



Security And Other Concerns May Discourage Use Under Our Subscription Services Models.



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. For example, in 1999, Congress
enacted the Gramm-Leach-Bliley Act, which contains provisions protecting the privacy of consumer non-public personal information collected by financial institutions. 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



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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.



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



We rely on software licensed from third
parties in order to offer some of our services and software offerings. This software may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain any of these licenses 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 Been Highly Volatile, Is Likely To Continue To Be Volatile, And May Decline.



The trading price of our common stock has fluctuated widely in the past and
is expected to continue to 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;
| | - |  | ----------------------------------------------



| |  |  | 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 National 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.



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.



We Must
Attract And Retain Qualified Personnel.



Our success
depends in large part on our ability to continue 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



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resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services
companies. The inability to hire and retain qualified personnel or the 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, 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 technologies or assets may require us to seek additional funding sooner than we expect. We cannot
assure you 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.



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. 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. There can be no assurance that our
means of protecting these 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.



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



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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, including the following: 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; 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 exchange risks. The Company
is not materially sensitive to changes in interest rates or foreign exchange rates.



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. Variable interest rate risk can be quantified by estimating the change in cash flows resulting from a hypothetical 20% increase in interest rates. We believe that 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 costs 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. We considered the potential impact of a hypothetical 10% adverse change in foreign exchange rates on the change in cash flows arising from an adverse change in foreign currency 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.



|Independent Auditors Report as of and for the year ended September 30, 2003                           |  | 38
|------------------------------------------------------------------------------------------------------ |  | --
|                                                                                                       | 
|Independent Auditors Report as of and for the years ended September 30, 2002 and 2001                 |  | 39
|                                                                                                       | 
|Consolidated Balance Sheets as of September 30, 2003 and 2002                                          |  | 40
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended September 30, 2003, 2002, and 2001           |  | 41
|                                                                                                       | 
|Consolidated Statements of Stockholders Equity for the years ended September 30, 2003, 2002, and 2001 |  | 42
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended September 30, 2003, 2002, and 2001           |  | 43
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  | 44



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DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS REPORT



The Board of Directors and Stockholders

Concur Technologies, Inc.

Redmond, Washington



We have audited the accompanying consolidated balance sheet of Concur Technologies, Inc. and subsidiaries (the Company) as of September 30,
2003, and the related consolidated statements of operations, stockholders equity, and cash flows for the year ended September 30, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on the financial statements based on our audit.



We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of September 30, 2003, and the results of their operations and their cash flows for the year ended September 30, 2003, in conformity with accounting principles generally accepted in the United States of America.



DELOITTE & TOUCHE LLP



Seattle, Washington

December 19, 2003



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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



The Board of Directors and Stockholders

Concur Technologies, Inc.



We
have audited the accompanying consolidated balance sheet of Concur Technologies, Inc. (Concur) as of September 30, 2002, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the two
years in the period ended September 30, 2002. These financial statements are the responsibility of the management of Concur. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally
accepted in the 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Concur at September 30, 2002, and the consolidated results of its operations and its cash flows for
each of the two years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States.



ERNST & YOUNG LLP



Seattle, Washington

November 5, 2002



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Concur Technologies, Inc.



Consolidated Balance Sheets

(In thousands, except share, per share, and footnote data)



|                                                                                                                                                                   |  | September 30, |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | --------
|                                                                                                                                                                   |  | 2003          |         
|Assets                                                                                                                                                             |  |               |         
|Current assets:                                                                                                                                                    |  |               |         
|Cash and cash equivalents                                                                                                                                          |  | $             | 21,607  
|Marketable securities                                                                                                                                              |  |               |        
|Accounts receivable (1), net of allowances for sales and doubtful accounts of $499 and $1,020 in 2003 and 2002,
respectively                                       |  |               | 7,862   
|Prepaid expenses                                                                                                                                                   |  |               | 1,425   
|Other current assets                                                                                                                                               |  |               | 1,238   
|                                                                                                                                                                   |  |               |         
|Total current assets                                                                                                                                               |  |               | 32,132  
|Property and equipment, net                                                                                                                                        |  |               | 1,331   
|Restricted cash                                                                                                                                                    |  |               | 550     
|Acquired customer base intangible asset, net of amortization                                                                                                       |  |               | 4,370   
|Goodwill                                                                                                                                                           |  |               | 3,704   
|Deposits and other assets                                                                                                                                          |  |               | 886     
|                                                                                                                                                                   |  |               |         
|Total assets                                                                                                                                                       |  | $             | 42,973  
|                                                                                                                                                                   |  |               |         
|Liabilities and Stockholders Equity                                                                                                                               |  |               |         
|                                                                                                                                                                   |  |              
|Current liabilities:                                                                                                                                               |  |               |         
|Accounts payable                                                                                                                                                   |  | $             | 1,015   
|Accrued payroll and benefits                                                                                                                                       |  |               | 945     
|Other accrued liabilities (2)                                                                                                                                      |  |               | 2,518   
|Current portion of long-term obligations                                                                                                                           |  |               | 768     
|Current portion of deferred revenues                                                                                                                               |  |               | 9,905   
|                                                                                                                                                                   |  |               |         
|Total current liabilities                                                                                                                                          |  |               | 15,151  
|Long-term obligations, net of current portion                                                                                                                      |  |               | 199     
|Long-term deferred revenues, net of current portion                                                                                                                |  |               | 2,015   
|Commitments and contingencies                                                                                                                                      |  |               |         
|Stockholders equity:                                                                                                                                              |  |               |         
|Convertible preferred stock, par value $0.001 per share: Authorized shares  5,000,000; No shares issued or
outstanding                                            |  |               |        
|Common stock, par value $0.001 per share: Authorized shares  60,000,000; Issued and outstanding shares  32,141,993 and
26,155,592 in 2003 and 2002, respectively |  |               | 237,402 
|Common stock issuable  4,160,410 shares at September 30, 2002                                                                                                     |  |               |        
|Accumulated deficit                                                                                                                                                |  |               | (211,794
|                                                                                                                                                                   |  |               |         
|Total stockholders equity                                                                                                                                         |  |               | 25,608  
|                                                                                                                                                                   |  |               |         
|Total liabilities and stockholders equity                                                                                                                         |  | $             | 42,973  
|                                                                                                                                                                   |  |               |         

---

|(1) |  | Includes amounts due from related parties of $0 and $226,000 at September 30, 2003 and 2002, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(2) |  | Includes amounts due to related parties of $0 and $145,000 at September 30, 2003 and 2002, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------



See accompanying notes.



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##### Table of Contents

Concur Technologies, Inc.



Consolidated Statements Of Operations

(In thousands, except per share and footnote data)



|                                                           |  | Year Ended September 30, |       
|---------------------------------------------------------- |  | ------------------------ | ------
|                                                           |  | 2003                     |       
|Revenues:                                                  |  |                          |       
|Subscription                                               |  | $                        | 21,604
|Service                                                    |  |                          | 26,443
|License                                                    |  |                          | 8,690 
|                                                           |  |                          |       
|Total revenues(1)                                          |  |                          | 56,737
|Cost of revenues:                                          |  |                          |       
|Subscription                                               |  |                          | 11,093
|Service                                                    |  |                          | 11,576
|License                                                    |  |                          | 545   
|                                                           |  |                          |       
|Total cost of revenues(2)                                  |  |                          | 23,214
|                                                           |  |                          |       
|Gross profit                                               |  |                          | 33,523
|Operating expenses:                                        |  |                          |       
|Sales and marketing                                        |  |                          | 14,549
|Research and development                                   |  |                          | 10,356
|General and administrative                                 |  |                          | 6,710 
|In-process research and development                        |  |                          |      
|Amortization of intangible assets                          |  |                          | 1,140 
|Restructuring charges                                      |  |                          |      
|                                                           |  |                          |       
|Total operating expenses                                   |  |                          | 32,755
|                                                           |  |                          |       
|Income (loss) from operations                              |  |                          | 768   
|Interest income                                            |  |                          | 212   
|Interest expense                                           |  |                          | (102  
|Other income (expense), net                                |  |                          | 83    
|                                                           |  |                          |       
|Net income (loss)                                          |  | $                        | 961   
|                                                           |  |                          |       
|Net income (loss) per share:                               |  |                          |       
|Basic                                                      |  | $                        | 0.03  
|                                                           |  |                          |       
|Diluted                                                    |  | $                        | 0.03  
|                                                           |  |                          |       
|Shares used in calculation of net income (loss) per share: |  |                          |       
|Basic                                                      |  |                          | 31,265
|                                                           |  |                          |       
|Diluted                                                    |  |                          | 35,440
|                                                           |  |                          |       

---

|(1) |  | Includes sales to related parties of approximately $849,000, $1.6 million, and $3.4 million in the years ended September 30, 2003, 2002 and 2001, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes payments to related parties of approximately $386,000, $1.1 million, and $0.7 million in the years ended September 30, 2003, 2002 and 2001, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes.



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Concur Technologies, Inc.



Consolidated Statements Of Stockholders Equity

(In thousands, except share data)



|                                                                               |  | Common Stock |  | Common stockissuable |         |        | DeferredStockCompensation |   |        | AccumulatedDeficit |        |   | TotalStockholdersEquity |  
|------------------------------------------------------------------------------ |  | ------------ |  | -------------------- | ------- | ------ | ------------------------- | - | ------ | ------------------ | ------ | - | ------------------------ | -
|                                                                               |  | Shares       |  | Amount               |         | Shares |                           |   | Amount |                    |        |   |                         
|Balance at October 1, 2000                                                     |  | 25,088,081   |  | $                    | 222,577 |        |                          |   |        | $                  |       |   |                          | $
|Issuance of common stock in connection with employee stock purchase plan       |  | 529,869      |  |                      | 636     |        |                          |   |        |                    |       |   |                          |  
|Issuance of common stock from exercise of stock options                        |  | 196,472      |  |                      | 32      |        |                          |   |        |                    |       |   |                          |  
|Amortization of deferred stock compensation                                    |  |             |  |                      |        |        |                          |   |        |                    |       |   |                          |  
|Net loss                                                                       |  |             |  |                      |        |        |                          |   |        |                    |       |   |                          |  
|                                                                               |  |              |  |                      |         |        |                           |   |        |                    |        |   |                          |  
|Balance at September 30, 2001                                                  |  | 25,814,422   |  | $                    | 223,245 |        |                          |   |        | $                  |       |   |                          | $
|Issuance of common stock in connection with employee stock purchase plan       |  | 258,224      |  |                      | 182     |        |                          |   |        |                    |       |   |                          |  
|Issuance of common stock from exercise of stock options                        |  | 82,946       |  |                      | 73      |        |                          |   |        |                    |       |   |                          |  
|Common stock issuable in connection with acquisition                           |  |             |  |                      |        |        | 4,160,410                 |   |        |                    | 8,952  |   |                          |  
|Net loss                                                                       |  |             |  |                      |        |        |                          |   |        |                    |       |   |                          |  
|                                                                               |  |              |  |                      |         |        |                           |   |        |                    |        |   |                          |  
|Balance at September 30, 2002                                                  |  | 26,155,592   |  | $                    | 223,500 |        | 4,160,410                 |   |        | $                  | 8,952  |   |                          | $
|Issuance of common stock in connection with employee stock purchase plan       |  | 310,133      |  |                      | 249     |        |                          |   |        |                    |       |   |                          |  
|Issuance of common stock from exercise of stock options                        |  | 980,964      |  |                      | 2,843   |        |                          |   |        |                    |       |   |                          |  
|Issuance of common stock in connection with acquisition, net of issuance costs |  | 4,695,304    |  |                      | 10,810  |        | (4,160,410                | ) |        |                    | (8,952 | ) |                          |  
|Net income                                                                     |  |             |  |                      |        |        |                          |   |        |                    |       |   |                          |  
|                                                                               |  |              |  |                      |         |        |                           |   |        |                    |        |   |                          |  
|Balance at September 30, 2003                                                  |  | 32,141,993   |  | $                    | 237,402 |        |                          |   |        | $                  |       |   |                          | $
|                                                                               |  |              |  |                      |         |        |                           |   |        |                    |        |   |                          |  



See accompanying notes.



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##### Table of Contents

Concur Technologies, Inc.



Consolidated Statements Of Cash Flows

(In thousands)



|                                                                                                  |  | Year Ended September 30, |       
|------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                                                  |  | 2003                     |       
|Operating activities:                                                                             |  |                          |       
|Net income (loss)                                                                                 |  | $                        | 961   
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                          |       
|Amortization of deferred stock compensation                                                       |  |                          |      
|Amortization of intangible assets                                                                 |  |                          | 1,140 
|In-process research and development                                                               |  |                          |      
|Depreciation                                                                                      |  |                          | 2,835 
|Provision for doubtful accounts and sales allowances                                              |  |                          | 387   
|Restructuring charges                                                                             |  |                          |      
|Changes in operating assets and liabilities, net of acquisition:                                  |  |                          |       
|Accounts receivable                                                                               |  |                          | 937   
|Prepaid expenses, deposits, and other assets                                                      |  |                          | (615  
|Accounts payable                                                                                  |  |                          | (721  
|Accrued liabilities                                                                               |  |                          | (2,127
|Deferred revenues                                                                                 |  |                          | 1,899 
|                                                                                                  |  |                          |       
|Net cash provided by (used in) operating activities                                               |  |                          | 4,696 
|                                                                                                  |  |                          |       
|Investing activities:                                                                             |  |                          |       
|Purchases of property and equipment                                                               |  |                          | (1,262
|Purchases of marketable securities                                                                |  |                          |      
|Maturities and sales of marketable securities                                                     |  |                          | 2,024 
|Acquisition of Captura Software, Inc., net of cash acquired                                       |  |                          | (550  
|                                                                                                  |  |                          |       
|Net cash provided by investing activities                                                         |  |                          | 212   
|                                                                                                  |  |                          |       
|Financing activities:                                                                             |  |                          |       
|Proceeds from issuance of common stock from exercise of stock options                             |  |                          | 2,843 
|Issuance of common stock in connection with employee stock purchase plan                          |  |                          | 249   
|Proceeds from borrowings                                                                          |  |                          | 915   
|Payments on borrowings and capital leases                                                         |  |                          | (1,754
|Decrease (increase) in restricted cash balances                                                   |  |                          | 700   
|                                                                                                  |  |                          |       
|Net cash provided by (used in) financing activities                                               |  |                          | 2,953 
|                                                                                                  |  |                          |       
|Net increase (decrease) in cash and cash equivalents                                              |  |                          | 7,861 
|Cash and cash equivalents at beginning of year                                                    |  |                          | 13,746
|                                                                                                  |  |                          |       
|Cash and cash equivalents at end of year                                                          |  | $                        | 21,607
|                                                                                                  |  |                          |       
|Supplemental disclosure of cash flow information:                                                 |  |                          |       
|Cash paid for interest                                                                            |  | $                        | 103   
|                                                                                                  |  |                          |       
|Common stock issued in connection with acquisition, net of issuance costs                         |  | $                        | 1,858 
|                                                                                                  |  |                          |       



See accompanying notes.



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##### Table of Contents

Concur Technologies, Inc.



Notes to Consolidated Financial Statements

September 30, 2003



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



Description of the Company



Concur Technologies, Inc. (Concur or the Company) is
a leading provider of Corporate Expense Management solutions. These solutions are designed to automate and streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater intelligence to
their spending patterns. The Companys subscription service and software solutions include:



| |  |  | Concur Expense for travel and entertainment expense management.
| | - |  | ---------------------------------------------------------------



| |  |  | Concur Payment solutions for the management of employee requests for vendor payments.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Value-added solutions that integrate with Concur Expense and Concur Payment, such as Concur Imaging Service for imaging of receipts and invoices, Concur Travel Integration for end-to-end integration of the travel planning process, Concur Business
Intelligence for enhanced business intelligence
reporting, Concur Total Access for expense data
entry by voice, laptop, or handheld device when not connected to the Internet, and Concur Transaction Assessment Module for the detection of fraudulent expense transactions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys solutions are designed to accommodate a wide range of customer business needs, technical requirements,
and budget objectives for businesses worldwide through flexible subscription services and license delivery models.



| |  |  | Subscription Services.    The Company provides its solutions as a subscription service to customers on an outsourced basis over the Internet or a
dedicated telecommunications connection. The Company offers a variety of service offerings that are tailored to the needs of different customer segments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Large-Market Subscription Services.    The Company offers both highly-configurable and standardized subscription services offerings that are marketed
primarily to large-market companies with 2,000 or more employees. These services are generally offered on either a transaction basis, under which a customer is authorized to use the solutions based on the number of transaction reports
submitted by operation of the service, or an authorized-user basis, under which a customer is authorized to use the solutions based on the number of users that are authorized to submit transaction reports by operation of the service.
Fees typically include a one-time set-up fee and recurring subscription fees for the subscription service. Some customers of these subscription services purchase (or have previously purchased) an up-front license for the software. In those cases,
the customer typically pays a one-time set up fee and recurring subscription fees only for hosting and application management services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Middle-Market Subscription Services.    The Company offers standardized subscription services offerings that are marketed primarily to middle-market
companies with less than 2,000 employees. These services are typically offered on an authorized user basis. Fees typically include a one-time set-up fee and recurring subscription fees for the service.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | License Models.    The Company licenses its 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. These software licenses are generally offered on either a transaction basis or an authorized-user basis.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company offers its products through a direct
sales organization as well as through indirect channels. The Company was originally incorporated in the state of Washington on August 19, 1993 and operations commenced during 1994. On November 25, 1998, the Company was reincorporated in the State of
Delaware and it completed the initial public offering of its common stock on December 16, 1998.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



Principles of Consolidation



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



Revenue Recognition Policy



Revenue
Recognition.    The Company recognizes revenue 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 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 (EITF 00-3), the consensus reached in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21),
the United States Securities Exchange Commission (SEC) Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB 101), SOP 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, and related interpretations, including AICPA Technical Practice Aids.



The Company derives its revenues from the delivery of subscription services, software maintenance services, consulting and training services, and the sale
of licensed software.



Subscription revenues consist of monthly
fees paid for services provided under the Companys subscription delivery models, together with related value-added services and the amortization of one-time set-up fees in connection with those services. Subscription monthly fees are
recognized monthly as the service is provided to the customer. In arrangements that include only subscription services, subscription set-up fees are recorded to deferred revenue and recognized over the subscription service period. The associated
direct and incremental costs, such as labor and commissions, are deferred and expensed over the subscription service period. In certain subscription offerings, the subscription service period is open-ended and, therefore, the date upon which the
monthly fees will end is undetermined. For these offerings, the subscription set-up fees, as well as the associated direct and incremental costs, are typically deferred and recognized over the expected lives of the customer relationships, which are
typically two to five years, based on the particular service offering and the Companys experience in delivering that offering. The Company continues to evaluate and adjust the length of these amortization periods as it gains more experience
with customer contract renewals and contract cancellations. Based on that experience, it is possible that, in the future, the estimates of expected customer lives may change and, in such event, the period over which such subscription set-up fees are
amortized will be adjusted. Additionally, subscription revenues are adjusted for estimates in sales allowances on subscription revenues, which are based on the Companys historical collection experience.



Service revenues consist of fees for software maintenance and consulting
services. Software maintenance services relate to software license arrangements, and 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 deferred and recognized ratably over the respective maintenance terms, which are typically one year. Consulting services consist of system implementation and integration, planning, data conversion, training, and documentation of procedures.
Consulting service fees are primarily billed and recognized as revenue on a time-and-materials basis. In some instances, the Company sells its consulting services under milestone or fixed-fee contracts, and in such cases, consulting revenues are
recognized on a percentage-of-completion basis. Additionally, service revenues are adjusted for estimates in sales allowances on service revenues, which are based on the respective historical collection experience.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



In service arrangements that include both consulting and subscription services, but not the license
of our software, the Company applies the provisions of a new accounting pronouncement, which applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. This new accounting pronouncement provides guidance on how to
account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. This pronouncement addresses how contract consideration should be measured and allocated to the separate deliverables in an
arrangement. In applying this guidance, 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 should, therefore, be evaluated as a single contractual
arrangement. Under this new guidance, 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 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 in the control of the
Company. The Company has determined that, in these service arrangements, the consulting services qualify as a separate unit of accounting, and accordingly, the consulting revenue is recognized as the services are performed. Prior to the adoption of
this new accounting pronouncement, the consulting revenue in these arrangements was typically deferred and recognized over the expected lives of the customer relationships.



License revenues consist of all fees earned from granting customers licenses to use the Companys software products.
The Company recognizes license revenues when it obtains a contract signed by the customer, it has delivered the software, the amount of the transaction is fixed or determinable, collection is probable, and vendor-specific objective evidence of fair
value exists for any undelivered element of the arrangement. Elements are deliverables such as products and services contractually provided for in an arrangement. Elements included in the Companys multiple-element software arrangements consist
of various licensed software products and services such as software maintenance services, consulting services, and subscription services. 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 evaluated as a single contractual arrangement.



In software license arrangements that include rights to multiple elements, the Company allocates the total arrangement fee among each of the elements using the residual method, under which revenue is allocated to
undelivered elements based on vendor-specific objective evidence of their fair value and the residual amounts of revenue are allocated to the delivered elements. Vendor-specific objective evidence is based on the price charged when an element is
sold separately or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.



In software license arrangements where the Company also provides consulting
services, software license revenues are generally recognized upon delivery of the software, provided that the above criteria 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 licensed software. If the Company determines that the consulting services are essential to the functionality of the licensed software, or payment of the software license fees is dependent upon
the performance of the consulting services, both the software license and consulting fees are recognized under the percentage of completion method of contract accounting. The Company typically does not consider the consulting services to be
essential to the functionality of the software, and therefore, revenues related to software licenses are typically recognized upon delivery of the software and revenues related to consulting services are recognized as the services are performed. If
collection is not considered probable, revenue is recognized when the fees are collected. If the fees are not fixed or determinable, revenue is recognized as payments become due from the customer. If non-standard acceptance periods or non-standard
performance criteria are required, revenues are recognized upon the earlier of satisfaction of the acceptance/performance criteria or the expiration of the period, if applicable.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



In software license arrangements where the Company also provides subscription hosting services for
its licensed software products, a software element is only present in a hosting arrangement if the 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 the customer to either run 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 software license criteria mentioned above, then the license
revenue is recognized when the software is delivered, and the subscription revenues are recognized as delivered. The subscription set-up fees therefore are recognized in full upon commencement of the subscription services. The associated direct and
incremental set-up costs, such as labor and commissions, are matched with the related subscription revenues, and therefore, are treated as deferred costs and then fully expensed upon commencement of the subscription services. Subscription usage fees
are recognized monthly as the service is provided to the customer. If the arrangement does not meet the criteria mentioned above, the Company combines the software license fees with all the subscription fees and recognizes them over the subscription
service period.



Portions of the Companys revenues are
generated from sales made through its reseller partners. When the Company assumes a majority of the business risks associated with performance of the contractual obligations, the associated revenues are recorded on a gross basis, with amounts paid
to the reseller partners recognized as cost of sales. The Companys assumption of such business risks is evidenced when, among other things, the Company takes responsibility for delivery of the product or service, establishes pricing of the
arrangement, and is the primary obligor in the arrangement. Where the reseller partner assumes the majority of the business risks associated with the performance of the contractual obligations, the associated revenues are recorded net of the amounts
paid to the reseller partner.



Software license contracts
typically include an industry-standard software performance warranty provision. The Company accounts for potential warranty claims in accordance with the guidance prescribed by the Financial Accounting Standard Board (FASB) in its
Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. Historically, the Company has experienced minimal warranty claims. The standard software license contracts typically do not include
contingencies such as rights of return or conditions of acceptance.



Stock-Based Compensation



The Company issues
stock options to its employees and outside directors pursuant to its stock option plans and provides employees the right to purchase stock pursuant to its employee stock purchase program. The Company accounts for all its employee stock-based
compensation arrangements under the intrinsic value method of accounting as defined by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations.
Under this method, no stock-based employee compensation cost has been reflected in the Companys net income (loss) for any of the fiscal years presented, as all options granted under these plans had an exercise price equal to the fair market
value of the underlying common stock on the date of grant.



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
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 to expense over the options vesting periods. The estimated fair value of the stock purchases under the employee stock purchase plan is amortized over the related purchase



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



periods, ranging from 6 to 24 months. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had
accounted for its stock option and employee stock purchase plans under the fair value method of accounting of SFAS 123, as amended:



|                                              |  | Years Ended September 30,             |      
|--------------------------------------------- |  | ------------------------------------- | -----
|                                              |  | 2003                                  |      
|                                              |  | (in thousands, except per share data) |      
|Net income (loss) as reported                 |  | $                                     | 961  
|Stock-based compensation expense, as reported |  |                                       |     
|Pro forma compensation expense under SFAS 123 |  |                                       | 1,885
|                                              |  |                                       |      
|Pro forma net loss                            |  | $                                     | (924 
|                                              |  |                                       |      
|Basic net income (loss) per share:            |  |                                       |      
|As reported                                   |  | $                                     | 0.03 
|Pro forma                                     |  | $                                     | (0.03
|Diluted net income (loss) per share:          |  |                                       |      
|As reported                                   |  | $                                     | 0.03 
|Pro forma                                     |  | $                                     | (0.03



The Company has
estimated the fair value of its options, including employee stock purchase plan 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 traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because
employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect this estimate, management believes the Black-Scholes model does not
necessarily provide a reliable single measure of the fair value of Concurs employee stock options.



The fair value of options granted and employee stock purchase plan shares issued by the Company were estimated at the date of grant using the
Black-Scholes model with the following weighted-average assumptions:



|                                         |  | Years Ended September 30, |     
|---------------------------------------- |  | ------------------------- | ----
|Employee and Director Stock Option Plans |  | 2003                      |     
|Expected life from vest date (in years)  |  |                           | 2.00
|Risk-free interest rate                  |  |                           | 2.57
|Volatility                               |  |                           | 0.85
|Dividend yield                           |  |                           |    
|Weighted average fair value              |  | $                         | 2.10
|                                         | 
|                                         |  | Years Ended September 30, |     
|Employee Stock Purchase Plan             |  | 2003                      |     
|Expected life from vest date (in years)  |  |                           | 1.49
|Risk-free interest rate                  |  |                           | 2.41
|Volatility                               |  |                           | 1.03
|Dividend yield                           |  |                           |    
|Weighted average fair value              |  | $                         | 0.91



Cash and Cash Equivalents



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



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



Marketable Securities



Marketable securities are stated at fair value at the balance sheet date. By policy, the Company invests primarily in
high-grade marketable securities. Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. The Company has classified its
marketable securities as available-for-sale under the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which are carried at fair value, with unrealized gains and losses, net of tax, reported as a
separate component of stockholders equity. At September 30, 2002, the fair value of marketable securities (consisting primarily of corporate bonds) approximated their cost. Therefore, no unrealized gain or loss has been recorded.



Fair Values of Financial Instruments



The Company has the following financial instruments: cash and cash
equivalents, marketable securities, restricted cash, accounts receivable, accounts payable, accrued liabilities, long-term debt, and capital lease obligations. The carrying value of cash and cash equivalents, marketable securities, accounts
receivable, accounts payable, and accrued liabilities approximates fair value based on the liquidity of these financial instruments 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 the Company 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, the Company 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



The Company 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). Software development costs are capitalized 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. The Companys 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, 2003, capitalized software costs amounted to approximately $150,000, consisting of direct costs associated with the development of certain software
applications used in providing the Companys subscription services. These capitalized costs will be ratably amortized, using the straight-line method, over the estimated useful lives of the related applications.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



Segment Information



The Company operates in a single business segment related to Corporate Expense Management software and services.



Comprehensive Net Income (Loss)



The Companys comprehensive net income (loss) was the same as its net
income (loss) for all fiscal years presented.



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 $115,000, $304,000, and $753,000 in the fiscal years ended September 30, 2003, 2002, and 2001,
respectively.



Income Taxes



The Company accounts 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.
Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.



Property and Equipment



Property and equipment are carried at cost. The Company provides for depreciation and amortization using the straight-line method for financial reporting
purposes over estimated useful lives ranging 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.



Allowances for Sales and Doubtful Accounts



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



The Company makes judgments as to its ability
to collect outstanding receivables, and provides an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, the Company considers specific receivables when collection is
doubtful, as well as an analysis of historical bad debt experience and current economic trends.



Business Combinations and Valuation of Intangible Assets



The Company accounts for business combinations in accordance with SFAS No. 141, Business Combinations (SFAS 141). SFAS 141 requires
business combinations completed after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. Under the purchase method of accounting, results of
operations of the acquired business are included in the financial statements of the acquiring company from the date of acquisition. Net assets of the



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



acquired company are recorded at their fair value at the date of acquisition. 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), the Company has not amortized goodwill, but instead tests goodwill for impairment periodically and records 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



The Company tests goodwill for impairment in accordance with SFAS 142. SFAS
142 requires that goodwill no longer be amortized, but instead tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. The Company has determined that it
has only one reporting unit. Goodwill is tested for impairment annually in a two-step process. First, the Company determines if the carrying value of the related reporting unit exceeds its fair value, which would indicate that goodwill may be
impaired. If the Company determines that goodwill may be impaired, the Company compares the implied fair value of the goodwill to its carrying amount to determine if there is an impairment loss. The Company performed its initial test for impairment
as of October 1, 2002, the date of adoption of SFAS 142, and the required annual test, in March 2003, and determined in each case that goodwill was not impaired.



The Company 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, the Company evaluates 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. The Company does not have any long-lived assets, including intangible assets other than goodwill, which it considers to be impaired.



Net Income (Loss) Per Share



Basic net income (loss) per share is computed by dividing the 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 the net income (loss) for the period by the weighted average number of shares
of common stock outstanding during the period, plus the dilutive effect of outstanding stock options and warrants during the period, using the treasury stock method. The following table sets forth the computation of basic and diluted net income
(loss) per share:



|                                                             |  | Years Ended September 30,             |       
|------------------------------------------------------------ |  | ------------------------------------- | ------
|                                                             |  | 2003                                  |       
|                                                             |  | (in thousands, except per share data) |       
|Net income (loss)                                            |  | $                                     | 961   
|                                                             |  |                                       |       
|Weighted average shares of common stock outstanding (1)      |  |                                       | 31,265
|Dilutive effect of employee stock options (2)                |  |                                       | 4,175 
|Dilutive effect of warrants (3)                              |  |                                       |      
|                                                             |  |                                       |       
|Dilutive weighted average shares of common stock outstanding |  |                                       | 35,440
|                                                             |  |                                       |       
|Basic net income (loss) per share:                           |  | $                                     | 0.03  
|Diluted net income (loss) per share:                         |  | $                                     | 0.03  

---

|(1) |  | Shares relating to the acquisition of Captura Software, Inc. (Captura) have been included in the computation of weighted average shares outstanding for fiscal 2003. The
shares issuable as of September 30, 2002 were included from the date of acquisition.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Notes to Consolidated Financial Statements(Continued)



|(2) |  | Excludes the effect of 1.0 million, 3.0 million, and 4.9 million shares of common stock subject to outstanding options in fiscal 2003, 2002, and 2001, respectively, as their effect
is anti-dilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Excludes the effect of 2.5 million, 3.5 million, and 5.3 million shares of common stock subject to outstanding warrants during fiscal 2003, 2002, and 2001, respectively, as their
effect is anti-dilutive.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may
have a material impact on the Companys financial statements. The Company has used estimates in determining certain provisions, including allowances for sales and doubtful accounts, product warranties, useful lives of property and equipment,
valuation and useful lives of intangible assets, valuation of assets and liabilities acquired from Captura, deferred set-up costs, expected lives of customer relationships, and tax reserves.



Concentrations of Credit Risk



Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term and long-term investments and trade receivables. These instruments are generally unsecured and uninsured. The Company maintains the majority of its cash balances with one financial
institution. Accounts receivable are typically unsecured and are derived from revenues earned from customers across several different geographic areas primarily located in the United States operating in a wide variety of industries and geographic
areas. No single customer accounted for greater than 10% of the Companys revenues in any of the periods presented. No customer represented greater than 10% of outstanding accounts receivable at September 30, 2003. At September 30, 2002, one
customer represented approximately 14% of outstanding accounts receivable. The Company typically does not require collateral or other security to support credit sales but provides 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 Companys foreign subsidiaries is the local currency in the country in which the subsidiary is located. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars at the
exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rates prevailing during the year. The translation adjustments resulting from this process were insignificant at September 30, 2003 and
2002. Gains and losses on foreign currency transactions are included in the consolidated statements of operations as incurred. To date, net gains and losses on foreign currency transactions have not been significant.



Recently Issued Accounting Standards



In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS 142. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 also requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will
continue to be amortized over their estimated useful lives. SFAS 142 is required to be adopted for fiscal years beginning after December 15, 2001; however, certain provisions of SFAS 142 must be applied to goodwill and other acquired intangible
assets for which the acquisition date is after June 30, 2001, even if an entity has not adopted SFAS 142 in its entirety. The provisions of SFAS 142 applied to the Companys goodwill and intangibles acquired as a result of its acquisition of
Captura on July 31, 2002. The Company adopted SFAS 142 in its entirety beginning October 1, 2002. The adoption of SFAS 142 in its entirety did not have a material impact on the Companys financial position, results of operations, or cash flows.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations
(SFAS 143). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The Company adopted SFAS 143 on October 1, 2002. The
adoption of SFAS 143 did not have a material impact on the Companys financial position, results of operations or cash flows.



In August 2001, the FASB issued SFAS 144, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (SFAS 121), and provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of SFAS 121, SFAS 144 significantly
changes the criteria that would have to be met to classify an asset as held-for-sale. SFAS 144 also supersedes the provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, with regard to reporting the effects of a disposal of a segment of a business, and will require expected future operating losses from discontinued
operations to be displayed in discontinued operations in the periods in which the losses are incurred. In addition, more dispositions will qualify for discontinued operations treatment in the statement of operations. The Company adopted SFAS 144 on
October 1, 2002. The adoption of SFAS 144 did not have a material impact on the Companys financial position, results of operations or cash flows.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit and Disposal Activities (SFAS 146). SFAS 146
revises the accounting for exit and disposal activities as prescribed by the consensus reached in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity. Commitment to a
plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, SFAS 146 requires exit or disposal costs be recorded when they are incurred and can be
measured at fair value. The provisions of SFAS 146 were effective prospectively for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 did not have a material effect on the Companys financial position or
results of operations.



In December 2002, the FASB issued SFAS
148. This statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure
provisions of SFAS 148 effective January 1, 2003.



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 the Company 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



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Notes to Consolidated Financial Statements(Continued)



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 the Company. The Company has 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 the Companys consolidated financial position or results of operations.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees
issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. In addition, FIN 45 also requires a guarantor to make significant new disclosures,
even when the likelihood of making any payments under the guarantee is remote. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in
an underlying obligation that is related to an asset, liability or an equity security of the guaranteed party. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002. The
disclosure requirements became effective for the Company on January 1, 2003. The adoption of FIN 45 did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (FIN 46). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the
primary beneficiary. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. Disclosure requirements apply to any financial statements issued after January 31, 2003. As amended by FASB
Staff Position No. FIN 46-6, FIN 46 is effective for variable interests in a variable interest entity created before February 1, 2003 at the end of the first interim or annual period ending after December 15, 2003. FIN 46 applies to any business
enterprise, public or private, that has a controlling interest, contractual relationship or other business relationship with a variable interest entity. The Company has no contractual relationship or other business relationship with a variable
interest entity; therefore, the adoption of FIN 46 is not expected to have a material effect on its consolidated financial position or results of operations.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149).
SFAS 149 is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133 in its entirety or as hybrid instruments with debt host contracts and embedded derivative features. In
addition, SFAS 149 clarifies the definition of a derivative by providing guidance on the meaning of initial net investments related to derivatives. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of
SFAS 149 did not have a material effect on the Companys consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS 150). 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 is effective
for all financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective as of October 1, 2003. The adoption of SFAS 150 is not expected to have a material impact on the Companys financial position, results
of operations or cash flows.



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Concur Technologies, Inc.



Notes to Consolidated Financial Statements(Continued)



In July 2003, the EITF reached a consensus on 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). On August 13, 2003, the FASB ratified the EITFs consensus. This issue addresses whether non-software
deliverables (elements) 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. In interpreting EITF 03-5, the Company has determined
that, in software arrangements that also include various subscription services, the software element is not essential to the functionality of the subscription services. Currently, in accordance with SOP 97-2, in those software arrangements that also
include various subscription services, the Company defers and then recognizes the subscription set-up fees in full upon commencement of the subscription services. The associated direct and incremental costs, such as labor and commissions, are
matched with the related subscription revenues, and therefore, are treated as deferred costs and then fully expensed upon commencement of the subscription services. When EITF 03-5 is adopted, because the Company has determined that the software
element is not essential to the functionality of the subscription services, the subscription set-up fees as well as the associated direct and incremental costs, such as labor and commissions, will be matched with the subscription monthly revenue and
recognized over the subscription service period. The provisions of EITF 03-5 will become effective for the Company on October 1, 2003. The Company is currently evaluating the impact that the application of this consensus will have on its
consolidated financial position and results of operations.



Reclassification



Certain prior period amounts have been reclassified to
conform to the current period presentation. As of September 30, 2002, deferred revenues were presented net of certain deferred setup costs totaling approximately $1.417 million. Such prior year amounts have been reclassified to conform to current
year presentation, and are presented separately as a component of current and long-term other assets.



Note 2.     Property and Equipment



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



|                               |  | September 30, |        
|------------------------------ |  | ------------- | -------
|                               |  | 2003          |        
|Computer hardware and software |  | $             | 15,928 
|Furniture and equipment        |  |               | 655    
|Leased equipment               |  |               | 6,008  
|Leasehold improvements         |  |               | 943    
|                               |  |               |        
|Property and equipment, gross  |  |               | 23,534 
|                               |  |               |        
|Less accumulated depreciation  |  |               | (22,203
|                               |  |               |        
|Property and equipment, net    |  | $             | 1,331  
|                               |  |               |        



Accumulated
depreciation on leased equipment was approximately $6.0 million and $6.0 million at September 30, 2003 and 2002, respectively.



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Notes to Consolidated Financial Statements(Continued)



Note 3.    Acquisition of Captura Software, Inc.



On July 31, 2002, the Company announced and completed its acquisition of
Captura (the Acquisition). Concur accounted for the Acquisition under the purchase method of accounting, in accordance with SFAS 141. Results of Capturas operations are included in the combined enterprises statement of
operations beginning August 1, 2002. The Company acquired Captura to strengthen its customer base and provide the Company with an additional source of predictable recurring revenue from customers of Capturas hosted solutions. Prior to the
Acquisition, Captura was a privately-held corporation that provided Corporate Expense Management solutions under its licensed or subscription services offerings.



In connection with the Acquisition, all of the outstanding equity securities of Captura were to be exchanged for up to
approximately 5.2 million shares of our common stock, representing approximately 16.6% ownership of the combined enterprise as of the date of the Acquisition, and up to approximately $2 million in cash. The Acquisition consideration of stock and
cash was subject to certain adjustments and escrow provisions, including the following: (a) an indemnity escrow of up to approximately 520,000 shares of Concurs common stock and up to approximately $200,000; (b) a reduction of the cash
consideration by amounts primarily relating to payments made by Captura to former Captura employees in connection with Capturas pre-existing retention bonus plan; and (c) a reduction in stock consideration of up to approximately 1.1 million
shares if certain additional customer agreements were not signed by September 30, 2002, as identified in the Acquisition agreement.



As of September 30, 2002, the Company estimated that up to approximately $1.1 million in cash was payable, and up to approximately 4.2 million shares of
Concurs common stock were issuable, to the sellers of Captura. Of the estimated shares, approximately 3.7 million shares were valued for purchase accounting purposes using the five-day average closing price of the Companys common stock
two days prior to and two days after July 31, 2002. The remaining approximately 520,000 shares were originally subject to contingencies and were valued for purchase accounting purposes using the closing price of the Companys common stock as of
September 30, 2002, the date the related contingencies were resolved. Estimated cash payable was included in accounts payable as of September 30, 2002, and the fair value of the estimated 4.2 million shares of common stock was included in common
stock to be issued.



On December 16, 2002, the Company entered
into an amendment to the agreement governing the Acquisition, which memorialized the resolution of all outstanding post-closing contingencies and escrow items with respect to the consideration under such agreement. The total consideration in the
Acquisition was 4,695,304 shares of Concurs common stock, representing approximately 15.2% ownership of the combined enterprise as of December 16, 2002. The additional shares issued were valued as of the date of the amendment, resulting in an
increase in stockholders equity of $1.9 million. The amendment also eliminated all cash consideration otherwise payable in connection with the Acquisition, which caused a reduction of $1.1 million in accounts payable. The increase in equity,
offset by the elimination of the cash consideration payable, resulted in an increase in goodwill related to the Acquisition of $0.8 million.



In addition, during fiscal 2003, certain adjustments related to determining the fair values of assets and liabilities acquired were recorded during the
allocation period to increase goodwill, and totaled approximately $0.7 million. These fair value adjustments were primarily the result of the identification and quantification of assets and liabilities that existed prior to the Acquisition.



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Notes to Consolidated Financial Statements(Continued)



The adjusted purchase consideration and preliminary purchase price allocation is as follows:



|                                                                                                                         |  | Balance atSeptember 30,2003      |      |   | Balance atSeptember 30,2002 |  
|------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ---- | - | --------------------------- | -
|                                                                                                                         |  | (in millions, except share data) |     
|Purchase Consideration                                                                                                   |  |                                  |      |   |                             |  
|Cash payable                                                                                                             |  | $                                |     |   |                             | $
|Concurs common stock, 4,695,304 shares issued and 4,160,410 share issuable at September 30, 2003 and 2002,
respectively |  |                                  | 10.8 |   |                             |  
|Transaction costs                                                                                                        |  |                                  | 0.7  |   |                             |  
|                                                                                                                         |  |                                  |      |   |                             |  
|                                                                                                                         |  | $                                | 11.5 |   |                             | $
|Purchase Price Allocation                                                                                                |  |                                  |      |   |                             |  
|Cash and cash equivalents                                                                                                |  | $                                | 1.3  |   |                             | $
|Accounts receivable                                                                                                      |  |                                  | 3.4  |   |                             |  
|Prepaid expenses and other current assets                                                                                |  |                                  | 0.8  |   |                             |  
|Property and equipment                                                                                                   |  |                                  | 0.4  |   |                             |  
|Deposits and other assets                                                                                                |  |                                  | 0.3  |   |                             |  
|In-process research and development                                                                                      |  |                                  | 1.3  |   |                             |  
|Acquired customer base intangible                                                                                        |  |                                  | 5.7  |   |                             |  
|Accounts payable                                                                                                         |  |                                  | (2.0 | ) |                             |  
|Accrued payroll and benefits                                                                                             |  |                                  | (0.4 | ) |                             |  
|Deferred revenue                                                                                                         |  |                                  | (1.8 | ) |                             |  
|Debt obligations                                                                                                         |  |                                  | (1.2 | ) |                             |  
|                                                                                                                         |  |                                  |      |   |                             |  
|                                                                                                                         |  | $                                | 7.8  |   |                             | $
|                                                                                                                         |  |                                  |      |   |                             |  
|Goodwill Relating to Acquisition                                                                                         |  | $                                | 3.7  |   |                             | $
|                                                                                                                         |  |                                  |      |   |                             |  



The acquired customer
base intangible has an expected life of five years, based on the expected cash flows from the customer contracts, and therefore the Company is amortizing this intangible over a five year period. In accordance with SFAS 142, goodwill will not be
amortized, but will instead be tested for impairment annually (see Note 1). In connection with this acquisition, the Company acquired significant net operating losses and resulting deferred tax assets. A valuation allowance in the full amount of the
net deferred tax asset balance has been established as sufficient uncertainty exists regarding the ability to realize such tax assets in the future. If, in the future, the Company is able to realize these deferred tax assets, the valuation allowance
will first be relieved against goodwill.



Basis, methods and estimates used
in the purchase consideration and allocation



The company
engaged a third-party appraiser to perform the valuation of the in-process research and development and intangible assets acquired in the Acquisition, and to assist in the allocation of the purchase price. The following values have been allocated to
the intangible assets and acquired in-process research and development based on their fair values as determined by the appraisal: $5.7 million to acquired customer base intangible, and $1.3 million to acquired in-process research and development.
The excess of the total purchase price over the fair value of all identifiable assets acquired, net of liabilities, amounted to $3.7 million and $2.2 million in goodwill as of September 30, 2003 and 2002, respectively.



In-process research and development



As a result of the Acquisition and the appraisal, certain elements of
Capturas technology were identified as having value for Concurs current and future development efforts, and accordingly were identified as in-process



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Notes to Consolidated Financial Statements(Continued)



research and development. Due to the difficulties in estimating the future incremental revenue stream these elements would contribute, the net income
valuation approach would not have provided a meaningful result. Therefore, these elements were valued using a hybrid cost savings approach, under which the cost to reproduce the technology was estimated. This cost was then allocated to
the remaining development period required to integrate these elements into Concurs future platform. The tax-effected cost savings were then discounted to present value. Using this methodology, the value of acquired in-process research and
development was estimated to be $1.3 million. This amount was charged to operations as in-process research and development costs in the period during which the Acquisition occurred.



Acquisition Costs



Direct and incremental transaction fees included all professional fees paid in relation to the transaction, such as legal, accounting, and consulting
charges, totaling approximately $0.7 million. As of September 30, 2003, the remaining unpaid balance of acquired liabilities and transaction costs totaled approximately $0.5 million.



Intangible assets



Concurs intangible assets resulting from the Captura Acquisition were comprised of the acquired customer base intangible asset and goodwill. The
acquired customer base intangible asset was based primarily on all Captura customer contracts signed as of September 30, 2002, ranging in term from 2 to 5 years, and having an average remaining life of 2 years.



Due to Capturas limited historical experience, most of the acquired
contracts were assumed to renew for one 3-year term. The future cash flows provided by these contracts are almost entirely subscription based, and as a result, will generate an equal and ratable stream of monthly cash flows.



In the valuation process, a form of the income approach, commonly referred to
as the excess-earnings method, was used to estimate the value of the acquired customer base. The excess-earnings method captures the value of an intangible asset by discounting to present value the earnings generated by the asset that remain after
deduction of a return on other contributory assets. These other assets include working capital, fixed assets, and other intangible assets.



The estimated net cash flow attributed to the customer base was discounted to present value. Based on the excess earnings method, the value of the
acquired customer base was estimated to be $5.7 million. The acquired customer base intangible will be amortized over the anticipated life of those relationships, which was estimated to be five years.



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Notes to Consolidated Financial Statements(Continued)



The following table summarizes the timing and amounts of amortization of the acquired customer base
intangible asset:



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



Note
4.    Long-term Debt Obligations



In
March 2002, the Company entered into a loan and security agreement with a bank for a $1.0 million equipment credit facility (Term I Advance). The loan and security agreement for the Term I Advance allowed for borrowings in the amount of
actual equipment purchases made through December 2002. As of September 30, 2003, the outstanding indebtedness under the Term I Advance was $451,000, bears interest at the banks prime rate (4.00% at September 30, 2003), and matures in December
2004.



In September 2002, the Company amended the terms of the
loan and security agreement to add Captura as a borrower, and to include an additional term loan of $0.4 million, the proceeds of which were used to refinance certain indebtedness owed by Captura to another creditor. As of September 30, 2003, the
outstanding indebtedness under the Term II Advance was $213,000, 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, 2002.



In September 2003, the Company amended the terms of the loan
and security agreement to:



| |  |  | Add a revolving line of credit (Revolving Advances) in an amount not to exceed the lesser of 80% of eligible accounts receivable or $5.0 million, bearing interest at a
rate equal to the banks prime rate, of which borrowings may be repaid and reborrowed at any time prior to September 23, 2004, at which time all advances under the Revolving Advances become due and payable. As of September 30, 2003, no amounts
were borrowed or due under this Revolving Advances line of credit.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Add an additional equipment facility (Term III Advance) for advances in the amount of actual equipment purchases, up to $1.0 million, made through September 25, 2004, at
which time no additional borrowings are available under this Term III Advance. The Term III Advance bears interest at a rate equal to the banks prime rate and matures on September 26, 2006. As of September 30, 2003, no amounts were borrowed or
due under the Term III Advance.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Eliminate the restricted cash balance requirement of $1.4 million.
| | - |  | ------------------------------------------------------------------



| |  |  | Add a covenant requiring a minimum adjusted quick ratio of at least 1.5 to 1.0 at all times, measured as of the last day of each calendar month. The minimum adjusted quick ratio is
calculated by dividing the Companys quick assets by its current liabilities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Notes to Consolidated Financial Statements(Continued)



| |  |  | Add a covenant requiring a minimum tangible net worth of at least $6.0 million at all times, measured as of the last day of each calendar month.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



All advances under the amended loan and security agreement call for equal
monthly principal payments plus accrued interest, respective of the amounts borrowed, to be made through their respective maturity dates, unless repaid at dates earlier than their respective maturity dates. The Company may prepay any advance without
penalty or premium. The amended loan and security agreement is secured by a blanket lien against all corporate assets. The Company must also maintain its principal depository and operating accounts with the bank or one of its affiliates.
Additionally, under the terms of the amended loan and security agreement, the Company is 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 the Companys securities. The company was in compliance with all applicable covenants as of September 30, 2003.



In December 2002, the Company financed its directors and officers insurance policy renewal. Borrowings bear interest at 6.25% and mature in
November 2003. As of September 30, 2003, the balance owed on this policy was $97,000.



Long-term debt at September 30, 2003, and 2002 consists of:



|                                          |  | 2003           |      |   | 2002 |  
|----------------------------------------- |  | -------------- | ---- | - | ---- | -
|                                          |  | (In thousands) |     
|Bank equipment credit facility            |  | $              | 664  |   |      | $
|Bank term loan                            |  |                |     |   |      |  
|Directors and officers insurance policy |  |                | 97   |   |      |  
|                                          |  |                |      |   |      |  
|Total long-term debt                      |  |                | 761  |   |      |  
|                                          |  |                |      |   |      |  
|Less current portion                      |  |                | (654 | ) |      |  
|                                          |  |                |      |   |      |  
|Long-term debt, net of current portion    |  | $              | 107  |   |      | $
|                                          |  |                |      |   |      |  



Future maturities of
long-term debt as of September 30, 2003, are as follows:



|            |  | (In thousands)
|----------- |  | --------------
|Fiscal 2004 |  | $             
|Fiscal 2005 |  |               
|            |  |               
|Total       |  | $             
|            |  |               



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Notes to Consolidated Financial Statements(Continued)



Note 5.    Commitments



The Company leases office space and equipment under non-cancelable operating and capital leases. The Company leases its
headquarters in Redmond, Washington under an operating lease expiring in May 2005. The Company has the option to extend the Redmond lease for one additional five-year term. Total rent expense for fiscal 2003, 2002, and 2001 was $1.9 million, 2.1
million, and $2.5 million, respectively. The Company is required to provide a $50,000 letter of credit as security for the lease.



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



|                                                       |  | CapitalLeases |      |   | OperatingLeases |   | ThirdPartyHostingServices
|------------------------------------------------------ |  | ------------- | ---- | - | --------------- | - | -------------------------
|Fiscal year ended September 30:                        |  |               |      |   |                 |   |                          
|2004                                                   |  | $             | 119  |   |                 | $ | 1,868                    
|2005                                                   |  |               |     |   |                 |   | 1,295                    
|2006                                                   |  |               |     |   |                 |   |                         
|2007                                                   |  |               |     |   |                 |   |                         
|                                                       |  |               |      |   |                 |   |                          
|Total future minimum payments                          |  |               | 119  |   |                 | $ | 3,163                    
|                                                       |  |               |      |   |                 |   |                          
|Less amount representing interest                      |  |               | (5   | ) |                 |   |                          
|                                                       |  |               |      |   |                 |   |                          
|Present value of net minimum capital lease obligations |  |               | 114  |   |                 |   |                          
|Less current portion of obligations                    |  |               | (114 | ) |                 |   |                          
|                                                       |  |               |      |   |                 |   |                          
|Capital lease obligations, net of current portion      |  | $             |     |   |                 |   |                          
|                                                       |  |               |      |   |                 |   |                          



Deferred rent expense
relating to office leases was $92,000 and $110,000 as of September 30, 2003 and 2002, respectively. These amounts have been included in long-term obligations in the accompanying balance sheets.



At September 30, 2003 and 2002, restricted cash includes $500,000 to secure
the daily transactions processed in connection with our middle-market subscription services.



Note 6.    Income Taxes



Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of the Companys deferred tax assets and liabilities at September 30, 2003 and 2002 are as follows (in thousands):



|                                                               |  | 2003 |         |   | 2002 |  
|-------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Deferred tax assets:                                           |  |      |         |   |      |  
|Federal net operating loss carryforwards                       |  | $    | 82,521  |   |      | $
|Tax credit carryforwards                                       |  |      | 5,900   |   |      |  
|Expenses not currently deductible, deferred revenue, and other |  |      | 4,340   |   |      |  
|State deferred tax attributes                                  |  |      | 5,229   |   |      |  
|International net operating losses                             |  |      | 1,804   |   |      |  
|                                                               |  |      |         |   |      |  
|Total deferred tax assets                                      |  |      | 99,794  |   |      |  
|Valuation allowance                                            |  |      | (99,794 | ) |      |  
|                                                               |  |      |         |   |      |  
|                                                               |  | $    |        |   |      | $
|                                                               |  |      |         |   |      |  



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Notes to Consolidated Financial Statements(Continued)



A valuation allowance in the full amount of the net deferred tax asset balance has been established
as sufficient uncertainty exists regarding the ability to realize such tax assets in the future. The net change in the valuation allowance during the years ended September 30, 2003 and 2002 was $1.6 million and $41.5 million, respectively.



The difference between the federal statutory tax rate and the
effective tax rate of zero is due to the Company incurring net tax operating losses for all years since inception. At September 30, 2003, the Company had federal net operating loss and credit carryforwards in the amount of $248.6 million, which will
expire between 2010 and 2023. Changes in ownership, as defined by Section 382 of the IRS Code, may limit the amount of net operating loss carryforwards used in any one year.



Note 7.    Stock Option Plans and Employee Stock Purchase Plan



The Company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 the Companys 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. The Company
no longer grants stock options under the 1994 Plan.



In August
1998, the 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 authorizes
issuance of up to 7,490,000 shares of common stock upon the exercise of stock options or otherwise pursuant to the 1998 Plan. The Director Plan authorizes issuance of up to 640,000 shares of common stock upon the exercise of stock options. As of
September 30, 2003, the ESPP authorizes the issuance of up to 1,536,298 shares of common stock, subject to automatic annual increases as stated in the ESPP. During fiscal 2003, 2002, and 2001, employees purchased 310,133 shares, 258,224 shares, and
529,869 shares, respectively, under the ESPP. As of September 30, 2003, there are 206 shares still 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.



In December 1999, the Board of Directors 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.



Stock options granted by the Company vest at various rates as determined by the Board of Directors, typically over four years, and remain exercisable for a period not to exceed ten years.



In December 2001, the Company 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 such employees under the Companys 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 the Company on the date that 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 by the Company for exchange. Approximately 350,000 options were cancelled under the program. The replacement grant date occurred on



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Notes to Consolidated Financial Statements(Continued)



July 15, 2002, and the Company issued options to purchase approximately 230,000 shares of common stock, each at an exercise price of $1.87 per share,
the closing price of a share of the Companys common stock as reported on the NASDAQ National Market on that date. For financial reporting purposes, there were no stock compensation charges as a result of the implementation of the program.



A summary of the Companys 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, 2003 |   | September 30, 2002 |                              | September 30, 2001
|---------------------------- |  | ------------------ | - | ------------------ | ---------------------------- | ------------------
|                             |  | Options            |   |                    | WeightedAverageExercisePrice |                   
|Balance at beginning of year |  | 6,701,440          |   |                    | $                            | 4.42              
|Granted                      |  | 1,984,274          |   |                    |                              | 3.28              
|Exercised                    |  | (980,964           | ) |                    |                              | 2.90              
|Cancelled                    |  | (1,049,126         | ) |                    |                              | 4.53              
|                             |  |                    |   |                    |                              |                   
|Balance at end of year       |  | 6,655,624          |   |                    |                              | 4.27              
|                             |  |                    |   |                    |                              |                   
|Exercisable at end of year   |  | 3,585,013          |   |                    |                              | 5.68              
|                             |  |                    |   |                    |                              |                   



Information regarding
the weighted-average remaining contractual life and weighted-average exercise price of options outstanding and options exercisable at September 30, 2003 for selected exercise price ranges is as follows:



|                         |  | Options Outstanding |  | Options Exercisable                      
|------------------------ |  | ------------------- |  | -----------------------------------------
|Range of Exercise Prices |  | NumberOutstanding   |  | Weighted AverageRemainingContractual Life
|$  0.13    0.38         |  | 581,863             |  | 3.65 years                               
|0.42    0.85            |  | 937,181             |  | 8.11                                     
|0.91    1.48            |  | 706,954             |  | 7.38                                     
|1.54    1.63            |  | 151,825             |  | 7.33                                     
|1.69    1.78            |  | 1,342,868           |  | 9.00                                     
|1.80    3.59            |  | 680,763             |  | 8.30                                     
|3.69    4.05            |  | 143,754             |  | 8.14                                     
|4.06    6.00            |  | 1,006,820           |  | 7.00                                     
|6.88  10.25             |  | 194,026             |  | 7.89                                     
|10.48  13.00            |  | 578,048             |  | 6.47                                     
|19.06  24.50            |  | 242,572             |  | 6.20                                     
|25.13  34.00            |  | 88,950              |  | 5.55                                     
|                         |  |                     |  |                                          
|                         |  | 6,655,624           |  | 7.40                                     
|                         |  |                     |  |                                          



Note
8.    Stockholders Equity



Private Placement
to SAFECO and Nortel



In February 2000, the Company
entered into a Stock Purchase Agreement with SAFECO Corporation and Nortel Networks, Inc. for the purchase of 1,073,929 and 429,573 shares, respectively, of the Companys common stock at a purchase price of $23.28 per share, which was the
closing price of the common stock on that date. The



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Notes to Consolidated Financial Statements(Continued)



Company 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 the Companys products through their respective distribution networks and agreed to undertake joint marketing activities with the Company to promote
certain of its products. Revenues generated from the joint marketing activities, if any, would be shared between the Company and the respective reseller. Through September 30, 2003, the Company has not recognized any revenue under these
arrangements.



Under the terms of these agreements, the Company
has granted SAFECO and Nortel warrants to purchase up to 3,750,000 and 1,500,000 shares of common stock, respectively. For each of these warrant holders, 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 percent of the fair value of the common stock price on prescribed dates. In the event these
milestones are achieved or the achievement becomes probable, the Company may be required to record a significant non-cash charge throughout the remaining related service period to the extent that the fair value of the common stock exceeds the
exercise price of the warrants at that time. The Company has not recorded an expense associated with these agreements to date and is uncertain whether these milestones will be achieved in the future. As of September 30, 2003, warrants to purchase
2,800,000 shares of the Companys common stock under these agreements have expired. Of the remaining outstanding warrants, warrants to purchase 1,050,000 shares will expire on August 15, 2004 and warrants to purchase the remaining 1,400,000
shares will expire on August 15, 2005.



Stock Repurchase Program



In January 2003, the Companys Board of Directors
authorized a stock repurchase program under which the Company may repurchase up to one million shares of its 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 has been made as of September 30, 2003.



Shares Reserved



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



|                                   |  | September 30, 2003
|---------------------------------- |  | ------------------
|Outstanding stock options          |  | 6,655,624         
|Stock options available for grant: |  |                   
|1999 Plan                          |  | 541,058           
|1998 Plan                          |  | 2,744,012         
|Director Plan                      |  | 299,417           
|Employee Stock Purchase Plan       |  | 206               
|Warrants to purchase common stock  |  | 2,450,000         
|                                   |  |                   
|Total shares reserved              |  | 12,690,317        
|                                   |  |                   



Note
9.    Business Restructuring



In June
2000, the Company discontinued Concur Procurement, its corporate procurement application, terminated the Commerce Network, discontinued the planned integration of Concur Human Resources products group with its other Corporate Expense Management
products, and effected a workforce reduction of 68



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Notes to Consolidated Financial Statements(Continued)



employees. As a result of this strategic decision, the Company recorded a restructuring charge of $3.4 million. During fiscal 2001, the Company revised its
estimates related to amounts needed for severance and termination benefits, facilities, and product marketing commitments, resulting in a reversal of restructuring charges previously recorded in the amount of $427,000. The reduction in these
estimated costs is shown as a reduction in restructuring costs in the accompanying statement of operations for the period ended September 30, 2001. No liabilities remained related to this restructuring as of September 30, 2001.



In March 2001, the Company sold its Concur Human Resources product line to
MBH Solutions, Inc. (MBH) to further its objective of focusing its resources on the Corporate Expense Management market. The transaction consisted of the sale of certain assets to, and the assumption of certain obligations by, MBH. Under
the terms of the transaction, the Company received $100,000 on the closing of the transaction, and recorded it as a gain on sale, and is to receive future installment payments over three years totaling $2.3 million. The gain related to these
installment payments will be recognized if and when such payments are received. As of September 30, 2003, the Company has received none of the scheduled payments. This transaction resulted in a workforce reduction of 42 employees, the majority of
who continued employment with MBH. All employees were terminated by June 30, 2001.



As a result of this transaction and related restructuring costs, the Company recorded a net charge of $765,000 in fiscal 2001, which consisted of estimated restructuring liabilities in the amount of $943,000 and a
gain on the sale of assets to, and assumption of liabilities by, MBH in the amount of $178,000. Assets purchased by MBH included computer equipment and software and certain accounts receivable. Additionally, MBH assumed obligations to provide
post-contract customer support to certain customers. As of September 30, 2001, the accrued liability was decreased by $72,000 due to a change in estimate of future amounts required, which is reflected as a decrease of the net restructuring charge in
the accompanying statement of operations.



A summary of
restructuring charges recorded in fiscal 2003, 2002 and 2001 is as follows (in thousands):



|                                                              |  | 2003 |   | 2002 |   | 2001 | 
|------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | 
|Restructuring liabilities recorded                            |  | $    |  |      | $ |     | 
|Reduction of liabilities based on change in estimate          |  |      |  |      |   |     | 
|Gain on sale of assets to, net of liabilities assumed by, MBH |  |      |  |      |   |     | 
|                                                              |  |      |   |      |   |      | 
|Total restructuring charges                                   |  | $    |  |      | $ |     | 
|                                                              |  |      |   |      |   |      | 



Note
10.    International Revenues



The
Company licenses and markets its products primarily in the United States, and operates in a single industry segment. Information regarding revenues by geographic region for the past three fiscal years is as follows (in thousands):



|               |  | 2003 |        | 2002 |   | 2001  
|-------------- |  | ---- | ------ | ---- | - | ------
|Country:       |  |      |        |      |   |       
|United States  |  | $    | 49,105 |      | $ | 38,512
|Europe         |  |      | 4,714  |      |   | 4,393 
|Other          |  |      | 2,918  |      |   | 2,192 
|               |  |      |        |      |   |       
|Total revenues |  | $    | 56,737 |      | $ | 45,097
|               |  |      |        |      |   |       



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Notes to Consolidated Financial Statements(Continued)



Note 11.    Related-party Transactions



In November 1998, the Company 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.
The Company and ADP also agreed to jointly market the Companys Corporate Expense Management products and services to ADP customers. An officer of ADP held a seat on the Companys Board of Directors between March 1999 and December 2002. In
May 2000, the Company and ADP entered into a second agreement under which ADP will market certain co-branded versions of Concurs ASP products on a commission basis. The agreement is effective until May 2005, unless terminated by either party.
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 the Companys results of operations. Total costs under these agreements prior to the board members departure were
$0.4 million, $1.1 million, and $0.7 million for fiscal 2003, 2002, and 2001, respectively.



In March 2000, the Company recorded $2.0 million in license revenue from an agreement to license Concur Expense, Concur Procurement, and Concur Human Resources to a stockholder of the Company. As a result of the
Companys decision to discontinue Concur Procurement in June 2000, the stockholder returned Concur Procurement and the Company refunded $1.0 million for the return of this software. This refund was recorded as a reduction in license revenue in
June 2000. During fiscal 2003, 2002, and 2001, the Company recorded $0, $0, and $300,000, respectively, in revenues from this stockholder.



In December 2000, the Company recorded $1.3 million in license revenue from an agreement to license Concur Expense. An officer of this customer held a
seat on the Company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, $1.4 million, and $2.5 million in fiscal 2003, 2002, and 2001,
respectively.



Note 12.    Royalty Agreements



The Company has entered into various agreements that
allow the Company to incorporate licensed technology into its products or that allow the Company the right to sell separately the licensed technology. The Company incurs royalty fees under these agreements that are based on a predetermined fee per
license sold. Royalty costs incurred under these agreements are recognized as products are licensed and are included in cost of license revenues. These amounts totaled approximately $526,000, $414,000, and $507,000 for the years ended September 30,
2003, 2002, and 2001, respectively.



Note
13.    Contingencies



Litigation



In July 2001, the Company and several of its 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. The complaints generally allege claims against the underwriters of the Companys initial public
offering in December 1998, the Company, and several of its current and former executives, based on alleged errors and omissions concerning underwriting terms in the prospectus for the Companys initial public offering. The plaintiffs in these
lawsuits seek damages in unspecified amounts, which, if awarded, could be substantial. In April 2002, these lawsuits were consolidated. In October 2002, the court dismissed the individual defendants from the consolidated lawsuit, without prejudice,
pursuant to a stipulated agreement between the parties. In



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Notes to Consolidated Financial Statements(Continued)



February 2003, the presiding judge denied a motion to dismiss all claims. In July 2003, the Company 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 the Company believes that the plaintiffs claims have no merit, it has decided to participate in the proposed settlement
to avoid the cost and distraction of continued litigation. The Company does not believe that the proposed settlement will have any material adverse effect on its 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 the Company and the individual defendants without any admission of wrongdoing by the
Company 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, the Company would continue to defend itself vigorously.



Product Warranty and Indemnification Obligations



The Company provides its software products and related services to its 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 customers in the event the Companys software or services 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 the
Company to replace an infringing product. The Company also enters into similar limited indemnification terms in agreements with certain strategic business partners and vendors. The Company accounts for potential warranty claims in accordance with
the guidance in SFAS No. 5, Accounting for Contingencies, and bases its estimates on historical experience and current expectations. To date, the Company has experienced minimal warranty claims and has not had to reimburse any of its
customers for any losses related to the limited indemnification described above.



Note 14.    Retirement 401(k) Plan



The Company sponsors a 401(k) Profit Sharing and Trust Plan (the Plan) that is available to substantially all employees. Each employee may elect to contribute up to 20% of pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions to the Plan are subject to statutory limitations regarding maximum contributions. There are no matching contributions by the Company.



67



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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, 2003 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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, 2003. The information required by this item is incorporated herein by reference to the Proxy Statement.



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, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K



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



|1. |  | Financial Statements                                                                                                                                                                                                                                      |  |   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|   |  | Consolidated Financial Statements of Concur Technologies, Inc.                                                                                                                                                                                            |  |   
|   |  | Independent Auditors report as of and for the year ended September 30, 2003                                                                                                                                                                              |  | 38
|   |  | Independent Auditors report as of and for the years ended September 30, 2002 and 2001                                                                                                                                                                    |  | 39
|   |  | Consolidated Balance Sheets as of September 30, 2003 and 2002                                                                                                                                                                                             |  | 40
|   |  | Consolidated Statements of Operations for the years ended September 30, 2003, 2002 and 2001                                                                                                                                                               |  | 41
|   |  | Consolidated Statements of Stockholders Equity for the years ended September 30, 2003, 2002, and 2001                                                                                                                                                    |  | 42
|   |  | Consolidated Statements of Cash Flows for the years ended September 30, 2003, 2002, and 2001                                                                                                                                                              |  | 43
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                |  | 44
|   |  |                                                                                                                                                                                                                                                          
|2. |  | Schedule                                                                                                                                                                                                                                                  |  |   
|   |  |                                                                                                                                                                                                                                                          
|   |  | The following financial statement schedule for the years ended September 30, 2003, 2002, and 2001 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: |  |   
|   |  |                                                                                                                                                                                                                                                          
|   |  | Independent Auditors report on Financial Statement Schedule for the year ended September 30, 2003                                                                                                                                                        |  | 74
|   |  | Independent Auditors report on Financial Statement Schedule for the years ended September 30, 2002 and 2001                                                                                                                                              |  | 75
|   |  | Schedule IIValuation and Qualifying Accounts                                                                                                                                                                                                             |  | 76
|   |  |                                                                                                                                                                                                                                                          
|   |  | 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                     
|2.01          |  | Agreement and Plan or Reorganization, dated July 31, 2002, among the Registrant, Canoe Acquisition Corp., Captura Software, Inc., and Fred Harman, as Representative.                                                                          |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|2.02          |  | Amendment to the Agreement and Plan of Reorganization by and among Concur Technologies, Captura, on behalf of itself and as successor in interest to Canoe, Representative, and
former stockholders of Capture, dated as of December 16, 2002. |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.01          |  | Registrants Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on December 24, 1998.                                                                                                                |  | S-8                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.02          |  | Certificate of Designations of Series A Junior Preferred Stock of Registrant.                                                                                                                                                                  |  | 8-A                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.03          |  | Registrants Amended and Restated Bylaws, as adopted on April 17, 2001.                                                                                                                                                                        |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.01          |  | Specimen Stock Certificate representing shares of Registrants Common Stock.                                                                                                                                                                   |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.02          |  | Third Amended and Restated Information and Registration Rights Agreement dated May 26, 1999.                                                                                                                                                   |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.03          |  | Amendment to Third Amended and Restated Information and Registration Rights Agreement dated March 23, 2000.                                                                                                                                    |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.04          |  | Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001.                                                                                                                                                                 |  | 8-A                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.01         |  | Registrants Amended and Restated 1994 Stock Option Plan and related documents.***                                                                                                                                                             |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.02         |  | Registrants Amended 1998 Equity Incentive Plan.***                                                                                                                                                                                            |  | 10-Q                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.03         |  | Registrants 1998 Employee Stock Purchase Plan and related documents.***                                                                                                                                                                       |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.04         |  | Registrants Amended 1998 Directors Stock Option Plan.***                                                                                                                                                                                      |  | 10-Q                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.05         |  | Registrants 401(k) Profit Sharing and Trust Plan.***                                                                                                                                                                                          |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.06         |  | Registrants 1999 Stock Incentive Plan.***                                                                                                                                                                                                     |  | S-8                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.07         |  | Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. ***                                                                                                                                  |  | S-1                      



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|              |  |                                                                                                                                                                                                                                                                          |  | Incorporated by Reference
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                      |  | Form                     
|10.08         |  | Facility Lease, dated October 31, 1997, between Registrant and CarrAmerica Realty Corporation, as amended on April 10, 1998.                                                                                                                                             |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.09         |  | Third Amendment to Lease, dated February 11, 1999, between Registrant and CarrAmerica Realty Corporation.                                                                                                                                                                |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.10         |  | Sublease, dated February 1, 1999, between Registrant and Emerging Technology Solutions, Inc. (ETSI).                                                                                                                                                                     |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.11         |  | Facility Sublease Agreement, dated September 23, 1999, between Registrant and Cardiac Pacemakers, Inc.                                                                                                                                                                   |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.12         |  | Stock Purchase Agreement, dated February 22, 2000, among the Company, SAFECO Corporation and Nortel Networks, Inc.                                                                                                                                                       |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.13         |  | Joint Marketing and Sales Representative Agreement dated May 17, 2000 between Registrant and ADP, Inc.*                                                                                                                                                                  |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.14         |  | Addendum to the Joint Marketing and Sales Representative Agreement, dated November 29, 2001, between Registrant and ADP, Inc.**                                                                                                                                          |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.15         |  | Second Addendum to the Joint Marketing and Sales Representative Agreement, dated May 28, 2002, between Registrant and ADP, Inc.**                                                                                                                                        |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.16         |  | Third Addendum to the Joint Marketing and Sales Representative Agreement, dated May 28, 2002, between Registrant and ADP, Inc.**                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.17         |  | Letter Agreement, dated April 19, 2000, between Registrant and John F. Adair.***                                                                                                                                                                                         |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.18         |  | Letter Agreement, dated June 29, 2000, between Registrant and Kyle R. Sugamele.***                                                                                                                                                                                       |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.19         |  | Letter Agreement, dated May 17, 2001, between Registrant and Simon Nelson.***                                                                                                                                                                                            |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|16.01         |  | Letter addressed to the Securities and Exchange Commission, dated July 9, 2003, from Ernst & Young LLP regarding the statements made by the Registrant in Item 4 of a report on
8-K filed with the Securities and Exchange Commission by the Registrant on July 9, 2003. |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|21.01         |  | List of Registrants subsidiaries.                                                                                                                                                                                                                                       |  |                         



71



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|              |  |                                                                                                                                            |  | Incorporated by Reference
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                        |  | Form                     
|23.01         |  | Consent of Deloitte & Touche LLP, Independent Auditors.                                                                                    |  |                         
|              |  |                                                                                                                                            |  |                          
|23.02         |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                        |  |                         
|              |  |                                                                                                                                            |  |                          
|31.01         |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).                                |  |                         
|              |  |                                                                                                                                            |  |                          
|31.02         |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).                                |  |                         
|              |  |                                                                                                                                            |  |                          
|32.01         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rules 13a-14(b) and 15d-14(b).**** |  |                         
|              |  |                                                                                                                                            |  |                          
|32.02         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rules 13a-14(b) and 15d-14(b).**** |  |                         

---

|* |  | Confidential treatment has been granted with respect to certain portions of this agreement. Such portions were omitted from the respective filing and were filed separately with the
Securities and Exchange Commission.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the
Securities and Exchange Commission.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | 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.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



On July 9, 2003, the registrant filed a Current Report on Form 8-K reporting the registrants change in its certifying accountant from Ernst &
Young LLP to Deloitte & Touche LLP under Item 4.



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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 22, 2003 |  | By:                      
|                  |  |                          



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             
|------------------------------------------------------------- |  | ------------------------------------------------------------ |  | -----------------
|Principal Executive Officer:                                  |  |                                                              |  |                  
|                                                              |  |                                                             
|/s/    S. STEVEN
SINGHS. Steven
Singh                         |  | President, Chief Executive Officer and Chairman of the Board |  | December 22, 2003
|                                                              |  |                                                             
|Principal Financial Officer and Principal Accounting Officer: |  |                                                              |  |                  
|                                                              |  |                                                             
|/s/    JOHN F.
ADAIRJohn F.
Adair                             |  | Chief Financial Officer                                      |  | December 22, 2003
|                                                              |  |                                                             
|Directors:                                                    |  |                                                              |  |                  
|                                                              |  |                                                             
|/s/    MICHAEL W.
HILTONMichael W.
Hilton                     |  | Director                                                     |  | December 22, 2003
|                                                              |  |                                                             
|/s/    NORMAN A.
FOGELSONGNorman A.
Fogelsong                 |  | Director                                                     |  | December 22, 2003
|                                                              |  |                                                             
|/s/    MICHAEL J.
LEVINTHALMichael J.
Levinthal               |  | Director                                                     |  | December 22, 2003
|                                                              |  |                                                             
|/s/    ROBERT
FINZIRobert Finzi                               |  | Director                                                     |  | December 22, 2003
|                                                              |  |                                                             
|/s/    WILLIAM W.
CANFIELDWilliam W.
Canfield                 |  | Director                                                     |  | December 22, 2003



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INDEPENDENT AUDITORS REPORT

ON FINANCIAL STATEMENT SCHEDULE



The Board of Directors and Stockholders

Concur Technologies, Inc.

Redmond, Washington



We have
audited the consolidated financial statements of Concur Technologies, Inc. and subsidiaries (the Company) as of September 30, 2003, and for the year then ended and have issued our report thereon dated December 19, 2003; such report is
included elsewhere in this Form 10-K. Our audit also included the financial statement schedule of the Company, listed in Item 15. This financial statement schedule is the responsibility of the Companys management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.



DELOITTE & TOUCHE LLP



Seattle, Washington

December 19, 2003



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##### Table of Contents

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

ON FINANCIAL STATEMENT SCHEDULE



We have audited the consolidated financial statements of Concur Technologies,
Inc. as of September 30, 2002, and for each of the two years in the period ended September 30, 2002, and have issued our report thereon dated November 5, 2002 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the
financial statement schedule for each of the two years in the period ended September 30, 2002, listed in Item 14 (a) of this annual report on Form 10-K. This schedule is the responsibility of the management of Concur Technologies, Inc. Our
responsibility is to express an opinion based on our audits.



In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements referred to above taken as a whole, presents fairly in all material respects the information set forth
therein.



ERNST & YOUNG LLP



Seattle, Washington

November 5, 2002



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SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS



CONCUR TECHNOLOGIES, INC.



September 30, 2003



(in thousands)



|Column A                                   |  | Column B                       |       | Column C Additions            |   | Column D |                                         |  | Column E               
|------------------------------------------ |  | ------------------------------ | ----- | ----------------------------- | - | -------- | --------------------------------------- |  | -----------------------
|Description                                |  | Balance at Beginning of Period |       | Charged to Costs and Expenses |   |          | Charged to Other Accounts Describe (1) |  | Deduction Describe (2)
|Year ended September 30, 2003:             |  |                                |       |                               |   |          |                                         |  |                        
|Deducted from asset accounts:              |  |                                |       |                               |   |          |                                         |  |                        
|Allowances for sales and doubtful accounts |  | $                              | 1,020 |                               | $ | (145     | )                                       |  | $                      
|Year ended September 30, 2002:             |  |                                |       |                               |   |          |                                         |  |                        
|Deducted from asset accounts:              |  |                                |       |                               |   |          |                                         |  |                        
|Allowances for sales and doubtful accounts |  |                                | 1,769 |                               |   | (255     | )                                       |  |                        
|Year ended September 30, 2001:             |  |                                |       |                               |   |          |                                         |  |                        
|Deducted from asset accounts:              |  |                                |       |                               |   |          |                                         |  |                        
|Allowances for sales and doubtful accounts |  |                                | 3,045 |                               |   | 189      |                                         |  |                        

---

|(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                     
|2.01          |  | Agreement and Plan or Reorganization, dated July 31, 2002, among the Registrant, Canoe Acquisition Corp., Captura Software, Inc., and Fred Harman, as Representative.                                                                          |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|2.02          |  | Amendment to the Agreement and Plan of Reorganization by and among Concur Technologies, Captura, on behalf of itself and as successor in interest to Canoe, Representative, and former
stockholders of Capture, dated as of December 16, 2002. |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.01          |  | Registrants Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on December 24, 1998.                                                                                                                |  | S-8                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.02          |  | Certificate of Designations of Series A Junior Preferred Stock of Registrant.                                                                                                                                                                  |  | 8-A                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|3.03          |  | Registrants Amended and Restated Bylaws, as adopted on April 17, 2001.                                                                                                                                                                        |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.01          |  | Specimen Stock Certificate representing shares of Registrants Common Stock.                                                                                                                                                                   |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.02          |  | Third Amended and Restated Information and Registration Rights Agreement dated May 26, 1999.                                                                                                                                                   |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.03          |  | Amendment to Third Amended and Restated Information and Registration Rights Agreement dated March 23, 2000.                                                                                                                                    |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|4.04          |  | Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001.                                                                                                                                                                 |  | 8-A                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.01         |  | Registrants Amended and Restated 1994 Stock Option Plan and related documents.***                                                                                                                                                             |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.02         |  | Registrants Amended 1998 Equity Incentive Plan.***                                                                                                                                                                                            |  | 10-Q                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.03         |  | Registrants 1998 Employee Stock Purchase Plan and related documents.***                                                                                                                                                                       |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.04         |  | Registrants Amended 1998 Directors Stock Option Plan.***                                                                                                                                                                                      |  | 10-Q                     
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.05         |  | Registrants 401(k) Profit Sharing and Trust Plan.***                                                                                                                                                                                          |  | S-1                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.06         |  | Registrants 1999 Stock Incentive Plan.***                                                                                                                                                                                                     |  | S-8                      
|              |  |                                                                                                                                                                                                                                                |  |                          
|10.07         |  | Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers. ***                                                                                                                                  |  | S-1                      



77



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|              |  |                                                                                                                                                                                                                                                                          |  | Incorporated by Reference
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                      |  | Form                     
|10.08         |  | Facility Lease, dated October 31, 1997, between Registrant and CarrAmerica Realty Corporation, as amended on April 10, 1998.                                                                                                                                             |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.09         |  | Third Amendment to Lease, dated February 11, 1999, between Registrant and CarrAmerica Realty Corporation.                                                                                                                                                                |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.10         |  | Sublease, dated February 1, 1999, between Registrant and Emerging Technology Solutions, Inc. (ETSI).                                                                                                                                                                     |  | S-1                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.11         |  | Facility Sublease Agreement, dated September 23, 1999, between Registrant and Cardiac Pacemakers, Inc.                                                                                                                                                                   |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.12         |  | Stock Purchase Agreement, dated February 22, 2000, among the Company, SAFECO Corporation and Nortel Networks, Inc.                                                                                                                                                       |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.13         |  | Joint Marketing and Sales Representative Agreement dated May 17, 2000 between Registrant and ADP, Inc.*                                                                                                                                                                  |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.14         |  | Addendum to the Joint Marketing and Sales Representative Agreement, dated November 29, 2001, between Registrant and ADP, Inc.**                                                                                                                                          |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.15         |  | Second Addendum to the Joint Marketing and Sales Representative Agreement, dated May 28, 2002, between Registrant and ADP, Inc.**                                                                                                                                        |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.16         |  | Third Addendum to the Joint Marketing and Sales Representative Agreement, dated May 28, 2002, between Registrant and ADP, Inc.**                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.17         |  | Letter Agreement, dated April 19, 2000, between Registrant and John F. Adair.***                                                                                                                                                                                         |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.18         |  | Letter Agreement, dated June 29, 2000, between Registrant and Kyle R. Sugamele.***                                                                                                                                                                                       |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|10.19         |  | Letter Agreement, dated May 17, 2001, between Registrant and Simon Nelson.***                                                                                                                                                                                            |  | 10-K                     
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|16.01         |  | Letter addressed to the Securities and Exchange Commission, dated July 9, 2003, from Ernst & Young LLP regarding the statements made by the Registrant in Item 4 of a report on
8-K filed with the Securities and Exchange Commission by the Registrant on July 9, 2003. |  | 8-K                      
|              |  |                                                                                                                                                                                                                                                                          |  |                          
|21.01         |  | List of Registrants subsidiaries.                                                                                                                                                                                                                                       |  |                         



78



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##### Table of Contents

|              |  |                                                                                                                                            |  | Incorporated by Reference
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                        |  | Form                     
|23.01         |  | Consent of Deloitte & Touche LLP, Independent Auditors.                                                                                    |  |                         
|              |  |                                                                                                                                            |  |                          
|23.02         |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                        |  |                         
|              |  |                                                                                                                                            |  |                          
|31.01         |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).                                |  |                         
|              |  |                                                                                                                                            |  |                          
|31.02         |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).                                |  |                         
|              |  |                                                                                                                                            |  |                          
|32.01         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rules 13a-14(b) and 15d-14(b).**** |  |                         
|              |  |                                                                                                                                            |  |                          
|32.02         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rules 13a-14(b) and 15d-14(b).**** |  |                         

---

|* |  | Confidential treatment has been granted with respect to certain portions of this agreement. Such portions were omitted from the respective filing and were filed separately with the
Securities and Exchange Commission.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the
Securities and Exchange Commission.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | 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.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



79