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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934



For the quarter ended December 31, 2005



Commission file number: 0-25137



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CONCUR TECHNOLOGIES, INC.

(Exact name of registrant as specified in its
charter)



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State of Incorporation: Delaware

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

Address of principal executive offices: 18400 NE Union Hill Road

Redmond, Washington 98052

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



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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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



Large accelerated filer ̈Accelerated filer  x                     Non-accelerated filer ̈



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No  x



The number of shares outstanding of the registrants common stock as of January 31, 2006 was 35,212,366.



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CONCUR TECHNOLOGIES, INC.



FORM 10-Q

December 31, 2005



INDEX



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|PART I. FINANCIAL INFORMATION                                                                 |  |     
|                                                                                              | 
|ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                         |  |     
|                                                                                              | 
|Consolidated Statements of Operations for the three months ended December 31, 2005 and 2004   |  | 3   
|Consolidated Balance Sheets as of December 31, 2005 and September 30, 2005                    |  | 4   
|Consolidated Statements of Cash Flows for the three months ended December 31, 2005 and 2004   |  | 5   
|Notes to Consolidated Financial Statements                                                    |  | 6   
|                                                                                              | 
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 14  
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 25  
|ITEM 4. CONTROLS AND PROCEDURES                                                               |  | 25  
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  | 26  
|                                                                                              | 
|ITEM 1. LEGAL PROCEEDINGS                                                                     |  | 26  
|ITEM 1A. RISK FACTORS                                                                         |  | 26  
|ITEM 5. OTHER INFORMATION                                                                     |  | 36  
|ITEM 6. EXHIBITS                                                                              |  | 36  
|                                                                                              | 
|SIGNATURE                                                                                     |  | 36  



Concur®, Concur®Expense, and Concur®Cliqbook, among others, are registered trademarks and/or registered service marks of Concur or one of its subsidiaries, in the United States and other countries. Other parties marks are the
property of their respective owners and should be treated as such.



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PART I. FINANCIAL INFORMATION



|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------



Concur Technologies, Inc.



Consolidated
Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



|                                                    |  |                                 |        |   |      |   |        |  
|--------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                    |  | Three Months Ended December 31, |       
|                                                    |  | 2005                            |        |   | 2004 |  
|Revenues:                                           |  |                                 |        |   |      |   |        |  
|Subscription                                        |  | $                               | 15,169 |   |      | $ | 12,061 |  
|Consulting                                          |  |                                 | 3,704  |   |      |   | 3,186  |  
|Other                                               |  |                                 | 394    |   |      |   | 1,034  |  
|                                                    |  |                                 |        |   |      |   |        |  
|Total revenues                                      |  |                                 | 19,267 |   |      |   | 16,281 |  
|                                                    |  |                                
|Expenses:                                           |  |                                 |        |   |      |   |        |  
|Cost of operations                                  |  |                                 | 8,254  |   |      |   | 6,690  |  
|Sales and marketing                                 |  |                                 | 4,755  |   |      |   | 4,162  |  
|Systems development and programming                 |  |                                 | 2,223  |   |      |   | 2,349  |  
|General and administrative                          |  |                                 | 3,105  |   |      |   | 2,375  |  
|Amortization of intangible asset                    |  |                                 | 285    |   |      |   | 285    |  
|                                                    |  |                                 |        |   |      |   |        |  
|Total expenses                                      |  |                                 | 18,622 |   |      |   | 15,861 |  
|                                                    |  |                                
|Income from operations:                             |  |                                 | 645    |   |      |   | 420    |  
|Interest income                                     |  |                                 | 106    |   |      |   | 98     |  
|Interest expense                                    |  |                                 | (1     | ) |      |   | (3     | )
|Other income (expense), net                         |  |                                 | (42    | ) |      |   | (6     | )
|                                                    |  |                                 |        |   |      |   |        |  
|Income before income tax:                           |  |                                 | 708    |   |      |   | 509    |  
|Provision for income tax                            |  |                                 | 60     |   |      |   |       |  
|                                                    |  |                                 |        |   |      |   |        |  
|Net income:                                         |  | $                               | 648    |   |      | $ | 509    |  
|                                                    |  |                                 |        |   |      |   |        |  
|Net income per share:                               |  |                                 |        |   |      |   |        |  
|Basic                                               |  | $                               | 0.02   |   |      | $ | 0.02   |  
|                                                    |  |                                 |        |   |      |   |        |  
|Diluted                                             |  | $                               | 0.02   |   |      | $ | 0.01   |  
|                                                    |  |                                 |        |   |      |   |        |  
|Shares used in calculation of net income per share: |  |                                 |        |   |      |   |        |  
|Basic                                               |  |                                 | 33,301 |   |      |   | 33,126 |  
|                                                    |  |                                 |        |   |      |   |        |  
|Diluted                                             |  |                                 | 36,505 |   |      |   | 36,890 |  
|                                                    |  |                                 |        |   |      |   |        |  



See notes to
consolidated financial statements.



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Concur Technologies, Inc.



Consolidated
Balance Sheets

(In thousands, except per share amount)

(Unaudited)



|                                                                                                                        |  |                  |          |   |                   |   |          |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                        |  | December 31,2005 |          |   | September 30,2005 |  
|Assets                                                                                                                  |  |                  |          |   |                   |   |          |  
|Current assets:                                                                                                         |  |                  |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                               |  | $                | 16,022   |   |                   | $ | 16,202   |  
|Accounts receivable, net of allowances of $1,029 and $734                                                               |  |                  | 13,712   |   |                   |   | 12,374   |  
|Prepaid expenses                                                                                                        |  |                  | 1,866    |   |                   |   | 1,386    |  
|Other current assets                                                                                                    |  |                  | 4,285    |   |                   |   | 3,527    |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total current assets                                                                                                    |  |                  | 35,885   |   |                   |   | 33,489   |  
|                                                                                                                        |  |                 
|Property and equipment, net                                                                                             |  |                  | 16,268   |   |                   |   | 15,021   |  
|Restricted cash                                                                                                         |  |                  | 500      |   |                   |   | 500      |  
|Acquired customer base intangible asset, net of amortization                                                            |  |                  | 1,805    |   |                   |   | 2,090    |  
|Goodwill                                                                                                                |  |                  | 3,704    |   |                   |   | 3,704    |  
|Deposits and other long-term assets                                                                                     |  |                  | 6,016    |   |                   |   | 5,847    |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total assets                                                                                                            |  | $                | 64,178   |   |                   | $ | 60,651   |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Liabilities and stockholders equity                                                                                    |  |                  |          |   |                   |   |          |  
|Current liabilities:                                                                                                    |  |                  |          |   |                   |   |          |  
|Accounts payable                                                                                                        |  | $                | 2,525    |   |                   | $ | 1,447    |  
|Accrued compensation                                                                                                    |  |                  | 1,321    |   |                   |   | 2,395    |  
|Other accrued liabilities                                                                                               |  |                  | 2,224    |   |                   |   | 2,373    |  
|Current portion of long-term obligations                                                                                |  |                  | 159      |   |                   |   |         |  
|Current portion of deferred revenues                                                                                    |  |                  | 14,796   |   |                   |   | 13,298   |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total current liabilities                                                                                               |  |                  | 21,025   |   |                   |   | 19,658   |  
|Long-term obligations, net of current portion                                                                           |  |                  | 3,025    |   |                   |   | 3,050    |  
|Long-term deferred revenues, net of current portion                                                                     |  |                  | 7,313    |   |                   |   | 7,251    |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total liabilities                                                                                                       |  |                  | 31,363   |   |                   |   | 29,959   |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Commitments and Contingencies (Note 3)                                                                                  |  |                  |          |   |                   |   |          |  
|Stockholders equity:                                                                                                   |  |                  |          |   |                   |   |          |  
|Convertible preferred stock, par value $0.001 per share: Authorized shares  5,000; No shares issued or outstanding     |  |                  |         |   |                   |   |         |  
|Common stock, par value $0.001 per share: Authorized shares  60,000; Issued and outstanding shares  33,359 and
33,216 |  |                  | 33       |   |                   |   | 33       |  
|Additional paid-in capital                                                                                              |  |                  | 236,614  |   |                   |   | 235,025  |  
|Accumulated other comprehensive income                                                                                  |  |                  | (87      | ) |                   |   | 27       |  
|Accumulated deficit                                                                                                     |  |                  | (203,745 | ) |                   |   | (204,393 | )
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total stockholders equity                                                                                              |  |                  | 32,815   |   |                   |   | 30,692   |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                              |  | $                | 64,178   |   |                   | $ | 60,651   |  
|                                                                                                                        |  |                  |          |   |                   |   |          |  



See notes to
consolidated financial statements.



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Concur Technologies, Inc.



Consolidated
Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                 |  |                               |        |   |                               |   |        |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ----------------------------- | - | ------ | -
|                                                                                 |  | Three MonthsEndedDecember 31, |        |   | Three MonthsEndedDecember 31, |  
|                                                                                 |  | 2005                          |        |   | 2004                          |  
|Operating activities:                                                            |  |                               |        |   |                               |   |        |  
|Net income                                                                       |  | $                             | 648    |   |                               | $ | 509    |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                               |        |   |                               |   |        |  
|Amortization of intangible asset                                                 |  |                               | 285    |   |                               |   | 285    |  
|Depreciation                                                                     |  |                               | 1,086  |   |                               |   | 586    |  
|Provision for allowance for accounts receivable                                  |  |                               | 624    |   |                               |   | (35    | )
|Share-based compensation expense                                                 |  |                               | 801    |   |                               |   |        |  
|Changes in operating assets and liabilities, net of acquisition:                 |  |                               |        |   |                               |   |        |  
|Accounts receivable                                                              |  |                               | (2,006 | ) |                               |   | 306    |  
|Prepaid expenses, deposits, and other assets                                     |  |                               | (1,401 | ) |                               |   | (1,079 | )
|Accounts payable                                                                 |  |                               | 1,080  |   |                               |   | (518   | )
|Accrued liabilities                                                              |  |                               | (1,218 | ) |                               |   | (429   | )
|Deferred revenues                                                                |  |                               | 1,570  |   |                               |   | 1,750  |  
|                                                                                 |  |                               |        |   |                               |   |        |  
|Net cash provided by operating activities                                        |  |                               | 1,469  |   |                               |   | 1,375  |  
|Investing activities:                                                            |  |                               |        |   |                               |   |        |  
|Purchases of property and equipment                                              |  |                               | (2,311 | ) |                               |   | (1,638 | )
|                                                                                 |  |                               |        |   |                               |   |        |  
|Net cash used in investing activities                                            |  |                               | (2,311 | ) |                               |   | (1,638 | )
|Financing activities:                                                            |  |                               |        |   |                               |   |        |  
|Proceeds from issuance of common stock from exercise of stock options            |  |                               | 543    |   |                               |   | 175    |  
|Proceeds from issuance of common stock from employee stock purchase plan         |  |                               | 201    |   |                               |   | 779    |  
|Payments on borrowings                                                           |  |                               |       |   |                               |   | (205   | )
|                                                                                 |  |                               |        |   |                               |   |        |  
|Net cash provided by (used in) financing activities                              |  |                               | 744    |   |                               |   | 749    |  
|                                                                                 |  |                               |        |   |                               |   |        |  
|Effect of foreign currency exchange rates on cash and cash equivalents           |  |                               | (82    | ) |                               |   | (174   | )
|Net (decrease) increase in cash and cash equivalents                             |  |                               | (181   | ) |                               |   | 660    |  
|Cash and cash equivalents at beginning of period                                 |  |                               | 16,202 |   |                               |   | 23,735 |  
|                                                                                 |  |                               |        |   |                               |   |        |  
|Cash and cash equivalents at end of period                                       |  | $                             | 16,022 |   |                               | $ | 24,395 |  
|                                                                                 |  |                               |        |   |                               |   |        |  
|Supplemental disclosure of cash flow information:                                |  |                               |        |   |                               |   |        |  
|Cash paid for interest                                                           |  | $                             | 1      |   |                               | $ | 2      |  
|                                                                                 |  |                               |        |   |                               |   |        |  



See notes to
consolidated financial statements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



December 31, 2005

(Unaudited)



NOTE 1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Description of the Company



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



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



Unaudited Interim Financial Information



The
financial information as of December 31, 2005, and for the three months ended December 31, 2005 and 2004 is unaudited, but includes all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of our financial position at such dates and our results of operations and cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States (GAAP).
The balance sheet information at September 30, 2005 has been derived from our audited financial statements at that date but, in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC),
does not include all of the information and notes required by GAAP for complete financial statements. Operating results for the three months ended December 31, 2005 are not necessarily indicative of results that may be expected for the entire
fiscal year. The financial statements should be read in conjunction with the financial statements and notes for the fiscal year ended September 30, 2005 included in Concurs 2005 Annual Report on Form 10-K.



Segment Information



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



Principles of Consolidation



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



Use of Estimates



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



Revenue Recognition Policy



We recognize revenues in accordance with accounting standards for software and service companies including American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software
Revenue Recognition (SOP 97-2), as amended by SOP 98-9, the consensus reached in Emerging Issues Task Force (EITF) Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements that Include the Right
to Use Software Stored on Another Entitys Hardware, the consensus reached in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the consensus reached in EITF Issue No. 03-5, Applicability of AICPA
Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software (EITF 03-5), SEC Staff Accounting



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Bulletin No. 104, Revenue Recognition, SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts,
and related interpretations, including AICPA Technical Practice Aids.



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



We recognize revenue when:



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



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



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



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



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



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



Subscription Revenues:



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



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



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



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



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



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



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



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



Consulting Revenues:



Consulting revenues consist of fees for professional services, which consist
of system implementation and integration, planning, data conversion, training, and documentation of procedures. Consulting service fees are typically billed and



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recognized as revenue on a time-and-materials basis. In some instances, we sell consulting services under milestone or fixed-fee contracts and, in such
cases, recognize consulting revenues on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price
adjustments and sales credits issued.



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



Other Revenues:



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



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



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



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



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



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Share-based Compensation



Our stock option program is a broad-based, long-term retention program that is intended to attract and retain talented employees and align stockholder
and employee interests. We rely primarily on four stock option plans that provide broad discretion to our Board of Directors to create appropriate equity incentives for members of our Board of Directors and our employees. On October 1, 2005, we
adopted the provisions of SFAS 123R, Share-based Payment, requiring us to recognize expense related to the fair value of our share-based compensation awards. We elected the modified prospective transition method as permitted by SFAS 123R.
Under this transition method, share-based compensation expense for the three months ended December 31, 2005, includes compensation expense for all share-based compensation awards granted prior to, but not yet vested as of October 1, 2005,
based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation expense for all share-based compensation awards granted subsequent to October 1, 2005, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R. In accordance with SFAS 123R, we capitalize the portion of our share-based compensation attributed to internally developed software and defer the portion of our share-based compensation
associated with activities that generate deferred revenue. Our ESPP is deemed non-compensatory and therefore is not subject to the provisions of SFAS123R. See Note 7 to our Consolidated Financial Statements for further detail, including the impact
of the adoption to our Consolidated Statement of Operations.



Prior to October 1, 2005, We accounted for our share-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion 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, as amended. Accordingly, no share-based compensation cost is reflected in our statement of operations for the quarter
ended December 31, 2004, as all options granted under these plans had exercise prices equal to the fair market value of the underlying common stock on the date of grant, and any purchase discounts under our employee stock purchase plan were
within statutory limits.



Net Income Per Share



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



|                                                             |  |                                 |        |      |   |       
|------------------------------------------------------------ |  | ------------------------------- | ------ | ---- | - | ------
|                                                             |  | Three Months Ended December 31,
|(in thousands, except per share data)                        |  | 2005                            |        | 2004
|Net income                                                   |  | $                               | 648    |      | $ | 509   
|Weighted-average shares of common stock outstanding          |  |                                 | 33,301 |      |   | 33,126
|Add: Dilutive effect of stock-based compensation plans (1)   |  |                                 | 3,204  |      |   | 3,764 
|                                                             |  |                                 |        |      |   |       
|Dilutive weighted-average shares of common stock outstanding |  |                                 | 36,505 |      |   | 36,890
|                                                             |  |                                 |        |      |   |       
|Net income per share:                                        |  |                                 |        |      |   |       
|Basic                                                        |  | $                               | 0.02   |      | $ | 0.02  
|Diluted                                                      |  | $                               | 0.02   |      | $ | 0.01  



|(1) | Shares attributable to outstanding stock options granted under our stock-based compensation plans that were excluded from the calculation of diluted earnings per share because the
exercise prices of the such options and rights were greater than or equal to the average price of our common stock, and therefore their inclusion would have been anti-dilutive, totaled 0.8 million for the three months ended December 31,
2005, and 1.9 million for the three months ended December 31, 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTE 2. INTANGIBLE ASSET



Amortization of intangible asset represents the allocation of the acquired customer base intangible asset from our July 2002 acquisition of Captura
Software, Inc. The gross and net carrying amounts of the acquired customer base intangible asset at December 31, 2005 and September 30, 2005 were as follows:



|                                             |  |                  |        |   |                   |   |        |  
|-------------------------------------------- |  | ---------------- | ------ | - | ----------------- | - | ------ | -
|(in thousands)                               |  | December 31,2005 |        |   | September 30,2005 |  
|Acquired customer base intangible asset:     |  |                  |        |   |                   |   |        |  
|Gross carrying amount                        |  | $                | 5,700  |   |                   | $ | 5,700  |  
|Accumulated amortization                     |  |                  | (3,895 | ) |                   |   | (3,610 | )
|                                             |  |                  |        |   |                   |   |        |  
|Acquired customer base intangible asset, net |  | $                | 1,805  |   |                   | $ | 2,090  |  
|                                             |  |                  |        |   |                   |   |        |  



The related
amortization expense reflected in our results of operations totaled $285,000 for the three months ended December 31, 2005.



Estimated amortization expense for the remaining nine months of fiscal 2006 and annually for the remaining estimated useful life is as follows:



|                                                         |  |   |    
|-------------------------------------------------------- |  | - | ---
|Estimated remaining amortization expense (in thousands): |  |  
|Fiscal 2006                                              |  | $ | 855
|Fiscal 2007                                              |  |   | 950



NOTE 3. COMMITMENTS AND
CONTINGENCIES



Litigation



In July 2001, we and several of our current and former officers were named
as defendants in two securities class-action lawsuits filed in the United States District Court for the Southern District of New York. In April 2002, these lawsuits were consolidated along with 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 present and former officers of Concur named as 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 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 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 has been preliminarily approved by the court, but remains subject to final approval by the parties and the court. There is no guarantee that the parties or the court will finalize the proposed settlement. Should the parties and the court
fail to finalize the proposed settlement, we would continue to defend ourselves vigorously.



Product Warranty and Indemnification Obligations



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



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NOTE 4. COMPREHENSIVE INCOME



SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. The item of comprehensive income that we currently report is foreign currency translation adjustments as follows:



|                                         |  |                                 |      |   |      |   |    
|---------------------------------------- |  | ------------------------------- | ---- | - | ---- | - | ---
|                                         |  | Three Months Ended December 31,
|(in thousands)                           |  | 2005                            |      |   | 2004
|Net income                               |  | $                               | 648  |   |      | $ | 509
|Other comprehensive income               |  |                                 |      |   |      |   |    
|Foreign currency translation adjustments |  |                                 | (114 | ) |      |   | 152
|                                         |  |                                 |      |   |      |   |    
|Total comprehensive income               |  | $                               | 534  |   |      | $ | 661
|                                         |  |                                 |      |   |      |   |    



NOTE 5. INTERNATIONAL REVENUES



We market our services and products primarily in the
United States, Europe and Australia and we operate in a single industry segment. No single customer accounted for more than 10% of our total revenues in the three months ended December 31, 2005 and 2004, respectively. Information regarding
revenues by geographic region for the three months ended December 31, 2005 and 2004, respectively, is as follows:



|                       |  |                                 |        |   |       |   |      |   |        |  |       |  
|---------------------- |  | ------------------------------- | ------ | - | ----- | - | ---- | - | ------ |  | ----- | -
|                       |  | Three Months Ended December 31, |       
|(dollars in thousands) |  | 2005                            |        | % |       |   | 2004 |   | %      | 
|Country:               |  |                                 |        |   |       |   |      |   |        |  |       |  
|United States          |  | $                               | 16,870 |   | 87.6  | % |      | $ | 13,464 |  | 82.7  | %
|Europe                 |  |                                 | 1,477  |   | 7.7   |   |      |   | 2,059  |  | 12.6  |  
|Other                  |  |                                 | 920    |   | 4.8   |   |      |   | 757    |  | 4.7   |  
|                       |  |                                 |        |   |       |   |      |   |        |  |       |  
|Total revenues         |  | $                               | 19,267 |   | 100.0 | % |      | $ | 16,281 |  | 100.0 | %
|                       |  |                                 |        |   |       |   |      |   |        |  |       |  



NOTE 6. INCOME TAXES



For the first quarter of fiscal 2006, we recorded an
income tax provision of $60,000 for Alternative Minimum Tax (AMT) related to Concurs operating results, as compared to no income tax provision reported for the first quarter of fiscal 2005.



As of December 31, 2005, we had net operating loss carryforwards of
approximately $380.6 million and other temporary differences, which resulted in net deferred tax assets of approximately $108.9 million. We currently have a full valuation allowance on our U.S. deferred tax assets and a full valuation allowance on
our overseas deferred tax assets. Depending upon the results of our continuing quarterly evaluation in accordance with SFAS 109, Accounting For Income Taxes and the continued success of our subscription model for the second, third and fourth
quarters of fiscal 2006, there may be sufficient evidence to support the conclusion it may become more likely than not that all or a portion of our net deferred tax asset will be realized and all or a portion of the valuation allowance should be
reduced during the second half of the year. Any such reduction of our net deferred tax valuation allowance is expected to materially increase our net income and materially impact our consolidated balance sheet. We may not be able to sustain
profitability, and as a result, any reduction of the valuation allowance and our future effective tax rate are uncertain. In determining net deferred tax assets and valuation allowances, management is required to make judgments and estimates related
to projections of domestic and foreign profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates, transfer pricing methodologies and prudent and feasible tax planning strategies.



NOTE 7. SHARE-BASED COMPENSATION



We have a share-based compensation program that provides our Board of
Directors broad discretion in creating employee equity incentives. The program includes incentive and non-statutory stock options granted under various plans, which are approved by the Board of Directors. Stock options generally vest one to four
years after the grant date and expire ten years after the grant date. The company also has an ESPP plan which allows employees to purchase shares of common stock at 95% of fair market value at the date of purchase. The ESPP is deemed
non-compensatory and therefore is not subject to the provisions of SFAS123R. As of December 31, 2005, we had approximately 2.5 million shares of common stock reserved for future issue under our stock option plans.



On October 1, 2005, we adopted the provisions of SFAS 123R, requiring us
to recognize expense related to the fair value of our share-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS 123R and therefore have not restated out financial results for prior periods.
Under this transition method, share-



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based compensation expense for the three months ended December 31, 2005 includes compensation expense for all share-based compensation awards granted
prior to, but not yet vested as of October 1, 2005, based upon the grant date fair value estimated in accordance with the original provisions of SFAS 123. Share-based compensation expense for all share-based compensation awards granted
subsequent to October 1, 2005 was based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. We recognize compensation expense for stock option awards on a straight-line basis over the requisite service period
of the award.



The following table sets forth the share-based
compensation expense resulting from stock options that is recorded in our Consolidated Statement of Operations for the quarter ended December 31, 2005 (in thousands):



|                                    |  |                   |    
|----------------------------------- |  | ----------------- | ---
|(dollars in thousands)              |  | December 31, 2005
|Cost of Operations                  |  | $                 | 207
|Sales and Marketing                 |  |                   | 288
|Systems Development and Programming |  |                   | 44 
|General and Administrative          |  |                   | 262
|                                    |  |                   |    
|Total                               |  | $                 | 801
|                                    |  |                   |    



We capitalized $28
thousand in property and equipment on the balance sheet for share-based compensation incurred in the development of internal use software. We deferred $17 thousand of operating costs for share-based compensation associated with deferred revenue.
These amounts would have been charged to the following expense categories for the quarter ended December 31, 2005 (in thousands):



|                                    |  |                   |   
|----------------------------------- |  | ----------------- | --
|(dollars in thousands)              |  | December 31, 2005
|Cost of Operations                  |  | $                 | 17
|Systems Development and Programming |  |                   | 28
|                                    |  |                   |   
|Total                               |  | $                 | 45
|                                    |  |                   |   



Net cash proceeds from
the exercise of stock options were $543k and $175k for the three months ended December 31, 2005 and December 31, 2004 respectively. No income tax benefit was realized from stock option exercises during the three months ended
December 31, 2005 and December 31, 2004. In accordance with SFAS 123R, we present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.



Prior to the adoption of SFAS 123R, we accounted for our stock option plans
and ESPP (collectively, our share-based compensation plans) using the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), and related interpretations. Under this method, no share-based compensation expense is reflected in our results of operations for the quarter ended December 31, 2004, as all options granted under these plans had exercise prices equal
to the fair market value of the underlying common stock on the date of grant, and any purchase discounts under the ESPP were within statutory limits.



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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 choose to continue to follow APB 25 to provide pro forma disclosure of the impact of accounting for
share-based compensation using the fair value method of SFAS 123. For purposes of these pro forma disclosures, the estimated fair value of the options is amortized over the related vesting periods. The estimated fair value of purchases under the
ESPP is amortized on a straight line basis over the related purchase periods, ranging from six to twenty-four months. The following table illustrates the effect on net loss after tax and net loss per common share as if we had applied the fair value
recognition provisions of SFAS 123 to share-based compensation during the three month period ended December 31, 2004 (in thousands, except per share amounts):



|                                                      |  |                   |        |  
|----------------------------------------------------- |  | ----------------- | ------ | -
|(in thousands, except per share data)                 |  | December 31, 2004 |       
|Net income, as reported                               |  | $                 | 509    |  
|Add: Share-based compensation expense, as reported    |  |                   |       |  
|Deduct: Pro forma compensation expense under SFAS 123 |  |                   | (1,502 | )
|                                                      |  |                   |        |  
|Pro forma net income (loss)                           |  | $                 | (993   | )
|                                                      |  |                   |        |  
|Net income (loss) per share:                          |  |                   |        |  
|Basic as reported                                     |  | $                 | 0.02   |  
|Diluted, as reported                                  |  | $                 | 0.01   |  
|Basic, pro forma                                      |  | $                 | (0.03  | )
|Diluted, pro forma                                    |  | $                 | (0.03  | )



The fair value of
share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three months ended December 31, 2005 and December 31, 2004, respectively:



|                                          |  |                   |      |   |                   |   |      |  
|----------------------------------------- |  | ----------------- | ---- | - | ----------------- | - | ---- | -
|                                          |  | Options           |     
|(dollars in thousands)                    |  | December 31, 2005 |      |   | December 31, 2004 |  
|Expected life (in years)                  |  |                   | 4.7  |   |                   |   | 4.5  |  
|Interest rate                             |  |                   | 4.3  | % |                   |   | 3.4  | %
|Volatility                                |  |                   | 0.64 |   |                   |   | 0.74 |  
|Dividend yield                            |  |                   |     |   |                   |   |     |  
|Weighted average fair value at grant date |  | $                 | 7.13 |   |                   | $ | 6.22 |  



Our computation of the
expected volatility for the quarter ended December 31, 2005 is based upon historical implied volatility. Our computation of expected life is based on historical exercise patterns. The interest rate for periods within the contractual life of the
award is based on the U.S. Treasury yield curve in effect at the time of the grant.



Stock option activity for the three months ended December 31, 2005 is as follows (in thousands, except per share amounts):



|                                  |  |        |   |  |                               |       |                                         |      |                         |   |       
|--------------------------------- |  | ------ | - |  | ----------------------------- | ----- | --------------------------------------- | ---- | ----------------------- | - | ------
|                                  |  | Shares |   |  | WeightedAverageExercise Price |       | Weightedaverageremainingcontractualterm |      | AggregateIntrinsicValue
|Outstanding at September 30, 2005 |  | 6,478  |   |  | $                             | 6.13  |                                         |     |                         |   |      
|Grants                            |  | 759    |   |  |                               | 12.87 |                                         |     |                         |   |      
|Exercises                         |  | (127   | ) |  |                               | 4.28  |                                         |     |                         |   |      
|Forfeiture or expirations         |  | (33    | ) |  |                               | 8.59  |                                         |     |                         |   |      
|Outstanding at December 31, 2005  |  | 7,076  |   |  |                               | 6.87  |                                         | 6.64 |                         | $ | 44,742
|Exercisable at December 31, 2005  |  | 4,821  |   |  |                               | 5.49  |                                         | 5.55 |                         |   | 37,862



The aggregate
intrinsic value in the table above represents total pretax intrinsic value (i.e., the difference between Concurs closing stock price on the last trading day of our first quarter of fiscal 2006 and the exercise price, times the number of
shares) that would have been received by the option holders had all option holders exercised their options on December 31, 2005. The amount changes based on the fair market value of Concurs common stock. Total intrinsic value of options
exercised is $1.1 million for the three months ended December 31, 2005.



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As of December 31, 2005, $9.0 million of total unrecognized compensation costs related to non-vested
stock options is expected to be recognized over a weighted average period of 1.5 years. Total fair value of options vested during the three months ended December 31, 2005 was $1.0 million.



NOTE 8. SUBSEQUENT EVENTS



On January 23, 2006, we closed on the acquisition of Outtask, Inc.,
headquartered in Alexandria, VA. Under the agreement, all Outtask shares will be exchanged for $24 million to $36 million in cash and 2.9 million to 3.5 million shares of Concur common stock. The purchase price for the acquisition was
determined based upon an arms length negotiation and totaled approximately $67 - $88 million based upon the closing price of Concur Stock on January 20th. This acquisition allows us to expand our on-demand CEM suite by offering clients the market leading corporate travel management service, Cliqbook. This acquisition will accounted for under the
provisions of SFAS 141, Business Combinations. Accordingly, the purchase price will be allocated to acquired assets and assumed liabilities based on their estimated fair values with any residual recorded as goodwill.



In connection with the acquisition of Outtask, there are contingent payments
to be calculated based upon identified performance criteria as specified in the underlying purchase agreement. When determined, these additional payments will be recorded as goodwill.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



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



Special Note Regarding Forward-Looking Statements



This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future
financial performance, future financial condition, the integration of Outtask, Inc., and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by forward-looking words such as
may, will, expect, anticipate, believe, intend, estimate, continue, and other similar words and phrases. These forward-looking statements involve many
risks and uncertainties. Examples of such risks and uncertainties are described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 under Risk Factors, as well as in our other filings with
the United States Securities and Exchange Commission (SEC). Material changes to these examples of risks and uncertainties are described under Risk Factors and elsewhere in this report. 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 on-demand Corporate Expense Management (CEM) services and software solutions that automate processes
involved in the management of corporate expenses. Our core purpose is to use innovation to help our customers drive down their costs associated with corporate expense management by providing a complete solution. Our solutions are designed to
automate and streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater insight to their spending patterns through comprehensive analytics.



On January 23, 2006, we completed our acquisition of Outtask, which
added a market-leading online corporate travel management service called Cliqbook to our suite of CEM services. This addition will expand our suite of CEM solutions and simplify the entire travel and expense management workflow of our customers,
which we believe will further differentiate Concur from our competition.



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Our flagship products are Concur®Expense Service and as of January 23, 2006, Concur®Cliqbook which are used by our clients for travel and entertainment expense reporting and corporate travel management respectively.
We also offer value-added services and software that are integrated with our core services and software, as well as consulting, customer support and training for our customers.



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



We generate our revenues from the delivery of subscription
services, consulting services, and, to a lesser extent, the sale of software licenses. Subscription revenues grew from 59% of total revenues in fiscal 2003, 71% in fiscal 2004, 74% in fiscal 2005, and 79% through the first three months of fiscal
2006. This growth reflects the markets shift to emphasize purchases of subscription services rather than license software. Generally, our subscription services revenues are recognized over the time period we provide our services to customers,
in contrast to license revenues, which typically are recognized upon software delivery to the customer. We believe that the shift to the subscription services model provides more stable and predictable revenues and operating results compared to
prior years when our license revenues represented a more significant portion of our total revenues, because revenue in any particular period is less dependent upon a small number of large transactions.



Our strategic focus in fiscal 2006 is to continue to expand our suite of CEM
services offerings, to expand our direct and indirect distribution network and to be a leader in operational and service excellence. We expect our subscription revenues to increase in fiscal 2006 compared to fiscal 2005, on both an absolute basis
and as a percentage of total revenues, due to anticipated demand for our subscription services. We expect total expenses to increase in fiscal 2006 compared to fiscal 2005 as a result of the acquisition of Outtask on January 23, 2006 and the
continued growth of our business.



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



RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004



Selected Financial Data



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



|                                    |  |                                 |   |  |       |  
|----------------------------------- |  | ------------------------------- | - |  | ----- | -
|                                    |  | Three Months Ended December 31, |  
|                                    |  | 2005                            |   |  | 2004  |  
|Revenues:                           |  |                                 |   |  |       |  
|Subscription                        |  | 78.7                            | % |  | 74.1  | %
|Consulting                          |  | 19.2                            |   |  | 19.6  |  
|Other                               |  | 2.1                             |   |  | 6.3   |  
|                                    |  |                                 |   |  |       |  
|Total revenues                      |  | 100.0                           |   |  | 100.0 |  
|                                    |  |                                
|Expenses:                           |  |                                 |   |  |       |  
|Cost of operations                  |  | 42.8                            |   |  | 41.1  |  
|Sales and marketing                 |  | 24.7                            |   |  | 25.6  |  
|Systems development and programming |  | 11.5                            |   |  | 14.4  |  
|General and administrative          |  | 16.1                            |   |  | 14.6  |  
|Amortization of intangible asset    |  | 1.5                             |   |  | 1.8   |  
|                                    |  |                                 |   |  |       |  
|Total expenses                      |  | 96.7                            |   |  | 97.4  |  
|                                    |  |                                 |   |  |       |  
|Income from operations              |  | 3.0                             |   |  | 2.6   |  
|Interest income                     |  | .6                              |   |  | .5    |  
|Interest expense                    |  | 0.0                             |   |  | 0.0   |  
|Other income, net                   |  | (.2                             | ) |  | 0.0   |  
|                                    |  |                                 |   |  |       |  
|Income before income tax            |  | 3.7                             | % |  | 3.1   | %
|Provision for income tax            |  | (.3                             | ) |  |      |  
|Net Income                          |  | 3.4                             | % |  | 3.1   | %
|                                    |  |                                 |   |  |       |  



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##### Table of Contents

Results of Operations



Revenues



|                       |  |                                 |        |      |   |        |  |       |   
|---------------------- |  | ------------------------------- | ------ | ---- | - | ------ |  | ----- | --
|                       |  | Three Months Ended December 31, |       
|(dollars in thousands) |  | 2005                            |        | 2004 |   | Change | 
|Subscription           |  | $                               | 15,169 |      | $ | 12,061 |  | 25.8  | % 
|Consulting             |  |                                 | 3,704  |      |   | 3,186  |  | 16.3  | % 
|Other                  |  |                                 | 394    |      |   | 1,034  |  | (61.9 | %)
|                       |  |                                 |        |      |   |        |  |       |   
|Total revenues         |  | $                               | 19,267 |      | $ | 16,281 |  | 18.3  | % 
|                       |  |                                 |        |      |   |        |  |       |   



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



Subscription revenues increased $3.1 million or 25.8% for the three months ended December 31, 2005, compared to the same period in fiscal 2005.
Revenues from our subscription services (total subscription revenues excluding revenue from the amortization of fees paid for software maintenance services under software license agreements) contributed approximately 102.5% of the absolute dollar
increase in subscription revenues, offset by a 2.5% decline in maintenance revenue recognized for the three months ended December 31, 2005, compared to the same periods in fiscal 2005. Continued expansion of our subscription services customer
base, coupled with strong retention of existing customers, was the main reason for the increase. The larger customer base reflects a trend of increased market demand for our subscription services and strong retention of existing subscription
customers. We believe this expansion relates primarily to the markets continued growing acceptance of outsourced services, driven in part by limited information technology capital budgets. We believe these economic trends make traditional
self-hosted software license arrangements, with their substantial up-front costs, less attractive than subscription services.



We expect subscription revenues to continue to grow in fiscal 2006, on both an absolute basis and as a percentage of total revenues, as a result of the
acquisition of Outtask on January 23, 2006 which provides CEM subscription service offerings, the growing demand for our subscription CEM service offerings and our planned increase in spending on sales and marketing.



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



The $0.5 million or 16.3% increase in consulting revenues for the three
months ended December 31, 2005, compared to the same period in fiscal 2005, was primarily due to increased consulting services performed for existing customers upgrading to the latest version of our on-premise license software for the quarter
ended December 31, 2005 and the recognition of $ 0.2 million of previously deferred revenue.



We anticipate that consulting revenues in fiscal 2006 will fluctuate on a quarterly basis but be lower for fiscal 2006 compared to fiscal 2005 on both an
absolute basis and as a percentage of revenues, primarily as a result of fewer existing customers upgrading their on-premise license software in fiscal 2006 compared to fiscal 2005 and the acquisition of Outtask, which predominantly generates
revenue from its CEM subscription service offerings.



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



Other revenues decreased approximately $0.6 million or 61.9% for the three months ended December 31, 2005, compared to the same periods in fiscal 2005. There are fewer license deals which reflects the
markets continued shift in focus to our subscription services away from license sales.



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We continue to expect other revenues to be volatile from quarter to quarter and to be lower for fiscal
2006 compared to fiscal 2005 on both an absolute dollar value and as a percentage of revenue, reflecting the markets continued shift in demand from a licensed model to a subscription services model and as a result of the acquisition of
Outtask, which predominantly generated revenue from its CEM subscription service offerings.



International Revenues. Revenues from customers outside the United States were $2.4 million (12.4% of total revenues) and $2.8 million (17.2% of total revenues) in the three months ended December 31, 2005
and 2004, respectively.Historically, fluctuations in foreign currency exchange rates have not had a material effect on our operating results. Of the $0.4 million decline, license revenue constituted 137.9% of the decline, offset by an
increase in subscription revenues.



We expect our international
revenues to grow in the near term, as our products and services continue to gain acceptance in international markets, due in part to the expansion of international functionality within our solutions.



Expenses



|                                    |  |                                 |        |      |   |        |  |      |   
|----------------------------------- |  | ------------------------------- | ------ | ---- | - | ------ |  | ---- | --
|                                    |  | Three Months Ended December 31, |       
|(dollars in thousands)              |  | 2005                            |        | 2004 |   | Change | 
|Cost of operations                  |  | $                               | 8,254  |      | $ | 6,690  |  | 23.4 | % 
|Sales and marketing                 |  |                                 | 4,755  |      |   | 4,162  |  | 14.2 | % 
|Systems development and programming |  |                                 | 2,223  |      |   | 2,349  |  | (5.4 | )%
|General and administrative          |  |                                 | 3,105  |      |   | 2,375  |  | 30.7 | % 
|Amortization of intangible assets   |  |                                 | 285    |      |   | 285    |  | 0.0  | % 
|                                    |  |                                 |        |      |   |        |  |      |   
|Total expenses                      |  | $                               | 18,622 |      | $ | 15,861 |  | 17.4 | % 
|                                    |  |                                 |        |      |   |        |  |      |   



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



Cost of operations expenses represented 42.8% of total revenues for the three months ended December 31, 2005 compared to 41.1% for the same period
in fiscal 2005. Total salaries and related expenses and allocated overhead costs increased 18.7% or $0.9 million for the three months ended December 31, 2005 compared to the same periods in fiscal 2005, due primarily to increased headcount,
which accounted for $0.8 million, and share-based compensation related to the implementation of Financial Accounting Standard 123R, which accounted for $0.2 million. Co-location and related telecommunications costs increased 61.3% or $0.4 million
for the three months ended December 31, 2005 compared with the same period in fiscal 2005. This increase was due primarily to a charge related to a change in co-location facilities. Fees paid to third parties for referrals, resale arrangements,
and royalties increased 14.9% or $0.1 million for the three months ended December 31, 2005, compared with the same periods in fiscal 2005, respectively. This increase was due an increase in the amount of business generated through reseller
partners for subscription-based sales.



We expect cost of
operations expenses to fluctuate moderately from quarter to quarter, and generally to trend down in fiscal 2006 compared to fiscal 2005 as a percentage of total revenues as the incremental cost to deploy and support each new customer is expected to
decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will increase in absolute dollars as a result of the acquisition of Outtask on January 23, 2006 and as we
continue to expand our capacity to deploy and support additional new customers.



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



Sales and marketing expenses were 24.7% of total revenues for the three months ended December 31, 2005 compared with
25.6% for the same period fiscal 2005. Total sales and marketing expenses increased approximately $0.6 million or 14.2% for the three months ended December 31, 2005, compared with the same period in fiscal 2005. This increases in the three
month period ending December 31, 2005, compared to the same period in fiscal 2005, was mainly due to a 14.7% increase in salaries and related expenses and allocated overhead costs, driven primarily by headcount increases, as well as an $0.3
million in share-based compensation expense.



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We expect total sales and marketing expenses in fiscal 2006 to increase in absolute dollars compared to
fiscal 2005, primarily due to our acquisition of Outtask and we expect an increase in sales headcount, which was approximately 32% higher at December 31, 2005 than December 31, 2004. This increase in sales headcount reflects a key part of
our strategic focus in fiscal 2006, which is to ensure that our sales and marketing efforts are able to support expected demand and create additional awareness in our target markets.



Systems Development and Programming Costs. Systems development and programming costs consist of salaries and
related expenses (including share-based compensation), and allocated overhead costs associated with employees and contractors engaged in software engineering, program management, and quality assurance.



Systems development and programming costs were 11.5% of total revenues for
the three months ended December 31, 2005, compared to 14.4% for the same period in fiscal 2005.Systems development and programming costs recognized decreased by $0.1 million for the three months ended December 31, 2005, compared to
the same period in fiscal 2005, respectively. This decrease was the result of lower payroll expense, partially offset by an increase in contract labor expense. Share-based compensation comprised $44 thousand for the three months ended
December 31, 2005.



In response to growing demand for our
subscription services, we have focused on the development and programming of internal-use software used to provide these services. Under generally accepted accounting principles, costs for corporate software developed or obtained for internal use
are required to be capitalized and amortized over their useful lives. Internal use software costs capitalized increased $1.1 million from $5.1 million to $6.2 million for the quarter ended December 31, 2005.



We anticipate that recognized systems development and programming costs in
fiscal 2006 will increase compared to fiscal 2005 driven primarily by our acquisition of Outtask and our continued focus on product innovation and enhancement. We anticipate most of the increase in system development and programming cost will be
capitalized.



General and Administrative. General
and administrative expenses consist of salaries and related expenses (including share-based compensation), and allocated overhead costs, all associated with employees and contractors in finance, human resources, legal, information technology,
facilities, and, to a lesser extent, costs, such as professional fees and public company regulatory compliance costs.



General and administrative expenses were 16.1% of total revenues for the three months ended December 31, 2005, compared to 14.6% for the same period
in 2004. General and administrative expenses increased approximately $0.8 million or 33.3% for the three months ended December 31, 2005, compared to the same period in fiscal 2005. This increase was primarily due to a $0.3 million increase in
share-based compensation expense and $0.3 million increase in costs from accounting fees and costs of public company regulatory compliance.



We expect the absolute dollar amount of general and administrative expenses to increase moderately in fiscal 2006 compared to fiscal 2005 due to increases
in personnel costs related to the growth of our business.



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



Interest Income and Interest Expense



|                       |  |                                 |     |      |   |        |  |       |   
|---------------------- |  | ------------------------------- | --- | ---- | - | ------ |  | ----- | --
|                       |  | Three Months Ended December 31, |    
|(dollars in thousands) |  | 2005                            |     | 2004 |   | Change | 
|Interest income        |  | $                               | 106 |      | $ | 98     |  | 8.2   | % 
|Interest expense       |  |                                 | 1   |      |   | 3      |  | (66.7 | )%



Interest Income and
Interest Expense. The increase in interest income in the three months ended December 31, 2005 compared to the same period in fiscal 2005 reflects higher short term interest rates and more money in interest bearing accounts in 2005 than in
2004. The decrease in interest expense in the three months ended December 31, 2005, compared to the same period in fiscal 2005 was due to lower average outstanding bank borrowings and capital lease obligations.



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Provision for Income Taxes. For the first quarter of fiscal 2006, we recorded an income tax
provision of $60,000 for Alternative Minimum Tax (AMT) related to Concurs operating results, as compared to no income tax provision reported for the first quarter of fiscal 2005.



As of December 31, 2005, we had net operating loss carryforwards of approximately $380.6 million and other temporary
differences, which resulted in net deferred tax assets of approximately $108.9 million. We currently have a full valuation allowance on our U.S. deferred tax assets and a full valuation allowance on our overseas deferred tax assets. Depending upon
the results of our continuing quarterly evaluation in accordance with SFAS 109, Accounting For Income Taxes and the continued success of our subscription model for the second, third and fourth quarters of fiscal 2006, there may be sufficient
evidence to support the conclusion it may become more likely than not that all or a portion of our net deferred tax asset will be realized and all or a portion of the valuation allowance should be reduced during the second half of the year. Any such
reduction of our net deferred tax valuation allowance is expected to materially increase our net income and materially impact our consolidated balance sheet. We may not be able to sustain profitability, and as a result, any reduction of the
valuation allowance and our future effective tax rate are uncertain. In determining net deferred tax assets and valuation allowances, management is required to make judgments and estimates related to projections of domestic and foreign
profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates, transfer pricing methodologies and prudent and feasible tax planning strategies.



Financial Condition



Our total assets were $64.2 million at December 31, 2005 and $60.7 million at September 30, 2005, representing an
increase of $3.5 million or 5.8%. This increase was due to an increase in accounts receivable totaling $1.3 million, an increase in capital expenditures of $1.2 million, an increase in prepaid expenses of $0.5 million, and an increase in other
receivables of $0.5 million. Our cash and cash equivalents totaled $16.0 million at December 31, 2005 and $16.2 million as of September 30, 2005, representing a decrease of $0.2 million, or 1.2%. Our cash flow activity is described in more
detail in the Liquidity and Capital Resources section below. Net property and equipment increased to $16.3 million at December 31, 2005 from $15.0 million at September 30, 2005, with the largest increase due to a $1.1 million
investment in development costs for software used internally for our subscription services offerings.



Accounts receivable balances, net of allowances of $1.0 million and $0.7 million, were $13.7 million and $12.4 million as of December 31, 2005 and
September 30, 2005, respectively, representing an increase of $1.3 million or 10.8%. The increase in the allowance for the period of $0.3 million was based upon an increase in accounts receivable and an increase in the allowance for specific
customer receivables.



Our total current liabilities were $21.0
million and $19.7 million at December 31, 2005 and September 30, 2005, respectively, representing an increase of $1.3 million, or 6.8%. This increase was mainly due to an increase in the current portion of deferred revenues totaling $1.5
million and an increase in accounts payable of $1.1 million, offset in part by a decrease of $1.1 million in accrued compensation. Total deferred revenues, including both current and long term, increased by $1.6 million to $22.1 million at
December 31, 2005 from $20.5 million at September 30, 2005. This increase resulted from the growth in our customer base for our subscription services offerings over the period.



Our common stock and additional paid in capital totaled $236.6 million at December 31, 2005, compared to $235.1 million
at September 30, 2005, an increase of $1.5 million, or 0.6%. The increase was primarily due to proceeds received from the exercise of stock options under our share-based compensation plans and purchases of stock under our employee stock
purchase plan during the three months ended December 31, 2005.



Liquidity and Capital Resources



Our available
sources of liquidity as of December 31, 2005 consisted principally of cash and cash equivalents totaling $16.0 million. We also have a revolving credit line and equipment purchase facility available, which is discussed in more detail below.



Our operating cash inflows consist of payments received from
our subscription and on-premise customers. Our operating cash outflows consist of employee salaries, payments to vendors directly related to subscription and on-premise services, payments under arrangements with third parties who provide hosting
infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, and systems development and programming costs. Operating activities provided $1.5 million and $1.4 million in the
three months ended December 31, 2005 and 2004, respectively.



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Our investing activities used $2.3 million and $1.6 million in the three months ended December 31,
2005 and 2004, respectively. Investing activities for the three months ended December 31, 2005, included $1.1 million for internally developed software and $0.6 million for purchased software. Purchases of property and equipment comprised the
remaining total amount consisting mainly of leasehold improvements. The amount capitalized for the development of software used internally is described in more detail above in Results of Operations  Expenses  Systems Development
and Programming Costs.



Our financing activities
provided $0.7 million in both of the three months ended December 31, 2005 and 2004. Proceeds from financing activities during these periods consisted mainly of cash received from employee stock option exercises and employee stock purchase plan
activities, which we do not directly control.



In March 2002,
we entered into a loan and security agreement (Loan Agreement) with a bank for a $1.0 million equipment credit facility (Term I Advance). The Loan Agreement for the Term I Advance allowed for borrowings in the amount of
actual equipment purchases made through December 2002. In September 2003, we amended the terms of the Loan Agreement to add a revolving line of credit (Revolver) in an amount not to exceed the lesser of 80% of eligible accounts
receivable or $5.0 million, with interest at the banks prime rate. In September 2004 and May 2005, we amended the Loan Agreement further extending the Revolvers availability to December 31, 2006, at which time any advances become
due and payable. The other terms of the Revolver remained the same. There were no amounts borrowed under the Revolver at December 31, 2005.



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



In May 2005, we amended the terms of the Loan Agreement to add an additional
equipment facility (Term IV Advance) for advances in the amount of actual equipment purchases up to $2.5 million through May 30, 2006, with interest at the banks prime rate, maturing on May 30, 2008. There were no amounts
borrowed under the Term IV Advance at December 31, 2005.



In January 2006, in connection with the acquisition of Outtask, Concur Technologies, Inc., Captura Software, Inc., and Outtask LLC we (the Borrowers) entered into an Amended and Restated Loan and Security Agreement
(Amended Loan Agreement) with Comerica Bank (Comerica) in order to increase available borrowing amounts under our existing loan agreement with Comerica. The Amended Loan Agreement provides for a term loan of up to $14 million
and a revolving line of credit for up to $8 million. At Concurs option, the term loan bears an interest rate equal to Comericas prime rate plus a range of 0.75% to 1.25% or LIBOR plus a range of 3.0% to 3.5%, and matures
December 31, 2010. At Concurs option, the revolver bears an interest rate equal to Comericas prime rate plus a range of 0.50% to 1.00% or LIBOR plus a range of 2.75% to 3.25%, and matures January 23, 2007. There were no amounts
borrowed under the term loan or revolver at December 31, 2005.



No funds have been disbursed to fund the acquisition of Outtask as of January 31, 2006. We anticipate using up to the full amount of the term loan and line of credit to fund the acquisition during the quarter ended March 31, 2006.



In January 2003, our Board of Directors authorized a stock
repurchase program, under which we were authorized to repurchase up to one million shares of our outstanding common stock over a two-year period expiring in January 2005. We did not repurchase any shares under this program. In January 2005, our
Board of Directors authorized a new stock repurchase program, under which we are authorized to repurchase up to two million shares of our outstanding common stock over a two-year period expiring in January 2007. Stock repurchases under the 2005
stock repurchase program may be made from time to time in the open market based on market conditions. Any repurchases will be made at the then-current market prices, and repurchased shares will be retired. During the fiscal year ended
September 30, 2005, we repurchased and retired 1,094,494 shares of our outstanding common stock under the 2005 repurchase program, leaving a balance of 905,506 shares remaining eligible for repurchase. There were no share repurchases executed
during the three months ended December 31, 2005.



We
believe our cash and cash equivalents, amounts available under our credit facilities, as well as expected positive operating cash flows, will be sufficient to meet our anticipated cash needs for normal business operations, working capital needs and
capital expenditures for at least the next 12 months. In the longer term, or if we decide to acquire assets or



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businesses, we may require additional funds and may seek to raise such additional funds through private or public sales of debt or equity securities, or
securities convertible or exchangeable into such securities, strategic relationships, bank debt, lease financing arrangements, or other available means. There can be no assurances that any such funds will be available or, if available, will be on
acceptable terms to meet our business needs. If additional funds are raised through the issuance of equity securities, stockholders may experience dilution, or such equity securities may have rights, preferences, or privileges senior to those of the
holders of our common stock.



Off Balance Sheet Arrangements



None.



We do not use derivative financial instruments.



Critical Accounting Policies and Estimates



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



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



Revenue Recognition



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



We recognize revenue when:



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



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



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



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



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



In contractual arrangements that include the provision of multiple elements,
we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the arrangement. Multiple element arrangements require the delivery or
performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated together and, therefore, are accounted
for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we measure and allocate the total arrangement fee among each of the elements
based on their fair value or, if necessary, vendor-specific objective evidence of their fair value (VSOE). VSOE is determined by the price



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charged when an element is sold separately or, in the case of an element not yet sold separately, the price set by authorized management, if it is probable
that the price, once established, will not change prior to separate market introduction.



Subscription Revenues



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



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



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



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



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



Set-up fees paid by customers in
connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected lives of the customer
relationships, which generally range from two to five years. For those subscription service offerings that have been commercially available for only a short period of time, the contractual lives are used as the best estimate of the expected lives of
the customer relationships. We continue to evaluate and adjust the length of these amortization periods as we gain more experience with customer contract renewals and contract cancellations. It is possible that, in the future, the estimates of
expected customer lives may change and, if so, the periods over which such subscription set-up fees and costs are amortized will be adjusted. Any such change in estimated expected customer lives will affect our future results of operations.



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



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



Consulting Revenues



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



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



Other Revenues



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



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In software license arrangements that include rights to multiple elements, we allocate the total
arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on VSOE and the residual amounts of revenue are allocated to the delivered elements. If sufficient VSOE does not
exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until the earlier of the point at which such sufficient VSOE does exist or all elements of the arrangement have been
delivered. If the only undelivered element is software maintenance, the entire fee is recognized ratably as subscription revenue. We are required to exercise judgment in deciding how to interpret the evidence of fair value to determine the
allocation of arrangement consideration with respect to a given element, and in determining whether an established price is likely to change prior to separate market introduction. These judgments may materially affect the timing of our revenue
recognition and results of operations.



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



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



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



Internal-Use Software



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



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Accounts Receivable Allowances



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



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



Share-based Compensation



Our stock option program is a broad-based, long-term
retention program that is intended to attract and retain talented employees and align stockholder and employee interests. We rely primarily on four stock option plans that provide broad discretion to our Board of Directors to create appropriate
equity incentives for members of our Board of Directors and our employees. On October 1, 2005, we adopted the provisions of SFAS 123R, requiring us to recognize expense related to the fair value of our share-based compensation awards. We
elected the modified prospective transition method as permitted by SFAS 123R. Under this transition method, stock-based compensation expense for the three months ended December 31, 2005, includes compensation expense for all stock based
compensation awards granted prior to, but not yet vested as of October 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation expense for all stock based compensation
awards granted subsequent to October 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with SFAS 123R, we capitalize the portion of our share-based compensation attributed to
internally developed software and defer the portion of our share-based compensation associated with activities that generate deferred revenue. Our ESPP is deemed non-compensatory and therefore is not subject to the provisions of SFAS123R. See Note 7
to our Consolidated Financial Statements for further detail, including the impact of the adoption to our Consolidated Statement of Operations.



Prior to October 1, 2005, We accounted for our stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles
Board Opinion 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, as amended. Accordingly, no
stock-based compensation cost is reflected in our statement of operations for the quarter ended December 31, 2004, as all options granted under these plans had exercise prices equal to the fair market value of the underlying common stock on the
date of grant, and any purchase discounts under our employee stock purchase plan were within statutory limits.



Income Taxes



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



We have accumulated significant net operating loss carryforwards and other
temporary differences, which resulted in net deferred tax assets. We currently have a full valuation allowance on our U.S. deferred tax assets and a full valuation allowance on our overseas deferred tax assets.



Depending upon our actual results for the second, third and fourth quarters
of 2006, there may be sufficient evidence to support the conclusion that all or a portion of our net deferred tax valuation allowance should be reduced during the second half of the year. Any such reduction of our net deferred tax valuation
allowance is expected to materially increase our net income and materially impact our consolidated balance sheet. We may not be able to sustain profitability, and as a result, any reduction in the valuation allowance and the future effective tax
rate are uncertain. In addition, the utilization of our accumulated net operating loss carryforwards may be subject to the limitations and timing as described below.



As a result of prior equity financings and the equity issued in conjunction with certain acquisitions, we have incurred
ownership changes, as defined by applicable tax laws. As a result, 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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Our net operating loss carryforwards may extend to a period of greater than 10 years, subject to limitations and timing as prescribed by applicable tax laws
and generally accepted accounting principles.



|ITEM 3. | 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.



Interest Rate Risk.We have borrowing arrangements with variable
rates of interest. There are no amounts outstanding at December 31, 2005 under such arrangements. We also maintain cash in highly liquid investment vehicles including money market accounts, which bear interest at variable overnight or short
term rates. Variable interest rate investment and 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 10% increase in interest rates. We believe such a change would not have a material impact on our cash flows related to these investment and debt arrangements.



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



|ITEM 4. | 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 SEC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 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 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 December 31, 2005 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Limitation On Effectiveness Of Controls.



It should be noted that any system of controls, including disclosure
controls and procedures and internal controls over financial reporting, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is
based, in part, upon the benefits of the control system relative to its costs.



Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.



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PART II. OTHER INFORMATION



|ITEM 1. | 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 along with 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 present and former officers of Concur named as 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 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 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 has been preliminarily approved by the court, but remains subject to final
approval by the parties and the court. There is no guarantee that the parties or the court will finalize the proposed settlement. Should the parties and the court fail to finalize the proposed settlement, we would continue to defend ourselves
vigorously.



|ITEM 1A. | RISK FACTORS
|-------- | ------------



We operate in a dynamic and rapidly changing business environment that involves substantial risk and uncertainty. The following discussion augments and
should be read in conjunction with the Risk Factors included in Item 1 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 and, collectively, addresses the risks and uncertainties that could cause, or
contribute to causing, actual results to differ materially from expectations. In evaluating our business, readers should pay particular attention to the descriptions of risks and uncertainties described in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2005 as updated by the discussion below and in other sections of this report and our other filings with the SEC.



We Only Recently Acquired Outtask, So It Is Difficult To Determine What Its Impact On Our Financial Results Will Be.



On January 23, 2006, we acquired Outtask. As a result, we have only a
very limited operating history on which to base an evaluation of our consolidated business and prospects. Our future success will depend on many factors, many of which are not entirely under our control, including, but not limited to, the following:



| |  |  | the successful integration of Outtask or any other businesses that we may acquire;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | growth in demand for our products and services;
| | - |  | -----------------------------------------------



| |  |  | the competition for any of our products services;
| | - |  | -------------------------------------------------



| |  |  | the perceived security of electronic commerce and communications over the Internet and other IP networks;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | the perceived security of our services, technology, infrastructure and practices; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the significant lead times before a new product, service or enhancements, including those that will be added through the acquisition Outtask, begin generating revenues.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To address these risks we must, among other
things:



| |  |  | successfully market our services to new and existing customers;
| | - |  | ---------------------------------------------------------------



| |  |  | attract, integrate, train, retain and motivate qualified personnel;
| | - |  | -------------------------------------------------------------------



| |  |  | respond to competitive developments;
| | - |  | ------------------------------------



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| |  |  | successfully introduce new services; and
| | - |  | ----------------------------------------



| |  |  | successfully introduce enhancements to our products and services to address new technologies and standards and changing market conditions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



We May Have Difficulties Integrating Outtask With Our Business Operations, And The
Costs We Incur May Be High.



We may experience
difficulties integrating the personnel, products, technologies and operations of Outtask. Those difficulties include:



| |  |  | potential disruption of our ongoing business;
| | - |  | ---------------------------------------------



| |  |  | potential impairment of relationships with our employees, customers, and strategic partners, including those employees, customers, and strategic partners that we added through our
acquisition of Outtask;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the need to manage more geographically-dispersed operations, such as Outtasks headquarters office in the State of Virginia;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | greater than expected costs, unknown liabilities and the diversion of managements resources from other business concerns involved in identifying, completing and integrating
the acquisition;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential difficulties retaining key employees of Outtask;
| | - |  | ----------------------------------------------------------



| |  |  | adverse effects on the existing customer relationships;
| | - |  | -------------------------------------------------------



| |  |  | our inability to incorporate acquired technologies successfully into our operations infrastructure;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the difficulty of assimilating the operations and personnel of Outtask;
| | - |  | -----------------------------------------------------------------------



| |  |  | potential incompatibility of business cultures;
| | - |  | -----------------------------------------------



| |  |  | the incurrence of debt, which will reduce our cash available for operations and other uses, and the issuance of equity securities, which will dilute the ownership interests of our
existing stockholders; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability to maintain uniform standards, controls, procedures and policies.
| | - |  | -------------------------------------------------------------------------------



If we are unable to address any of these risks successfully, our business could be harmed.



Additionally, there is risk that we may incur additional expenses associated
with an impairment of a portion of goodwill and other intangible assets due to changes in market conditions for acquisitions. Under generally accepted accounting principles, we are required to evaluate goodwill for impairment on an annual basis and
to evaluate other intangible assets as events or circumstances indicate that such assets may be impaired. These evaluations could result in further impairments of goodwill or other intangible assets.



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



In the future, we
may acquire additional 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 additional debt or issue additional equity securities to pay for future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders. If any acquisition or investment is not perceived as improving
our earnings per share, our stock price may decline. In addition, we may incur non-cash amortization charges from acquisitions, which could harm our operating results. Any completed acquisitions would also require significant integration efforts,
diverting our attention from our business operations and strategy.



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Because Sales Of Our Concur Expense Solutions, Account For More Than 95% Of Our Total Revenues, A Material Decrease
In Demand For These Solutions Would Substantially Harm Our Results Of Operations.



We generated more than 95% of our total revenues for the three months ended December 31, 2005, and for all of fiscal 2005, from our Concur Expense services and software. We expect such services and software to
continue to contribute a similar percentage of our total revenues for the foreseeable future. Our future financial performance and revenue growth is dependent upon continued market acceptance of our Concur Expense solutions, and our revenues would
decline significantly if, for example, our competitors, some of which have substantially greater resources than us, develop expense management products that achieve greater market acceptance, or we do not keep up with technological advancements in
software platforms, delivery models or product features. There can be no assurance that our services and software solutions will continue to maintain widespread market penetration or that we will continue to derive significant revenues from sales of
such solutions in the future.



We Depend On A Subscription Service
Business Model That Has A Limited History And Continues To Evolve, Which Makes Our Business Operations And Prospects Difficult To Evaluate.



Our subscription revenues are based on a business model that has a limited history and continues to evolve, and is therefore subject to a number of risks,
including, without limitation:



| |  |  | an increasing reliance on a relatively novel revenue model for our industry;
| | - |  | ----------------------------------------------------------------------------



| |  |  | a reduction in our license revenues as we focus on building our subscription business;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | lower gross margins and higher fixed costs associated with our subscription business, as compared to our license business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | unpredictable sales cycles; and
| | - |  | -------------------------------



| |  |  | the possibility of subscription cancellations.
| | - |  | ----------------------------------------------



We began offering our software as a service on an outsourced basis over the Internet in 1999. Our subscription services delivery models have continued to
evolve, and we anticipate that our future financial performance and revenue growth will depend, in large part, upon the growth of our subscription services. Our subscription revenues represented 79% of total revenues in the three months ended
December 31, 2005, and we depend substantially on outsourced subscription services delivery models for our anticipated revenues and cash flows. We believe 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 a result, we have invested significantly in
infrastructure, operations, and strategic relationships to support these models, which represent a significant departure from traditional software delivery strategies. The relatively short history and continued evolution of this business model makes
our business operations and prospects difficult to evaluate.



Our increased strategic focus on growing our subscription business has contributed to a substantial reduction in our software license revenues in recent years. The limited history of our subscription business model makes it difficult to
predict whether demand for subscription services will continue. If demand for our subscription services declines, we may not be able to generate sufficient license revenues to offset any decrease in subscription services revenues.



If our subscription services business does not grow sufficiently, our cost of
revenues may exceed such revenues, which could harm our operating results. Our costs of providing subscription services are relatively fixed in the short-term, so we may not be able to adjust our expenses quickly enough to offset any potential
slowdown in subscription sales. In addition, the cycle for implementing our subscription services can be unpredictable because our services must be integrated with a customers existing systems. Any delays in implementation may prevent us from
recognizing subscription revenue for indeterminate periods of time, even when we have already incurred costs relating to the implementation of our subscription services. Further, we may experience unanticipated increases in costs associated with
providing our subscription services and software maintenance services to customers over the term of our customer contracts as a result of inaccurate internal cost projections or other factors, which may harm our operating results. Additionally, some
of our subscription services contracts contain cancellation provisions, and, if cancelled, could result in us recognizing substantially less revenue than the aggregate value of those contracts over their terms. If a customer cancels or otherwise
seeks to terminate a subscription or maintenance agreement prior to the end of its term, or if we are unable to renew such an agreement at the end of its term, our operating results in future periods could be substantially harmed.



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



Our consulting revenues represented 19.2% of total revenues in the three
months ended December 31, 2005, respectively. We anticipate that consulting revenues will continue to represent a significant component of our total revenues. The level of consulting revenues depends largely upon demand for our consulting
services, which consist of system implementation and integration, planning, data conversion, training, and documentation of procedures. Our consulting revenues could fluctuate or decline to the extent sales or upgrades of our subscription services
and/or software licenses fluctuate or decline or if third-party organizations such as systems integrators compete with us for the installation or servicing of our offerings. Our ability to increase consulting revenues will depend in large part on
our ability to increase the scale of our consulting organization, including our ability to recruit and train a sufficient number of qualified consulting personnel.



We Face Significant Competition From Companies That Have Longer Operating Histories And Greater Resources Than We Do, And If We Fail
To Compete Effectively, Our Business Will Suffer.



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.



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



We depend on strategic reseller and referral
relationships to offer products and services to a larger customer base than we can reach through direct sales, telesales, and internal marketing efforts. If we were unable to maintain our existing strategic relationships or enter into additional
strategic relationships, we would have to devote substantially more resources to the distribution, sales, and marketing of our products and services, which would increase our costs and decrease our revenues. 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.



We Depend On Our Relationships With Travel Suppliers And Any Adverse Changes In These Relationships Could Adversely Affect Our Business, Financial Condition And Results Of Operations.



As a result of our acquisition of Outtask, an important component of our
business success will depend on our ability to maintain existing, as well as build new, relationships with travel suppliers. Adverse changes in existing relationships, or our inability to enter into new arrangements with these parties on favorable
terms, if at all, could reduce the amount, quality and breadth of attractively priced travel products and services that we are able to offer, which could adversely affect our business, financial condition, and results of operations.



Travel suppliers are increasingly seeking to lower their travel distribution
costs by promoting direct online bookings through their own websites. In some cases, supplier direct channels offer advantages to consumers, such as loyalty programs or lower transaction fees. In addition, travel suppliers may choose not to make
their travel products and services available through our distribution channels. To the extent that consumers increase the percentage of their travel purchases through supplier direct websites and/or if travel suppliers choose not to make their
products and services available to us, our business may suffer.



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



If customers
determine that our subscription services offerings are not sufficiently scalable, do not provide adequate security for the dissemination of information over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet
use or if, for any other reason, our customers decide not 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, damage to our reputation, or otherwise harm 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 restrictions on, or taken actions to restrict, the use of personal information by those collecting such information. Any new or existing privacy laws, if applicable to our business, could impose additional costs and could
limit our use and disclosure of such information. If such privacy laws were deemed to apply to us, we may be required to change our activities and revise or eliminate our services, which could significantly harm our business.



Interruption Of Our Operations Could Prevent Us From Delivering Our Products And
Services To Our Customers, Which Could Significantly Harm Our Business.



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



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



We Obtained Additional
Financing To Fund The Cash Portion Of The Consideration Paid To The Stockholders Of Outtask, And We May Require Additional Financings To Fund Operations Or Growth In The Future.



On January 24, 2006, Concur incurred an aggregate principal amount of up to $14 million of indebtedness for a term loan
under the Amended Loan Agreement with Comerica Bank. This indebtedness was used to finance the cash portion of the total merger consideration paid at the closing of acquisition of Outtask, and to pay fees and expenses associated with the
acquisition. 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 systems development and programming efforts, our results of operations and cash flows, the use of cash in our stock repurchase program, the status of competitive services and products, and the timing and success of potential
strategic alliances or potential opportunities to acquire or sell businesses or assets may require us to seek additional funding



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sooner than we expect. There is no assurance that such funding will be available on terms that are acceptable to us, or at all. If we raise additional funds
through the issuance of equity securities or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders would be reduced. In addition, such securities could have rights, preferences, and privileges senior
to those of our current stockholders. If adequate funds were not available on acceptable terms, our ability to achieve or sustain positive cash flows, maintain current operations, fund any potential growth, take advantage of unanticipated
opportunities, develop or enhance services or products, or otherwise respond to competitive pressures would be significantly limited.



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



Many new laws, regulations, and standards, notably those adopted by the SEC
and the NASDAQ Stock Market, impose new obligations on public companies in connection with the Sarbanes-Oxley Act of 2002, such as ours, which have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure
practices and have created uncertainty for companies such as ours. These new laws, regulations, and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our
continuing preparation for and implementation of these reforms and enhanced new disclosures has resulted in, and will likely continue to result in, increased general and administrative expenses and a significant diversion of managements time
and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with regulations regarding our internal control over financial reporting will likely continue to require us to commit significant
financial and managerial resources. If we are not able to prepare for and implement the reforms required by new laws, regulations, and standards, our business, operating results, and financial condition could be harmed. Further, these laws,
regulations, and standards may make it more difficult for us to attract and retain qualified members to serve on our board of directors and to attract and retain qualified executive officers, which could harm our business.



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



Our
international operations, which are subject to risks associated with operating outside of the United States, are becoming an increasingly important component of our business. Revenues from customers outside the United States represented
approximately $2.4 million for the three months ended December 31, 2005. These international operations are subject to many difficulties and incremental costs, including:



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



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



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



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



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



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



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



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



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



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



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



Our international operations also face foreign currency-related risks. To date, most of our revenues have been denominated in United States dollars, but
we believe that an increasing portion of our revenues will be denominated in foreign currencies. We currently do not engage in foreign exchange hedging activities and, therefore, our international revenues and expenses are currently subject to the
risks of foreign currency fluctuations. In addition, our ability to expand



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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 are unable to 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 might impose tariffs, duties, price
controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business in international markets.



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



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



Our 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:



| |  |  | whether we are perceived as able to integrate the personnel, products, and operations of Outtask;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | 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 large contracts;
| | - |  | ------------------------------



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



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



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



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



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



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



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



GAAP is subject to interpretation by the FASB, the American Institute of Certified Public Accountants, the SEC, and various
other bodies formed to promulgate and interpret accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before
the announcement of a change. In particular, revenue recognition rules for software and service companies are complex and require significant interpretation by us. Changes in circumstances, interpretations, or accounting principles or



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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 above regarding our critical revenue recognition policies. Further, we currently are not required to record stock-based compensation
charges if an employees stock option exercise price is equal to or exceeds the fair market value of our common stock on the grant date. However, in December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS 123(R)),
Share-based Payments, which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements, with the cost measured based on the estimated fair value of the equity or liability
instruments issued. As a result, we are now recording non-cash, stock-based compensation expense, which has a material effect on our results of operations.



Our Lengthy Sales Cycle Could Adversely Affect Our Financial Results.



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



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



Our software license revenues represented 2% of total revenues in the three months ended December 31, 2005, respectively. While software license revenues are diminishing as a percent of total revenues, they
continue to contribute to our overall operating results. However, the timing and amounts of license revenues can be difficult to predict, which can lead to variability in operating results. For example, our licensed software is typically shipped
when orders are received, so license backlog at the beginning of any quarter typically represents only a small portion of the quarters expected license revenues. This makes license revenues in any quarter difficult to forecast because they are
determined by orders booked and shipped in that quarter. Moreover, we have historically recognized a substantial percentage of license revenues in the last month of the quarter, frequently in the last week or even the last days of the quarter, and
we expect this trend to continue for as long as our licensed software represents a meaningful part of our overall business. Because our expenses are relatively fixed in the near term, any shortfall from anticipated revenues or any delay in the
recognition of revenues could result in significant variations in operating results from quarter to quarter. Further, we find it difficult to forecast quarterly license revenues because our sales cycle, from initial evaluation to delivery of
software, is lengthy and varies substantially from customer to customer. The continuing weakness of capital spending for enterprise software contributes to the length and unpredictability of our sales cycle for licensed products, making related
revenues more difficult to predict and subjecting our operating results to greater volatility on a quarter over quarter basis.



We May Not Successfully Develop Or Introduce New Products Or Enhancements To Existing Products, Or Successfully Integrate The Outtask Products And Services, So We
May Lose Existing Customers Or Fail To Attract New Customers And Our Revenues Would Suffer.



Our future financial performance and revenue growth will depend, in part, upon the successful development, introduction, and customer acceptance of new
and enhanced versions of our products and services, and on our ability to integrate the products and services of Outtask into our existing and future products and services. Our business could be harmed if we fail to deliver enhancements to our
current and future products and services that our customers desire, or fail to integrate Outtasks products and services into our existing and future products. From time to time, we experience delays in the planned release dates of enhancements
to our products and services, and we have discovered errors in new releases after their introduction. New product versions or upgrades may not be released according to schedule, or may contain errors when released. Either situation could result in
adverse publicity, loss of sales, delay in market acceptance of our products and services, or customer claims, including, among other things, warranty claims against us, any of which could harm our business. If we do not deliver new product
versions, upgrades, or other enhancements to existing products and services on a timely and cost-effective basis, our business will be harmed. We are also continually seeking to develop new offerings. However, we remain subject to all of the risks
inherent in product development, including, without limitation, unanticipated technical or other development problems, which could result in material delays in product introduction and acceptance or significantly increased costs. There can be no
assurance that we will be able to successfully develop new services or products, or to introduce in a timely manner and gain acceptance of such new products or services in the marketplace.



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If Our Products And Services Do Not Keep Pace With Technological Change, Our Sales Could Decline And Our Business
Could Be Harmed.



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



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



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



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



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



| |  |  | the announcement of a merger or acquisition;
| | - |  | --------------------------------------------



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



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



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



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



| |  |  | the volume of trading in our common stock, including sales upon exercise of outstanding options.
| | - |  | ------------------------------------------------------------------------------------------------



Stock markets, particularly the NASDAQ Stock Market, have 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 with 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 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 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 present and former officers of Concur named as defendants, without any admission of wrongdoing by us or the individual defendants. The proposed settlement has been preliminarily approved by the court, but remains
subject to final approval by the parties and the court. There is no guarantee that the parties or the court will finalize the proposed settlement. Should the parties and the court fail to finalize 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.



If We Fail To Attract And Retain
Qualified Personnel, Our Business Could Be Harmed.



Our success depends in large part on our ability to attract, motivate, and retain highly qualified personnel, including personnel recently added through our acquisition of Outtask. Competition for such personnel is intense and there can be
no assurance that we will be successful in attracting, motivating, and retaining key personnel. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other
software vendors and consulting and professional services companies. Further, recent changes in applicable stock exchange



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listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options
to employees in the future. We rely on our direct sales force to sell our services and software in the marketplace. We anticipate increasing our direct sales force. There is significant competition for direct sales personnel with the advanced sales
skills and technical knowledge we need. If we were unable to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available
through other sales channels, such as domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm
our business.



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



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



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



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



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



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



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



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 5. | OTHER INFORMATION
|------- | -----------------



On January 23, 2006, we closed on the acquisition of Outtask, Incorporated, headquartered in Alexandria, VA. Under the agreement, all Outtask shares
will be exchanged for $24 million to $36 million in cash and 2.9 million to 3.5 million shares of Concur common stock. The purchase price for the acquisition was determined based upon an arms length negotiation and totaled
approximately $67 - $88 million based upon the closing price of Concur Stock on January 20th. This acquisition
allows us to expand our on-demand CEM suite by offering clients the market leading corporate travel management service, Cliqbook.



In connection with the acquisition of Outtask, there are contingent payments to be calculated based upon identified performance criteria as specified in
the underlying purchase agreement. When determined, these additional payments will be recorded as goodwill. As of January 23, 2005, we estimate that these payments could range up to approximately $21 million in cash and stock and would be
payable after fiscal year end 2006.



|ITEM 6. | EXHIBITS
|------- | --------



(a) The following exhibits are filed as a part of this report:



|               |  |                                                                                                                                                                                                                 |  |                           |  |          |  |                      |  |                |  |                  
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------- |  | -------------------- |  | -------------- |  | -----------------
|               |  |                                                                                                                                                                                                                 |  | Incorporated by Reference
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                             |  | Form                      |  | File No. |  | Date of First Filing |  | Exhibit Number |  | Provided Herewith
|2.01           |  | Agreement and Plan of Reorganization, dated January 23, 2006, among Concur Technologies, Inc., Galileo 1 Acquisition Corporation, Inc., Galileo 2 Acquisition LLC, and Thomas A. DePasquale, as
Representative. |  |                          |  |         |  |                     |  |               |  | X                
|               |  |                                                                                                                                                                                                                 |  |                           |  |         
|10.01          |  | Amended and Restated Loan and Security Agreement, dated January 24, 2006, among Concur Technologies, Inc., Captura Software, Inc., Outtask LLC, and Comerica Bank.                                              |  |                          |  |         |  |                     |  |               |  | X                
|               |  |                                                                                                                                                                                                                 |  |                           |  |         
|31.01          |  | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                    |  |                          |  |         |  |                     |  |               |  | X                
|               |  |                                                                                                                                                                                                                 |  |                           |  |         
|31.02          |  | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                    |  |                          |  |         |  |                     |  |               |  | X                
|               |  |                                                                                                                                                                                                                 |  |                           |  |         
|32.01          |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*                                                                                        |  |                          |  |         |  |                     |  |               |  | X                
|               |  |                                                                                                                                                                                                                 |  |                           |  |         
|32.02          |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*                                                                                        |  |                          |  |         |  |                     |  |               |  | X                

---

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



SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized to sign on behalf of the registrant and as the principal financial officer
thereof.



Dated: February 8, 2006



CONCUR TECHNOLOGIES, INC.By

/s/    John F. AdairJohn F. AdairChief Financial Officer




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