##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington DC 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2004                                                 
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from                        to                                

Commission file number 0-23067


CONCORD COMMUNICATIONS, INC.


(Exact name of registrant as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|Massachusetts            |  | 04-2710876                          
|(State of incorporation) |  | (IRS Employer Identification Number)

400 Nickerson Road


Marlborough, Massachusetts 01752


(508) 460-4646


(Address and telephone number of principal executive
offices)





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


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


Common Stock, par value $0.01 per share


(Title of class)


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE


|                                                                                                                                                                                                             |  |                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------
|Document                                                                                                                                                                                                     |  | Form 10-K Reference              
|                                                                                                                                                                                                             |  |                                  
|Portions of the Registrants Proxy Statement for its Annual
    Meeting of Stockholders to be held on May 4, 2005 to be
    filed within 120 days of the end of the fiscal year ended
    December 31, 2004. |  | Part III, Items 10, 11, 12 and 14









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TABLE OF CONTENTS


|                                                                                    |  |                                                                                           |  |               |    |  |    | 
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------- | -- |  | -- | 
|PART I                                                                             
|Item 1.                                                                             |  | Business                                                                                  |  |               | 1  | 
|Item 2.                                                                             |  | Properties                                                                                |  |               | 20 | 
|Item 3.                                                                             |  | Legal Proceedings                                                                         |  |               | 21 | 
|Item 4.                                                                             |  | Submission of Matters to a Vote of Security
    Holders                                   |  |               | 21 | 
|PART II                                                                            
|Item 5.                                                                             |  | Market for the Registrants Common
    Stock and Related Stockholder Matters              |  |               | 22 | 
|Item 6.                                                                             |  | Selected Financial Data                                                                   |  |               | 23 | 
|Item 7.                                                                             |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |               | 25 | 
|Item 7A.                                                                            |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |  |               | 47 | 
|Item 8.                                                                             |  | Financial Statements and Supplementary
    Data                                           |  |               | 48 | 
|Item 9A.                                                                            |  | Controls and Procedures                                                                   |  |               | 48 | 
|PART III                                                                           
|Item 10.                                                                            |  | Directors and Officers of the Registrant                                                  |  |               | 49 | 
|Item 11.                                                                            |  | Executive Compensation                                                                    |  |               | 50 | 
|Item 12.                                                                            |  | Security Ownership of Certain Beneficial
    Owners and Management                        |  |               | 50 | 
|Item 13.                                                                            |  | Certain Relationships and Related
    Transactions                                        |  |               | 50 | 
|Item 14.                                                                            |  | Principal Accountant Fees and Services                                                    |  |               | 50 | 
|PART IV                                                                            
|Item 15.                                                                            |  | Exhibits and Financial Statement
    Schedules                                            |  |               | 51 | 
|                                                                                    |  |                                                                                           |  | Signatures    |    |  | 83 | 
|                                                                                    |  |                                                                                           |  | Exhibit Index |    |  | 84 | 
|Ex-3.02 Restated By-Laws of the Company                                            
|EX-10.06 1997 STOCK PLAN                                                           
|Ex-10.08 1997 Non-Employee-Director Stock Option Plan                              
|Ex-10.16 2004 Non-Executive Employee Stock Purchase Plan                           
|Ex-10.18 Form of 1997 Non-Qualified Stock Plan Agreement                           
|Ex-10.25 Form of 1997 Non-Qualified Option Agreement                               
|Ex-10.30 Form of 1997 Executive Incentive Stock Option Agreement                   
|Ex-10.33 Aprisma Management Technologies 2003 Equity Participation & Retention Plan
|Ex-10.40 Management Change in Control Agreement                                    
|Ex-10.42 Form of Restricted Stock Grant Agreement                                  
|Ex-21.01 Subsidiaries of the Company                                               
|Ex-23.01 Consent of PricewaterhouseCoopers LLP                                     
|Ex-31.1 Certification of John A. Blaeser                                           
|Ex-31.2 Certification of Melissa H. Cruz                                           
|Ex-32.1 Sect. 906 Certification of John A. Blaeser                                 
|Ex-32.2 Sect. 906 Certification of Melissa H. Cruz                                 





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##### Table of Contents






PART I









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

Overview and Recent Acquisitions


e




| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | maps information technology (IT) services to
    business needs,
|
| |  | measures the actual end user experience; and                      
|
| |  | manages application, system and network infrastructures.          









1



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http://www.concord.com/. http://www.sec.gov/.


Business Service Management Market






| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Availability of the services is critical, because a service that
    is not available has a detrimental effect on the business;                                                                                                                                                              
|
| |  | Performance of the services matters because slow services have
    an economic cost and may indicate that more serious problems are
    to follow; and                                                                                                                                       
|
| |  | Service capacity. Excess service capacity is expensive. However,
    inadequate capacity leads to shortages or outages. IT managers
    rely on capacity data to closely manage expenses as well as to
    plan additional investments necessary to provide particular
    levels of service.







| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | Maintaining business service delivery by quickly identifying and
    correcting IT service problems;       
|
| |  | Creating a high level of customer service and satisfaction;                                                
|
| |  | Sustaining the companys revenue stream;                                                                   
|
| |  | Creating a unified business focus for the whole
    company  management, business units, and the IT staff;
|
| |  | Improving communication between the IT department and the
    business units; and                          
|
| |  | Increasing the value of the IT resource.                                                                   

General


e e




| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | MAP  eHealth maps IT services to business
    processes and delivers an executive business view to key
    performance indicators.                                                                         
|
| |  | MEASURE  eHealth measures the actual end-user
    experience. This is the most effective method to determine how
    well a business service is being delivered. Observational
    testing is one method of

2



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| |   |                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | directly measuring actual user experience, while synthetic
    testing simulates the same. Concords eHealth
    delivers both of these measurement capabilities, allowing
    organizations to see the impact of IT services on the business.                                                                                                                                         
|
| |  | MANAGE  eHealth manages the end-to-end IT
    infrastructure and enables IT organizations to move away from
    the stove-pipe management frameworks of the past. As
    a result, IT organizations are better able to meet or exceed
    service level agreements (SLAs) with their line of
    business customers, increase uptime, accelerate performance and
    reduce costs.

Market Segments Served






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enterprises use our eHealth® Suite of products to
    protect their revenue by ensuring that critical applications are
    available when needed. Our software also allows them to reduce
    expenses by limiting the need for incremental IT administrators
    and equipment as their business and IT infrastructures expand.
    IT personnel can also use our software to plan the future
    capacity of their IT infrastructure. Concord sells into 17
    different vertical markets, with a focus on financial services,
    insurance, manufacturing, and retail. Government is also a key
    target market for Concord.                                                                                                                                                              
|
| |  | Service providers include both managed service providers and
    traditional telecommunication companies. Managed service
    providers are those organizations that provide IT services to
    enterprises for a fee. These companies use the
    eHealth® Suite to monitor compliance with service
    level agreements, maintain the quality of their services and
    introduce new services for their business customers.
    Telecommunication carriers that provide services like cable,
    broadband internet and wireless services to residential and
    commercial businesses rely on the eHealth® Suite to
    maintain the quality of their services such as network and
    bandwidth services, web hosting, data center/co-location
    services or to provide internet services.



The eHealth® Solution


e


Easy to Deploy and Manage. e


Wide Technology Coverage. e


3



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Flexible Reporting. e


Highly Scalable. e e


Products and Technology


e e


eHealth® E2E Console


e e


eHealth® for Applications






| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Synthetic Testingis the execution of repeatable,
    scheduled simulated application transactions. Active testing can
    take place at the desktop, server, or router, providing
    availability or performance data about an application from these
    strategic locations in customers infrastructures.                                  
|
| |  | Observational Monitoringcollects application
    performance information from actual users in a non-intrusive,
    observational manner; it occurs at the client desktop and
    measures the actual experience of the end user.                                                                                                               
|
| |  | Managing Applications on Servershelps IT
    personnel optimize the performance and availability of
    applications running on systems, such as Apache, Microsoft
    Exchange, SQL Server and Oracle. Our solution works by
    collecting application metrics from eHealth®
    application insight modules residing on application servers.

e


e Health® for Systems e


e Health® for Networks


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eHealth®  Suite Wide Solutions




| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | eHealth® Live
    Health  identifies outages, potential outages
    and sources of delay across applications in real time, enabling
    rapid problem diagnosis. eHealth® Live Health
    provides out-of-the-box profiles that detect IT slowdowns and
    service degradation.                                    
|
| |  | Distributed eHealth®   runs and
    manages eHealth® applications across multiple
    eHealth® systems as if they are one system. Our
    distributed architecture solution allows configurations,
    viewable from a single console, which supports collection and
    reporting of up to 1,000,000 data elements.
|
| |  | Netviz®   enables users to
    visualize business processes and allows them to map
    relationships within the supporting technology infrastructure
    through data-driven icons.                                                                                                                                 
|
| |  | Spectrum®   manages the health and
    performance of networks and the business services that rely on
    them, including performing root cause analysis, event
    correlation, service modeling, and topological discovery and
    display.                                                                       
|
| |  | Vitel IVIZE Product  enables
    enterprises and service providers to manage the performance of
    next-generation IP and legacy voice networks and messaging
    systems, including voice mail, from multiple vendors.                                                                                            

Sales and Marketing










5



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Customer Service






Research and Product Development










6



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License and Service Revenues




Competition






| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) application performance software vendors such as
    Mercury Interactive;                                                                                
|
| | (ii) fault management software vendors such as
    Hewlett-Packard Company, Micromuse, Inc., and Smarts (acquired
    by EMC);                               
|
| | (iii) enterprise management software, framework and
    platform providers such as BMC Software, Inc. and Computer
    Associates, Inc;                      
|
| | (iv) large, well established network management framework
    companies such as International Business Machines Corporation
    and Lucent Technologies Inc.;
|
| | (v) wireless management vendors like Valient Corporation
    and TTI Team Telecom International Ltd.;                                                        
|
| | (vi) probe vendors such as NetScout Systems, Inc.; and                                                                                                       
|
| | (vii) reporting niche vendors such as InfoVista and Visual
    Networks, Inc.                                                                                





Intellectual Property and Other Proprietary Rights






7



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Revenue by Geographic region


in thousands


|                            |       |                         |        |         |                |  |       |      |   |   |                |         |  |      |      |      |   |   |        |        | 
|--------------------------- | ----- | ----------------------- | ------ | ------- | -------------- |  | ----- | ---- | - | - | -------------- | ------- |  | ---- | ---- | ---- | - | - | ------ | ------ | 
|                            |       | Year Ended December, 31 |       
|                            |       |                         |       
|                            |       | 2004                    |        |         | Percent Change |  |       | 2003 |   |   | Percent Change |         |  | 2002 |     
|                            |       |                         |        |         |                |  |       |      |   |   |                |         |  |      |     
|                            |       | (Dollars in thousands)  |       
|United States               |       | $                       | 69,549 |         |                |  | 17.2  | %    |   | $ | 59,325         |         |  |      | 2.6  | %    |   | $ | 57,812 |       
|United Kingdom              |       |                         | 7,526  |         |                |  | (27.7 | )%   |   |   | 10,412         |         |  |      | 81.7 | %    |   |   | 5,731  |       
|Europe (excluding the U.K.) |       |                         | 16,112 |         |                |  | (19.1 | )%   |   |   | 19,907         |         |  |      | 19.6 | %    |   |   | 16,640 |       
|Rest of the World           |       |                         | 13,001 |         |                |  | (9.8  | )%   |   |   | 14,419         |         |  |      | 5.5  | %    |   |   | 13,661 |       
|                            |       |                         |        |         |                |  |       |      |   |   |                |         |  |      |     
|                            | Total |                         |        | 106,188 |                |  |       | 2.0  | % |   | $              | 104,063 |  |      |      | 10.9 | % |   | $      | 93,844 | 
|                            |       |                         |        |         |                |  |       |      |   |   |                |         |  |      |     
|Percent of Revenues         |       |                         |        |         |                |  |       |      |   |   |                |         |  |      |      |      |   |   |        |       
|United States               |       |                         | 65.5   | %       |                |  |       |      |   |   | 57.0           | %       |  |      |      |      |   |   | 61.6   | %     
|United Kingdom              |       |                         | 7.1    | %       |                |  |       |      |   |   | 10.0           | %       |  |      |      |      |   |   | 6.1    | %     
|Europe (excluding the U.K.) |       |                         | 15.2   | %       |                |  |       |      |   |   | 19.1           | %       |  |      |      |      |   |   | 17.7   | %     
|Rest of the World           |       |                         | 12.2   | %       |                |  |       |      |   |   | 13.9           | %       |  |      |      |      |   |   | 14.6   | %     



Business Segment Data




Employees




8



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FACTORS THAT COULD AFFECT FUTURE RESULTS


References in these risk factors to we,
our, the Company, Concord,
and us refer to Concord Communications, Inc., a
Massachusetts corporation. Any investment in our common stock
involves a high degree of risk. If any of the following risks
actually occur, our business, results of operations and
financial condition would likely suffer.






| |                                            
| | -------------------------------------------
| | Our future operating results are uncertain.

e


e e ®


e ® ®




9



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| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our acquisitions of netViz Corporation and Vitel Software,
    Inc. presents many risks, and we may not realize the financial
    and strategic goals we anticipate at the time of these
    acquisitions.





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | successfully integrate the acquired products;                                                                                                                  
|
| |  | successfully integrate personnel and management structures;                                                                                                    
|
| |  | provide products or services that meet the demands of these
    markets;                                                                                       
|
| |  | develop an effective business strategy for these markets;                                                                                                      
|
| |  | retain key customers;                                                                                                                                          
|
| |  | retain key employees;                                                                                                                                          
|
| |  | effectively control costs associated with the integration
    (including research and development costs);                                                      
|
| |  | meet expected timelines for product development and
    commercialization; and                                                                                 
|
| |  | account for exposure to liabilities of the acquired companies
    that were not known or accurately evaluated by us prior to
    consummating the acquisitions.



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our acquisition of Aprisma Management Technologies, Inc.
    presents many risks, and we may not realize the financial and
    strategic goals we anticipate at the time of the acquisition.





| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | successfully integrate the acquired products;                                                                                                  
|
| |  | implement a successful sales strategy for the integrated company;                                                                              
|
| |  | attract and retain key distribution partners;                                                                                                  
|
| |  | successfully integrate personnel and management structures;                                                                                    
|
| |  | provide products or services that meet the demands of the market;                                                                              
|
| |  | gain expected efficiencies and other financial benefits from the
    integrated company;                                                       
|
| |  | retain key employees;                                                                                                                          
|
| |  | effectively control costs associated with the integration of
    these companies (including research and development costs);                   
|
| |  | meet expected timelines for product development and
    commercialization; and                                                                 
|
| |  | account for exposure to liabilities of Aprisma that were not
    known or accurately evaluated by us prior to consummating the
    acquisition.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We cannot ensure that our revenues will grow or that we will
    again be profitable.



10



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| |   |                                                             
| | - | ------------------------------------------------------------
| |  | fund higher levels of research and development;             
|
| |  | increase our sales and marketing efforts;                   
|
| |  | increase sales staff and sales training programs;           
|
| |  | develop new distribution channels;                          
|
| |  | broaden our customer support capabilities; and              
|
| |  | respond to unforeseeable economic or business circumstances.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Our operating results may fluctuate and you could lose the
    value of your investment.





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in the demand for our products by customers or groups of
    customers;                                                                                                                                    
|
| |  | the timing, composition, and size of orders from our customers,
    including the tendency for significant bookings to occur in the
    final two weeks of each fiscal quarter (including the fiscal
    year end);
|
| |  | difficulties penetrating new markets for our products;                                                                                                                                                             
|
| |  | costs associated with the integration of acquired companies
    and/or new technologies;                                                                                                                           
|
| |  | our customers spending patterns and budgetary resources
    for our products;                                                                                                                                     
|
| |  | geopolitical conditions in the world;                                                                                                                                                                              
|
| |  | the success of our new customer generation activities;                                                                                                                                                             
|
| |  | introductions or enhancements of products, or delays in the
    introductions or enhancements of products, by us or our
    competitors;                                                                           
|
| |  | changes in our pricing policies or those of our competitors;                                                                                                                                                       
|
| |  | changes in the distribution channels through which our products
    are sold;                                                                                                                                      
|
| |  | our success in anticipating and effectively adapting to
    developing markets and rapidly changing technologies;                                                                                                  
|
| |  | our success in attracting, retaining, and motivating qualified
    personnel;                                                                                                                                      
|
| |  | the publication of opinions about us and our products, or our
    competitors and their products, by industry analysts or others;                                                                                  
|
| |  | changes in general economic conditions; and                                                                                                                                                                        
|
| |  | changes in accounting rules.                                                                                                                                                                                       



11



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| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We have increased our leverage as a result of the sale of the
    3.0% Convertible Senior Notes due 2023.





| |                                                                     
| | --------------------------------------------------------------------
| | Our debt service obligations may adversely affect our cash
    flow.





| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | make it difficult for us to make payments on the Notes;                                                                                                                 
|
| |  | make it difficult for us to obtain any necessary financing in
    the future for working capital, capital expenditures, debt
    service requirements or other purposes;
|
| |  | limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we compete; and                                            
|
| |  | make us more vulnerable in the event of a downturn in our
    business.                                                                                                 



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Our success is dependent upon sales to telecommunication
    carriers and managed service providers.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | The market for business service management software is an
    emerging market and if we fail to assess it accurately, our
    business could suffer.





| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the size of the market;                                                                
|
| |  | the appropriate features and prices for products to address this
    market;           
|
| |  | the optimal distribution strategy; and                                                 
|
| |  | the market that will develop and the impact of large competitors
    within the market.



12



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| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Increased royalty costs and our reliance on third party
    technology partners could adversely impact our business.







| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The markets for our products are intensely competitive and
    rapidly evolving and competition could harm our ability to sell
    products and services and could reduce our revenues.





| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | application performance software vendors;                                                                                  
|
| |  | fault management software vendors;                                                                                         
|
| |  | IT visualization software vendors;                                                                                         
|
| |  | application availability and performance management software
    vendors;                                                  
|
| |  | report toolset niche vendors;                                                                                              
|
| |  | enterprise management software, framework and platform providers;                                                          
|
| |  | software vendors providing service assurance for the wireless
    market;                                                  
|
| |  | large, well-established management framework companies that have
    developed network or application management platforms;
|
| |  | developers of network element management solutions;                                                                        
|
| |  | probe vendors;                                                                                                             
|
| |  | telecommunication vendors;                                                                                                 
|
| |  | system agent vendors; and                                                                                                  
|
| |  | vendors that provide, as a service, some of the functionality of
    our products.                                         



13



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| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Market acceptance of our eHealth® products
    and services is critical to our success.

e e




| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | the availability and price of competing integrated solutions,
    products and technologies;                      
|
| |  | our ability to continue to provide product functionality and
    related services to meet the needs of our market;
|
| |  | our ability to continue research and development at levels
    necessary for the growth of our business;          
|
| |  | the demand for integrated, as opposed to stand-alone,
    solutions; and                                          
|
| |  | the success of our sales efforts and those of our marketing
    partners.                                         





| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Market acceptance of Spectrum® products and
    services is critical to our success.





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | the availability and price of competing integrated solutions,
    products and technologies;                      
|
| |  | our ability to continue to provide product functionality and
    related services to meet the needs of our market;
|
| |  | our ability to continue research and development at levels
    necessary for the growth of our business; and      
|
| |  | the success of our sales efforts and those of our marketing
    partners.                                         





| |                                                                          
| | -------------------------------------------------------------------------
| | Market acceptance of our netViz® products is
    critical to our success.

e




| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | the availability and price of competitive products and services;                             
|
| |  | the ability of others to develop products and services that meet
    the needs of the market;

14



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| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | our ability to continue to provide product functionality and
    related services to meet the needs of our market;
|
| |  | our ability to continue research and development at levels
    necessary for the growth of our business;          
|
| |  | the demand for data-driven visualization software; and                                                            
|
| |  | the success of our sales efforts and those of our channel
    partners.                                           





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | We may need future capital funding which may be unavailable
    on favorable terms, or at all.





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | We must introduce product enhancements and new products on a
    timely basis in order to remain competitive.





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we will successfully develop and market enhancements to our
    products or successfully develop new products that respond to
    technological changes, evolving industry standards, or customer
    requirements;
|
| |  | we will not experience difficulties that could delay or prevent
    the successful development, introduction, and sale of
    enhancements or new products; or                                                     
|
| |  | enhancements or new products will adequately address the
    requirements of the marketplace and achieve market acceptance.                                                                                        



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | The need for our products may decrease if manufacturers
    incorporate our product features into their product
    offerings.





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Current geopolitical instability and the continuing threat of
    domestic and international terrorist attacks may adversely
    impact our revenues.



15



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| |                                                                             
| | ----------------------------------------------------------------------------
| | An adverse impact on our outsourcing activities may affect
    our business.





| |                                                                    
| | -------------------------------------------------------------------
| | Our common stock price could experience significant
    volatility.





| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | variations in results of operations;                                                                                           
|
| |  | announcements of technological innovations or new products by us
    or our competitors;                                       
|
| |  | changes in financial estimates by securities analysts;                                                                         
|
| |  | announcements of results of operations by other companies;                                                                     
|
| |  | announcements by government or other agencies regarding the
    economic health of the United States and the rest of the world;
|
| |  | announcements relating to financial improprieties by public
    companies; or                                                  
|
| |  | other events or factors.                                                                                                       





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Our industry is subject to rapid technological change. Our
    failure to maintain standard protocols could affect our
    sales.





| |   |                                        
| | - | ---------------------------------------
| |  | rapid technological change;            
|
| |  | frequent introductions of new products;
|
| |  | changes in customer demands; and       
|
| |  | evolving industry standards.           



16



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| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on strategic partners and other evolving distribution
    channels who may not be able to market or sell our products and
    services effectively.





| |   |                                                             
| | - | ------------------------------------------------------------
| |  | strategic marketing partners;                               
|
| |  | value added resellers;                                      
|
| |  | service providers                                           
|
| |  | system integrators;                                         
|
| |  | telecommunication carriers;                                 
|
| |  | original equipment manufacturers; and                       
|
| |  | independent software vendors and international distributors.





| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fail to attract important and effective channel partners;                                                                                                                                                                               
|
| |  | fail to penetrate our targeted market segments through the use
    of channel partners; or                                                                                                                                              
|
| |  | lose any of our channel partners as a result of competitive
    products and services offered by other companies, products and
    services developed internally by these channel partners, their
    financial insolvency or otherwise.



| |                                                                   
| | ------------------------------------------------------------------
| | We may fail to manage successfully the growth of our
    business.





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our success depends on our retention of key personnel and we
    may be unable to recruit, integrate and retain the personnel we
    need.



17



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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Our failure to continue to expand into international markets
    could harm our business.







| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | costs of customizing products and services for international
    markets;                   
|
| |  | dependence on independent resellers;                                                        
|
| |  | multiple and conflicting regulations;                                                       
|
| |  | exchange controls;                                                                          
|
| |  | longer payment cycles;                                                                      
|
| |  | unexpected changes in regulatory requirements;                                              
|
| |  | import and export restrictions and tariffs;                                                 
|
| |  | difficulties in staffing and managing international operations;                             
|
| |  | greater difficulty or delay in accounts receivable collections;                             
|
| |  | potentially adverse tax consequences;                                                       
|
| |  | compliance with a variety of laws outside the United States;                                
|
| |  | the impact of possible recessionary environments in economies
    outside the United States;
|
| |  | political and economic instability; and                                                     
|
| |  | exposure to foreign currency fluctuations.                                                  





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Our failure to protect our intellectual property rights may
    harm our competitive position.





18



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Patent Infringement Litigation, including patent infringement
litigation with Micromuse, Inc., could adversely affect our
business.










| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Intellectual property infringement claims could result in
    costly litigation and could harm our business.





| |                                                                            
| | ---------------------------------------------------------------------------
| | We may not have sufficient protection against product
    liability claims.



19



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| |                                                                        
| | -----------------------------------------------------------------------
| | Changes in accounting policies could adversely affect our
    business.





| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | software revenue recognition;                                                                                                                                    
|
| |  | measurement of stock-based compensation at fair value in
    accordance with Financial Accounting Standards Board Statement
    No. 123R Share-Based Payment; and
|
| |  | accounting for goodwill and other intangible assets.                                                                                                             





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | The conviction of Arthur Andersen LLP may limit potential
    recoveries related to their prior service as our independent
    auditors.










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



20



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



| |          
| | ---------
| | a) Claims














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



21



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PART II







|        |                                                                             
|------- | ----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Stock and Related
    Stockholder Matters



Price Range of Common Stock


|             |                |      |   |       |     |  |   |       | 
|------------ | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|Period       |                | High |   |       | Low | 
|             |                |      |   |       |     | 
|Fiscal 2004: |                |      |   |       |     |  |   |      
|             | First Quarter  |      | $ | 21.02 |     |  | $ | 13.60 | 
|             | Second Quarter |      |   | 15.65 |     |  |   | 10.33 | 
|             | Third Quarter  |      |   | 11.45 |     |  |   | 7.87  | 
|             | Fourth Quarter |      |   | 11.22 |     |  |   | 7.76  | 
|Fiscal 2003: |                |      |   |       |     |  |   |      
|             | First Quarter  |      | $ | 11.50 |     |  | $ | 6.60  | 
|             | Second Quarter |      |   | 15.38 |     |  |   | 8.58  | 
|             | Third Quarter  |      |   | 16.95 |     |  |   | 11.67 | 
|             | Fourth Quarter |      |   | 23.12 |     |  |   | 13.18 | 



Dividend Policy




Use of Proceeds




22



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



Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections


23



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|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |        |        | 
|---------------------------------------------------------------- | ----------------------------------- | ------------------------------------- | ----- | ------ | ------- | - | ------ | ------ | ------- | - | ----- | ------ | ------ | ---- | ------- | ------- | ------- | - | ----- | ------ | ------ | 
|                                                                 |                                     | Fiscal Year Ended December 31,        |      
|                                                                 |                                     |                                       |      
|                                                                 |                                     | 2004                                  |       |        | 2003    |   |        | 2002   |         |   | 2001  |        |        | 2000 |        
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | (in thousands, except per share data) |      
|Consolidated Statements of Operations Data:                      |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|Revenues:                                                        |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|                                                                 | License revenues                    |                                       | $     | 49,973 |         |   | $      | 54,267 |         |   | $     | 51,230 |        |      | $       | 54,406  |         |   | $     | 69,464 |       
|                                                                 | Service revenues                    |                                       |       | 56,215 |         |   |        | 49,796 |         |   |       | 42,614 |        |      |         | 33,572  |         |   |       | 22,020 |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | Total revenues                        |       |        | 106,188 |   |        |        | 104,063 |   |       |        | 93,844 |      |         |         | 87,978  |   |       |        | 91,484 | 
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|Cost of Revenues:                                                |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|                                                                 | Cost of license revenues            |                                       |       | 3,490  |         |   |        | 3,117  |         |   |       | 1,850  |        |      |         | 2,272   |         |   |       | 1,997  |       
|                                                                 | Cost of service revenues            |                                       |       | 17,488 |         |   |        | 16,127 |         |   |       | 15,120 |        |      |         | 15,544  |         |   |       | 11,104 |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | Total cost of revenues                |       |        | 20,978  |   |        |        | 19,244  |   |       |        | 16,970 |      |         |         | 17,816  |   |       |        | 13,101 | 
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | Gross profit                          |       |        | 85,210  |   |        |        | 84,819  |   |       |        | 76,874 |      |         |         | 70,162  |   |       |        | 78,383 | 
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|Operating Expenses:                                              |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|                                                                 | Research and development            |                                       |       | 25,218 |         |   |        | 22,827 |         |   |       | 21,973 |        |      |         | 24,284  |         |   |       | 21,624 |       
|                                                                 | Sales and marketing                 |                                       |       | 49,911 |         |   |        | 48,352 |         |   |       | 47,383 |        |      |         | 51,041  |         |   |       | 42,996 |       
|                                                                 | General and administrative          |                                       |       | 11,676 |         |   |        | 9,035  |         |   |       | 7,665  |        |      |         | 8,705   |         |   |       | 8,403  |       
|                                                                 | Asset impairment charge             |                                       |       |       |         |   |        |       |         |   |       |       |        |      |         |        |         |   |       | 2,337  |       
|                                                                 | Acquisition-related charges         |                                       |       |       |         |   |        | 40     |         |   |       |       |        |      |         |        |         |   |       | 4,300  |       
|                                                                 | In-process research and development |                                       |       | 100    |         |   |        | 994    |         |   |       |       |        |      |         |        |         |   |       |       |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | Total operating expenses              |       |        | 86,905  |   |        |        | 81,248  |   |       |        | 77,021 |      |         |         | 84,030  |   |       |        | 79,660 | 
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 | Operating (loss) income             |                                       |       | (1,695 | )       |   |        | 3,571  |         |   |       | (147   | )      |      |         | (13,868 | )       |   |       | (1,277 | )     
|Other income, net                                                |                                     |                                       | 1,049 |        |         |   | 2,084  |        |         |   | 2,916 |        |        |      | 3,161   |         |         |   | 2,850 |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|                                                                 |                                     | (Loss) income before income taxes     |       |        | (646    | ) |        |        | 5,655   |   |       |        | 2,769  |      |         |         | (10,707 | ) |       |        | 1,573  | 
|(Benefit from) provision for income taxes                        |                                     |                                       | (112  | )      |         |   | (2,015 | )      |         |   | 568   |        |        |      | 447     |         |         |   | 447   |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|Net (loss) income available to common shareholders               |                                     | $                                     | (534  | )      |         | $ | 7,670  |        |         | $ | 2,201 |        |        | $    | (11,154 | )       |         | $ | 1,126 |       
|                                                                 |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |        
|Net (loss) income per common and potential common share:         |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|                                                                 | Basic                               |                                       | $     | (0.03  | )       |   | $      | 0.44   |         |   | $     | 0.13   |        |      | $       | (0.67   | )       |   | $     | 0.07   |       
|                                                                 | Diluted                             |                                       | $     | (0.03  | )       |   | $      | 0.42   |         |   | $     | 0.12   |        |      | $       | (0.67   | )       |   | $     | 0.07   |       
|Weighted average common and potential common shares outstanding: |                                     |                                       |       |        |         |   |        |        |         |   |       |        |        |      |         |         |         |   |       |       
|                                                                 | Basic                               |                                       |       | 18,280 |         |   |        | 17,534 |         |   |       | 17,057 |        |      |         | 16,683  |         |   |       | 16,144 |       
|                                                                 | Diluted                             |                                       |       | 18,280 |         |   |        | 18,208 |         |   |       | 17,627 |        |      |         | 16,683  |         |   |       | 16,746 |       

|                                                                              |  |                                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|----------------------------------------------------------------------------- |  | ------------------------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | ---- | ------- |  |  | - | ------- | 
|                                                                              |  | Fiscal Year Ended December 31, |        
|                                                                              |  |                                |        
|                                                                              |  | 2004                           |         |  | 2003 |   |         | 2002 |  |   | 2001    |  |  | 2000 |        
|                                                                              |  |                                |         |  |      |   |         |      |  |   |         |  |  |      |        
|                                                                              |  | (In thousands)                 |        
|Consolidated Balance Sheet Data:                                              |  |                                |         |  |      |   |         |      |  |   |         |  |  |      |         |  |  |   |         | 
|Cash, cash equivalents and marketable securities (net of
    restricted cash) |  | $                              | 159,455 |  |      | $ | 161,891 |      |  | $ | 72,831  |  |  | $    | 68,344  |  |  | $ | 63,251  | 
|Working capital                                                               |  |                                | 147,925 |  |      |   | 149,433 |      |  |   | 57,792  |  |  |      | 48,966  |  |  |   | 54,131  | 
|Total assets                                                                  |  |                                | 223,491 |  |      |   | 218,426 |      |  |   | 105,930 |  |  |      | 102,480 |  |  |   | 102,276 | 
|Long-term debt, net of current portion                                        |  |                                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Redeemable convertible preferred stock                                        |  |                                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Convertible senior notes                                                      |  |                                | 86,250  |  |      |   | 86,250  |      |  |   |        |  |  |      |        |  |  |   |        | 
|Total stockholders equity                                                    |  | $                              | 91,529  |  |      | $ | 87,841  |      |  | $ | 68,936  |  |  | $    | 63,507  |  |  | $ | 70,746  | 

24



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

You should read the following discussion together with our
Consolidated Financial Statements and related Notes to
Consolidated Financial Statements that are included elsewhere in
this Report. The following discussion contains forward-looking
statements that reflect plans, estimates, trends and beliefs.
Our actual results could differ materially from those discussed
in the forward-looking statements. See Factors That Could
Affect Future Results herein.


Overview


e








e






25



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Managements Outlook






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Aprisma  Our investment in Aprisma 
    SPECTRUM® is based on our assumption that market demand for
    integrated performance and fault management solutions is
    growing. The acquisition of Aprisma allows us to access this
    integrated market. Aprisma will initially be managed as a
    business unit reporting to our CEO. However, we will be
    immediately merging our finance, HR, and internal IT departments
    to achieve some economies of scale. We expect to
    cross-compensate salespeople on joint deals.                                                                
|
| |  | Vitel  Vitel provides Concord the ability to address
    a significant portion of the voice market. Historically, Concord
    was only able to address a small fraction of the traditional
    enterprise voice network market. Vitels strength is that
    their products manage legacy telephony devices from Nortel and
    Avaya. With the acquisition of Vitel, Concord has expanded its
    ability to increase our penetration of this market. We have
    integrated the sales, development and business support
    functions. No significant savings are expected from this
    integration.









| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | 1) percentage of sales of our newer products (such as
    application management revenue) as a percent of total revenues;
|
| | 2) number of new customer accounts;                                                                                      
|
| | 3) average sales price per new customer accounts; and                                                                    
|
| | 4) number of transactions over $100,000.                                                                                 



26



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| |                                                                        
| | -----------------------------------------------------------------------
| | 1) revenue per employee,                                               
|
| | 2) percentage of direct and indirect revenue                           
|
| | 3) geographic revenue                                                  
|
| | 4) research and development expense as a percentage of
    total sales,
|
| | 5) sales and marketing expense as a percentage of total
    sales.     

Trends and Uncertainties






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) Consolidation is beginning to take place in our
    industry. Customers are increasingly coming to expect more
    robust solutions at a lower price. This puts increased demands
    on companies like ours to become more efficient and produce
    software code of higher quality at a lower price.                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 2) Niche vendors are struggling and are dropping prices to
    remain viable. While in the long run, this trend will benefit
    Concord, in the short run it forces us to also drop prices to
    remain competitive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | 3) The network market appears to be more mature. Customers
    are increasingly buying solutions for systems that are not as
    mission critical as in previous years, and these customers
    expect to pay less for the same amount of product.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | 4) There is becoming a greater need to partner. Customers
    want to standardize on a set of products and are more favorably
    inclined to make an investment in software where the
    standardization is easier. Tighter integrated solutions are
    considered cost efficient as they reduce the management costs.
    Outsourcing research and development is becoming more common.
    Cost structures overseas for research and development labor
    tends to be exponentially lower than in domestic markets. In
    order to stay competitive with foreign and domestic competitors,
    companies like Concord must invest in outsourcing software
    development to keep costs low.

Critical Accounting Policies, Significant Estimates and
Judgments






27



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|    |                    
|--- | -------------------
|(a) | Revenue Recognition

Software Revenue Recognition, as modified by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition with
respect to Certain Transactions.












28



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|    |                    
|--- | -------------------
|(b) | Accounts Receivable







|    |                            
|--- | ---------------------------
|(c) | Accounting for Income Taxes



29



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|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(d) | Accounting for Acquisitions and Acquired In-process
    Research and Development

Business
Combinations.






30



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##### Table of Contents























| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) the detail program design has been completed,
    documented, and traced to product specifications and its
    high-risk development issues have been resolved; or
|
| | b) a working model of the product has been finished and
    determined to be complete and consistent with the product design.                                        

e




|    |                                                                        
|--- | -----------------------------------------------------------------------
|(e) | Valuation of Long-Lived Tangible and Intangible Assets and
    Goodwill



31



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| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to historical or projected
    future operating results;                  
|
| |  | significant changes in the manner of or use of the acquired
    assets or the strategy for our overall business;
|
| |  | significant negative industry or economic trends;                                                               
|
| |  | significant decline in our stock price for a sustained
    period; and                                          
|
| |  | a decline in our market capitalization below net book value.                                                    



Goodwill and Other Intangible Assets,








| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | significant underperformance relative to historical or projected
    future operating results;
|
| |  | significant negative industry or economic trends;                                             
|
| |  | significant decline in our stock price for a sustained
    period; and                        
|
| |  | a decline in our market capitalization below net book value.                                  





32



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Results of Operations




|                                          |                                     |                                   |                         |      |       |      |      |      |       |      |     |      |       |      |  
|----------------------------------------- | ----------------------------------- | --------------------------------- | ----------------------- | ---- | ----- | ---- | ---- | ---- | ----- | ---- | --- | ---- | ----- | ---- | -
|                                          |                                     | Year Ended December 31,           |                        
|                                          |                                     |                                   |                        
|                                          |                                     | 2004                              |                         |      | 2003  |      |      | 2002 |      
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|Revenues:                                 |                                     |                                   |                         |      |       |      |      |      |       |      |     |     
|                                          | License revenues                    |                                   |                         | 47.1 | %     |      |      | 52.1 | %     |      |     | 54.6 | %    
|                                          | Service revenues                    |                                   |                         | 52.9 |       |      |      | 47.9 |       |      |     | 45.4 |      
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     | Total revenues                    |                         |      | 100.0 |      |      |      | 100.0 |      |     |      | 100.0 |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|Cost of Revenues:                         |                                     |                                   |                         |      |       |      |      |      |       |      |     |     
|                                          | Cost of license revenues            |                                   |                         | 3.3  |       |      |      | 3.0  |       |      |     | 2.0  |      
|                                          | Cost of service revenues            |                                   |                         | 16.5 |       |      |      | 15.5 |       |      |     | 16.1 |      
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     | Total cost of revenues            |                         |      | 19.8  |      |      |      | 18.5  |      |     |      | 18.1  |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     |                                   | Gross profit            |      |       | 80.2 |      |      |       | 81.5 |     |      |       | 81.9 |  
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|Operating Expenses:                       |                                     |                                   |                         |      |       |      |      |      |       |      |     |     
|                                          | Research and development            |                                   |                         | 23.7 |       |      |      | 21.9 |       |      |     | 23.4 |      
|                                          | Sales and marketing                 |                                   |                         | 47.0 |       |      |      | 46.5 |       |      |     | 50.5 |      
|                                          | General and administrative          |                                   |                         | 11.0 |       |      |      | 8.7  |       |      |     | 8.2  |      
|                                          | Acquisition-related charges         |                                   |                         |     |       |      |      |     |       |      |     |     |      
|                                          | In-process research and development |                                   |                         | 0.1  |       |      |      | 1.0  |       |      |     |     |      
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     | Total operating expenses          |                         |      | 81.8  |      |      |      | 78.1  |      |     |      | 82.1  |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     |                                   | Operating (loss) income |      |       | (1.6 | )    |      |       | 3.4  |     |      |       | (0.2 | )
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|Other Income (Expense):                   |                                     |                                   |                         |      |       |      |      |      |       |      |     |     
|                                          | Interest income                     |                                   |                         | 4.2  |       |      |      | 2.7  |       |      |     | 3.3  |      
|                                          | Interest expense                    |                                   |                         | (3.1 | )     |      |      | (0.2 | )     |      |     | 0.0  |      
|                                          | Other expense                       |                                   |                         | (0.1 | )     |      |      | (0.4 | )     |      |     | (0.2 | )    
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     | Total other income, net           |                         |      | 1.0   |      |      |      | 2.1   |      |     |      | 3.1   |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|                                          |                                     | (Loss) income before income taxes |                         |      | (0.6  | )    |      |      | 5.5   |      |     |      | 2.9   |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|(Benefit from) provision for income taxes |                                     |                                   | (0.1                    | )    |       |      | (1.9 | )    |       |      | 0.6 |     
|                                          |                                     |                                   |                         |      |       |      |      |      |      
|Net (loss) income                         |                                     |                                   | (0.5                    | )%   |       |      | 7.4  | %    |       |      | 2.3 | %   
|                                          |                                     |                                   |                         |      |       |      |      |      |      

33



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Total Revenues




|                          |  |                         |         |         |        |  |      |      |  |   |         |   |  |      |      |   |  |   |        |  
|------------------------- |  | ----------------------- | ------- | ------- | ------ |  | ---- | ---- |  | - | ------- | - |  | ---- | ---- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |        
|                          |  |                         |        
|                          |  |                         |         | Percent |        |  |     
|                          |  | 2004                    |         |         | Change |  |      | 2003 |  |   | Change  |   |  | 2002 |     
|                          |  |                         |         |         |        |  |      |      |  |   |         |   |  |      |     
|                          |  | (Dollars in thousands)  |        
|License Revenues          |  | $                       | 49,973  |         |        |  | (7.9 | )%   |  | $ | 54,267  |   |  |      | 5.9  | % |  | $ | 51,230 |  
|Service Revenues          |  |                         | 56,215  |         |        |  | 12.9 | %    |  |   | 49,796  |   |  |      | 16.9 | % |  |   | 42,614 |  
|                          |  |                         |         |         |        |  |      |      |  |   |         |   |  |      |     
|Total Revenues            |  | $                       | 106,188 |         |        |  | 2.0  | %    |  | $ | 104,063 |   |  |      | 10.9 | % |  | $ | 93,844 |  
|                          |  |                         |         |         |        |  |      |      |  |   |         |   |  |      |     
|Percent of Total Revenues |  |                         |         |         |        |  |      |      |  |   |         |   |  |      |      |   |  |   |        |  
|License Revenues          |  |                         | 47.1    | %       |        |  |      |      |  |   | 52.1    | % |  |      |      |   |  |   | 54.6   | %
|Service Revenues          |  |                         | 52.9    | %       |        |  |      |      |  |   | 47.9    | % |  |      |      |   |  |   | 45.4   | %

License Revenues




|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | --- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |    
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |    
|                          |  | (Dollars in thousands)  |       
|License Revenues          |  | $                       | 49,973 |         |        |  | (7.9 | )%   |         | $ | 54,267 |   |  |      | 5.9 | % |  | $ | 51,230 |  
|Percent of Total Revenues |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     |   |  |   |        |  
|License Revenues          |  |                         | 47.1   | %       |        |  |      |      |         |   | 52.1   | % |  |      |     |   |  |   | 54.6   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




New eHealth customer accounts


e e e


34



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##### Table of Contents





|                                        |  |                         |     |         |        |  |       |      |         |  |        |   |  |      |       |    |  |  |     |  
|--------------------------------------- |  | ----------------------- | --- | ------- | ------ |  | ----- | ---- | ------- |  | ------ | - |  | ---- | ----- | -- |  |  | --- | -
|                                        |  | Year Ended December 31, |    
|                                        |  |                         |    
|                                        |  |                         |     | Percent |        |  |       |      | Percent |  |        |  
|                                        |  | 2004                    |     |         | Change |  |       | 2003 |         |  | Change |   |  | 2002 |      
|                                        |  |                         |     |         |        |  |       |      |         |  |        |   |  |      |      
|New eHealth Customer Accounts           |  |                         | 86  |         |        |  | (41.5 | )%   |         |  | 147    |   |  |      | (45.6 | )% |  |  | 270 |  
|eHealth transactions greater than $100K |  |                         | 153 |         |        |  | ( 7.3 | )%   |         |  | 165    |   |  |      | 1.9   | %  |  |  | 162 |  
|Percent of Total Revenues               |  |                         |     |         |        |  |       |      |         |  |        |   |  |      |       |    |  |  |     |  
|New eHealth Customer Accounts           |  |                         | 15  | %       |        |  |       |      |         |  | 18     | % |  |      |       |    |  |  | 21  | %

Fiscal 2004 compared to fiscal 2003: e e


Fiscal 2003 compared to fiscal 2002:




Service Revenues




|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |     
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     
|                          |  | (Dollars in thousands)  |       
|Service Revenues          |  | $                       | 56,215 |         |        |  | 12.9 | %    |         | $ | 49,796 |   |  |      | 16.9 | % |  | $ | 42,614 |  
|Percent of Total Revenues |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |        |  
|Service Revenues          |  |                         | 52.9   | %       |        |  |      |      |         |   | 47.9   | % |  |      |      |   |  |   | 45.4   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




35



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Direct and Indirect Revenues




|                          |  |                         |         |                        |        |  |      |      |         |   |         |   |  |      |      |    |  |   |        |  
|------------------------- |  | ----------------------- | ------- | ---------------------- | ------ |  | ---- | ---- | ------- | - | ------- | - |  | ---- | ---- | -- |  | - | ------ | -
|                          |  | Year Ended December 31, |        
|                          |  |                         |        
|                          |  |                         |         | Percent                |        |  |      |      | Percent |   |         |  
|                          |  | 2004                    |         |                        | Change |  |      | 2003 |         |   | Change  |   |  | 2002 |     
|                          |  |                         |         |                        |        |  |      |      |         |   |         |   |  |      |     
|                          |  |                         |         | (Dollars in thousands) |        |  |     
|Direct                    |  | $                       | 69,226  |                        |        |  | 7.9  | %    |         | $ | 64,162  |   |  |      | (5.5 | )% |  | $ | 67,925 |  
|Indirect                  |  |                         | 36,962  |                        |        |  | (7.4 | )%   |         |   | 39,901  |   |  |      | 53.9 | %  |  |   | 25,919 |  
|                          |  |                         |         |                        |        |  |      |      |         |   |         |   |  |      |     
|Total Revenues            |  | $                       | 106,188 |                        |        |  | 2.0  | %    |         | $ | 104,063 |   |  |      | 10.9 | %  |  | $ | 93,844 |  
|                          |  |                         |         |                        |        |  |      |      |         |   |         |   |  |      |     
|Percent of Total Revenues |  |                         |         |                        |        |  |      |      |         |   |         |   |  |      |      |    |  |   |        |  
|Direct                    |  |                         | 65.2    | %                      |        |  |      |      |         |   | 61.7    | % |  |      |      |    |  |   | 72.4   | %
|Indirect                  |  |                         | 34.8    | %                      |        |  |      |      |         |   | 38.3    | % |  |      |      |    |  |   | 27.6   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


International Revenues




|                            |  |                         |        |         |        |  |       |      |         |   |        |   |  |      |      |   |  |   |        |  
|--------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ----- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ------ | -
|                            |  | Year Ended December 31, |       
|                            |  |                         |       
|                            |  |                         |        | Percent |        |  |       |      | Percent |   |        |  
|                            |  | 2004                    |        |         | Change |  |       | 2003 |         |   | Change |   |  | 2002 |     
|                            |  |                         |        |         |        |  |       |      |         |   |        |   |  |      |     
|                            |  | (Dollars in thousands)  |       
|United Kingdom              |  | $                       | 7,526  |         |        |  | (27.7 | )%   |         | $ | 10,412 |   |  |      | 81.7 | % |  | $ | 5,731  |  
|Europe (excluding the U.K.) |  |                         | 16,112 |         |        |  | (19.1 | )%   |         |   | 19,907 |   |  |      | 19.6 | % |  |   | 16,640 |  
|Rest of the World           |  |                         | 13,001 |         |        |  | (9.8  | )%   |         |   | 14,419 |   |  |      | 5.5  | % |  |   | 13,661 |  
|                            |  |                         |        |         |        |  |       |      |         |   |        |   |  |      |     
|Total                       |  | $                       | 36,639 |         |        |  | (18.1 | )%   |         | $ | 44,738 |   |  |      | 24.2 | % |  | $ | 36,032 |  
|                            |  |                         |        |         |        |  |       |      |         |   |        |   |  |      |     
|Percent of Total Revenues   |  |                         |        |         |        |  |       |      |         |   |        |   |  |      |      |   |  |   |        |  
|United Kingdom              |  |                         | 7.1    | %       |        |  |       |      |         |   | 10.0   | % |  |      |      |   |  |   | 6.1    | %
|Europe (excluding the U.K.) |  |                         | 15.2   | %       |        |  |       |      |         |   | 19.1   | % |  |      |      |   |  |   | 17.7   | %
|Rest of the World           |  |                         | 12.2   | %       |        |  |       |      |         |   | 13.9   | % |  |      |      |   |  |   | 14.6   | %

Fiscal 2004 compared to fiscal 2003:


36



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Fiscal 2003 compared to fiscal 2002:






Segment Revenues




|                          |            |                         |   |         |         |  |  |      |         |   |        |        |         |      |  |      |      |   |   |        |        | 
|------------------------- | ---------- | ----------------------- | - | ------- | ------- |  |  | ---- | ------- | - | ------ | ------ | ------- | ---- |  | ---- | ---- | - | - | ------ | ------ | 
|                          |            | Year Ended December 31, |  
|                          |            |                         |  
|                          |            |                         |   | Percent |         |  |  |      | Percent |   |        |       
|                          |            | 2004                    |   |         | Change  |  |  | 2003 |         |   | Change |        |         | 2002 | 
|                          |            |                         |   |         |         |  |  |      |         |   |        |        |         |      | 
|                          |            | (Dollars in thousands)  |  
|Segment Revenues          |            |                         |   |         |         |  |  |      |         |   |        |        |         |      |  |      |      |   |   |       
|                          | MSP/ TC    |                         | $ | 48,374  |         |  |  | 3.2  | %       |   | $      | 46,872 |         |      |  | 18.3 | %    |   | $ | 39,636 |       
|                          | Enterprise |                         |   | 57,814  |         |  |  | 1.1  | %       |   |        | 57,191 |         |      |  | 5.5  | %    |   |   | 54,208 |       
|                          |            |                         |   |         |         |  |  |      |         |   |        |        |         |      | 
|                          |            | Total Revenues          |   | $       | 106,188 |  |  |      | 2.0     | % |        | $      | 104,063 |      |  |      | 10.9 | % |   | $      | 93,844 | 
|                          |            |                         |   |         |         |  |  |      |         |   |        |        |         |      | 
|Percent of Total Revenues |            |                         |   |         |         |  |  |      |         |   |        |        |         |      |  |      |      |   |   |       
|                          | MSP/ TC    |                         |   | 45.6    | %       |  |  |      |         |   |        | 45.0   | %       |      |  |      |      |   |   | 42.2   | %     
|                          | Enterprise |                         |   | 54.4    | %       |  |  |      |         |   |        | 55.0   | %       |      |  |      |      |   |   | 57.8   | %     

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




Revenues Recognized in Connection With Third Party
Software.




37



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##### Table of Contents





|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |       |   |  |   |       |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | ----- | - |  | - | ----- | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |      
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      
|                          |  | (Dollars in thousands)  |       
|Revenues                  |  | $                       | 15,628 |         |        |  | 27.3 | %    |         | $ | 12,281 |   |  |      | 271.8 | % |  | $ | 3,303 |  
|Percent of Total Revenues |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |       |   |  |   |       |  
|Revenues                  |  |                         | 14.7   | %       |        |  |      |      |         |   | 11.8   | % |  |      |       |   |  |   | 3.5   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Cost of Revenues




|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |     
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     
|                          |  | (Dollars in thousands)  |       
|Cost of License Revenues  |  | $                       | 3,490  |         |        |  | 12.0 | %    |         | $ | 3,117  |   |  |      | 68.5 | % |  | $ | 1,850  |  
|Cost of Service Revenues  |  |                         | 17,488 |         |        |  | 8.4  | %    |         |   | 16,127 |   |  |      | 6.7  | % |  |   | 15,120 |  
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     
|Total Cost of Revenues    |  | $                       | 20,978 |         |        |  | 9.0  | %    |         | $ | 19,244 |   |  |      | 13.4 | % |  | $ | 16,970 |  
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     
|Percent of Total Revenues |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |        |  
|Cost of License Revenues  |  |                         | 3.3    | %       |        |  |      |      |         |   | 3.0    | % |  |      |      |   |  |   | 2.0    | %
|Cost of Service Revenues  |  |                         | 16.5   | %       |        |  |      |      |         |   | 15.5   | % |  |      |      |   |  |   | 16.1   | %

Cost of License Revenues




|                          |  |                         |       |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |       |  
|------------------------- |  | ----------------------- | ----- | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ----- | -
|                          |  | Year Ended December 31, |      
|                          |  |                         |      
|                          |  |                         |       | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |       |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |     
|                          |  |                         |       |         |        |  |      |      |         |   |        |   |  |      |     
|                          |  | (Dollars in thousands)  |      
|Cost of License Revenues  |  | $                       | 3,490 |         |        |  | 12.0 | %    |         | $ | 3,117  |   |  |      | 68.5 | % |  | $ | 1,850 |  
|Percent of Total Revenues |  |                         |       |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |       |  
|Cost of License Revenues  |  |                         | 3.3   | %       |        |  |      |      |         |   | 3.0    | % |  |      |      |   |  |   | 2.0   | %

Fiscal 2004 compared to fiscal 2003:


38



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##### Table of Contents



Fiscal 2003 compared to fiscal 2002:


Expenses Recognized in Connection With Third Party
Software.




|                          |  |                         |       |         |        |  |      |      |         |  |        |   |  |      |       |   |  |   |     |  
|------------------------- |  | ----------------------- | ----- | ------- | ------ |  | ---- | ---- | ------- |  | ------ | - |  | ---- | ----- | - |  | - | --- | -
|                          |  | Year Ended December 31, |      
|                          |  |                         |      
|                          |  |                         |       | Percent |        |  |      |      | Percent |  |        |  
|                          |  | 2004                    |       |         | Change |  |      | 2003 |         |  | Change |   |  | 2002 |      
|                          |  |                         |       |         |        |  |      |      |         |  |        |   |  |      |      
|                          |  | (Dollars in thousands)  |      
|Expenses                  |  |                         | 1,801 |         |        |  | 29.0 | %    |         |  | 1,396  |   |  |      | 104.7 | % |  | $ | 682 |  
|Percent of Total Revenues |  |                         |       |         |        |  |      |      |         |  |        |   |  |      |       |   |  |   |     |  
|Expenses                  |  |                         | 1.7   | %       |        |  |      |      |         |  | 1.3    | % |  |      |       |   |  |   | 0.7 | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Cost of Service Revenues




|                          |  |                         |        |         |        |  |     |      |         |  |        |   |  |      |     |   |  |  |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | --- | ---- | ------- |  | ------ | - |  | ---- | --- | - |  |  | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |     |      | Percent |  |        |  
|                          |  | 2004                    |        |         | Change |  |     | 2003 |         |  | Change |   |  | 2002 |    
|                          |  |                         |        |         |        |  |     |      |         |  |        |   |  |      |    
|                          |  | (Dollars in thousands)  |       
|Cost of Service Revenues  |  |                         | 17,488 |         |        |  | 8.4 | %    |         |  | 16,127 |   |  |      | 6.7 | % |  |  | 15,120 |  
|Percent of Total Revenues |  |                         |        |         |        |  |     |      |         |  |        |   |  |      |     |   |  |  |        |  
|Cost of Service Revenues  |  |                         | 16.5   | %       |        |  |     |      |         |  | 15.5   | % |  |      |     |   |  |  | 16.1   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




39



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##### Table of Contents



Gross Profit




|                          |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |      |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | --- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |     |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |     | 2003 |         |   | Change |   |  | 2002 |     
|                          |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |     
|                          |  | (Dollars in thousands)  |       
|Gross Profit              |  | $                       | 85,210 |         |        |  | 0.5 | %    |         | $ | 84,819 |   |  |      | 10.3 | % |  | $ | 76,874 |  
|Percent of Total Revenues |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |      |   |  |   |        |  
|Gross Profit              |  |                         | 80.2   | %       |        |  |     |      |         |   | 81.5   | % |  |      |      |   |  |   | 81.9   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




Research and Development Expenses




|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | --- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |    
|                          |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |    
|                          |  | (Dollars in thousands)  |       
|Research and Development  |  | $                       | 25,218 |         |        |  | 10.5 | %    |         | $ | 22,827 |   |  |      | 3.9 | % |  | $ | 21,973 |  
|Percent of Total Revenues |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     |   |  |   |        |  
|Research and Development  |  |                         | 23.7   | %       |        |  |      |      |         |   | 21.9   | % |  |      |     |   |  |   | 23.4   | %

Fiscal 2004 compared to fiscal 2003: e


Fiscal 2003 compared to fiscal 2002:




40



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##### Table of Contents



Sales and Marketing Expenses




|                          |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |     |   |  |   |        |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | --- | ---- | ------- | - | ------ | - |  | ---- | --- | - |  | - | ------ | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |     |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |     | 2003 |         |   | Change |   |  | 2002 |    
|                          |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |    
|                          |  | (Dollars in thousands)  |       
|Sales and Marketing       |  | $                       | 49,911 |         |        |  | 3.2 | %    |         | $ | 48,352 |   |  |      | 2.0 | % |  | $ | 47,383 |  
|Percent of Total Revenues |  |                         |        |         |        |  |     |      |         |   |        |   |  |      |     |   |  |   |        |  
|Sales and Marketing       |  |                         | 47.0   | %       |        |  |     |      |         |   | 46.5   | % |  |      |     |   |  |   | 50.5   | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:




General and Administrative Expenses




|                           |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |       |  
|-------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ---- | ---- | ------- | - | ------ | - |  | ---- | ---- | - |  | - | ----- | -
|                           |  | Year Ended December 31, |       
|                           |  |                         |       
|                           |  |                         |        | Percent |        |  |      |      | Percent |   |        |  
|                           |  | 2004                    |        |         | Change |  |      | 2003 |         |   | Change |   |  | 2002 |     
|                           |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |     
|                           |  | (Dollars in thousands)  |       
|General and Administrative |  | $                       | 11,676 |         |        |  | 29.2 | %    |         | $ | 9,035  |   |  |      | 17.9 | % |  | $ | 7,665 |  
|Percent of Total Revenues  |  |                         |        |         |        |  |      |      |         |   |        |   |  |      |      |   |  |   |       |  
|General and Administrative |  |                         | 11.0   | %       |        |  |      |      |         |   | 8.7    | % |  |      |      |   |  |   | 8.2   | %

Fiscal 2004 compared to fiscal 2003:


41



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Fiscal 2003 compared to fiscal 2002:




Acquisition-Related Charges




|                            |  |                         |     |         |        |  |     |      |         |   |        |   |  |      |     |   |  |   |     |  
|--------------------------- |  | ----------------------- | --- | ------- | ------ |  | --- | ---- | ------- | - | ------ | - |  | ---- | --- | - |  | - | --- | -
|                            |  | Year Ended December 31, |    
|                            |  |                         |    
|                            |  |                         |     | Percent |        |  |     |      | Percent |   |        |  
|                            |  | 2004                    |     |         | Change |  |     | 2003 |         |   | Change |   |  | 2002 |    
|                            |  |                         |     |         |        |  |     |      |         |   |        |   |  |      |    
|                            |  | (Dollars in thousands)  |    
|Acquisition-related charges |  | $                       |    |         |        |  | 0.0 | %    |         | $ | 40     |   |  |      | 0.0 | % |  | $ |    |  
|Percent of Total Revenues   |  |                         |     |         |        |  |     |      |         |   |        |   |  |      |     |   |  |   |     |  
|Acquisition-related charges |  |                         | 0.0 | %       |        |  |     |      |         |   | 0.0    | % |  |      |     |   |  |   | 0.0 | %



In-Process Research & Development Expenses




|                                  |  |                         |     |         |        |  |        |      |         |   |        |   |  |      |     |   |  |   |     |  
|--------------------------------- |  | ----------------------- | --- | ------- | ------ |  | ------ | ---- | ------- | - | ------ | - |  | ---- | --- | - |  | - | --- | -
|                                  |  | Year Ended December 31, |    
|                                  |  |                         |    
|                                  |  |                         |     | Percent |        |  |        |      | Percent |   |        |  
|                                  |  | 2004                    |     |         | Change |  |        | 2003 |         |   | Change |   |  | 2002 |    
|                                  |  |                         |     |         |        |  |        |      |         |   |        |   |  |      |    
|                                  |  | (Dollars in thousands)  |    
|In-process research & development |  | $                       | 100 |         |        |  | (89.9) | %    |         | $ | 994    |   |  |      | 0.0 | % |  | $ |    |  
|Percent of Total Revenues         |  |                         |     |         |        |  |        |      |         |   |        |   |  |      |     |   |  |   |     |  
|In-process research & development |  |                         | 0.1 | %       |        |  |        |      |         |   | 1.0    | % |  |      |     |   |  |   | 0.0 | %



42



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Other Income




|                          |  |                         |        |         |        |  |        |      |         |   |        |   |  |      |        |    |  |   |       |  
|------------------------- |  | ----------------------- | ------ | ------- | ------ |  | ------ | ---- | ------- | - | ------ | - |  | ---- | ------ | -- |  | - | ----- | -
|                          |  | Year Ended December 31, |       
|                          |  |                         |       
|                          |  |                         |        | Percent |        |  |        |      | Percent |   |        |  
|                          |  | 2004                    |        |         | Change |  |        | 2003 |         |   | Change |   |  | 2002 |       
|                          |  |                         |        |         |        |  |        |      |         |   |        |   |  |      |       
|                          |  | (Dollars in thousands)  |       
|Interest Income           |  | $                       | 4,471  |         |        |  | 59.2   | %    |         | $ | 2,808  |   |  |      | (10.2  | )% |  | $ | 3,127 |  
|Interest Expense          |  |                         | (3,283 | )       |        |  | 1245.5 | %    |         |   | (244   | ) |  |      | 1335.3 | %  |  |   | (17   | )
|Other                     |  |                         | (139   | )       |        |  | (71.0  | )%   |         |   | (480   | ) |  |      | 147.4  | %  |  |   | (194  | )
|                          |  |                         |        |         |        |  |        |      |         |   |        |   |  |      |       
|Total Other Income, net   |  | $                       | 1,049  |         |        |  | (49.7  | )%   |         | $ | 2,084  |   |  |      | (28.5  | )% |  | $ | 2,916 |  
|                          |  |                         |        |         |        |  |        |      |         |   |        |   |  |      |       
|Percent of Total Revenues |  |                         |        |         |        |  |        |      |         |   |        |   |  |      |        |    |  |   |       |  
|Other Income              |  |                         | 1.0    | %       |        |  |        |      |         |   | 2.1    | % |  |      |        |    |  |   | 3.1   | %

Fiscal 2004 compared to fiscal 2003:






Fiscal 2003 compared to fiscal 2002:


Provision for Income Taxes




|                                          |  |                         |      |         |        |  |       |      |         |   |        |    |  |      |        |    |  |   |     |  
|----------------------------------------- |  | ----------------------- | ---- | ------- | ------ |  | ----- | ---- | ------- | - | ------ | -- |  | ---- | ------ | -- |  | - | --- | -
|                                          |  | Year Ended December 31, |     
|                                          |  |                         |     
|                                          |  |                         |      | Percent |        |  |       |      | Percent |   |        |   
|                                          |  | 2004                    |      |         | Change |  |       | 2003 |         |   | Change |    |  | 2002 |       
|                                          |  |                         |      |         |        |  |       |      |         |   |        |    |  |      |       
|                                          |  | (Dollars in thousands)  |     
|(Benefit from) provision for income taxes |  | $                       | (112 | )       |        |  | (94.4 | )%   |         | $ | (2,015 | )  |  |      | (454.8 | )% |  | $ | 568 |  
|Percent of Total Revenues                 |  |                         |      |         |        |  |       |      |         |   |        |    |  |      |        |    |  |   |     |  
|(Benefit from) provision for income taxes |  |                         | (0.1 | )%      |        |  |       |      |         |   | (1.9   | )% |  |      |        |    |  |   | 0.6 | %

Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


43



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Liquidity and Capital Resources


|                                                                              |  |                        |         |  |        |  |              |      |  |   |         |              |  |      |       |   |  |   |        | 
|----------------------------------------------------------------------------- |  | ---------------------- | ------- |  | ------ |  | ------------ | ---- |  | - | ------- | ------------ |  | ---- | ----- | - |  | - | ------ | 
|                                                                              |  | December 31,           |         |  |        |  | December 31, |      |  |   |         | December 31, | 
|                                                                              |  | 2004                   |         |  | Change |  |              | 2003 |  |   | Change  |              |  | 2002 |      
|                                                                              |  |                        |         |  |        |  |              |      |  |   |         |              |  |      |      
|                                                                              |  | (Dollars in thousands) |        
|Working Capital                                                               |  | $                      | 147,925 |  |        |  | (1.0         | )%   |  | $ | 149,433 |              |  |      | 158.6 | % |  | $ | 57,792 | 
|Cash, cash equivalents and marketable securities (net of
    restricted cash) |  | $                      | 159,455 |  |        |  | (1.5         | )%   |  | $ | 161,891 |              |  |      | 122.3 | % |  | $ | 72,831 | 

|                                      |  |                         |         |   |        |  |       |      |  |   |         |   |  |      |        |   |  |   |        |  
|------------------------------------- |  | ----------------------- | ------- | - | ------ |  | ----- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                      |  | Year Ended December 31, |        
|                                      |  |                         |        
|                                      |  | 2004                    |         |   | Change |  |       | 2003 |  |   | Change  |   |  | 2002 |       
|                                      |  |                         |         |   |        |  |       |      |  |   |         |   |  |      |       
|                                      |  | (Dollars in thousands)  |        
|Cash provided by operating activities |  | $                       | 143     |   |        |  | (98.6 | )%   |  | $ | 10,387  |   |  |      | 81.5   | % |  | $ | 5,724  |  
|Cash used for investing activities    |  | $                       | (56,426 | ) |        |  | 46.3  | %    |  | $ | (38,574 | ) |  |      | 452.6  | % |  | $ | (6,980 | )
|Cash provided by financing activities |  | $                       | 2,663   |   |        |  | (96.9 | )%   |  | $ | 87,261  |   |  |      | 3247.2 | % |  | $ | 2,607  |  

Working capital


Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Cash, cash equivalents and marketable securities (net of
restricted cash)




Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Cash provided by operating activities




Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


44



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##### Table of Contents



Cash used for investing activities




Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Cash provided by financing activities




Fiscal 2004 compared to fiscal 2003:


Fiscal 2003 compared to fiscal 2002:


Contractual obligations




|                                           |                   |                         |       |       |      |   |       |       |  |   |       |       |  |      |        |        |       |   |   |   |  |   |        |         | 
|------------------------------------------ | ----------------- | ----------------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ------ | ------ | ----- | - | - | - |  | - | ------ | ------- | 
|                                           |                   | Year Ended December 31, |      
|                                           |                   |                         |      
|                                           |                   | 2005                    |       |       | 2006 |   |       | 2007  |  |   | 2008  |       |  | 2009 |        |        | Total |  
|                                           |                   |                         |       |       |      |   |       |       |  |   |       |       |  |      |        |        |       |  
|                                           |                   | (In thousands)          |      
|Facility and certain equipment leases      |                   | $                       | 4,053 |       |      | $ | 2,275 |       |  | $ | 887   |       |  | $    | 196    |        |       | $ | 3 |   |  | $ | 7,414  |        
|Minimum royalties payments                 |                   |                         | 565   |       |      |   | 565   |       |  |   | 565   |       |  |      |       |        |       |   |  |   |  |   | 1,695  |        
|Convertible notes                          |                   |                         |      |       |      |   |      |       |  |   |      |       |  |      | 86,250 |        |       |   |  |   |  |   | 86,250 |        
|Interest payments on the Convertible Notes |                   |                         | 2,588 |       |      |   | 2,588 |       |  |   | 2,588 |       |  |      | 2,588  |        |       |   |  |   |  |   | 10,352 |        
|                                           |                   |                         |       |       |      |   |       |       |  |   |       |       |  |      |        |        |       |  
|                                           | Total commitments |                         | $     | 7,206 |      |   | $     | 5,428 |  |   | $     | 4,040 |  |      | $      | 89,034 |       |   | $ | 3 |  |   | $      | 105,711 | 
|                                           |                   |                         |       |       |      |   |       |       |  |   |       |       |  |      |        |        |       |  







45



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Recent Accounting Pronouncements


Share-Based Payment.


46



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##### Table of Contents





Exchanges of Nonmonetary Assets  Amendment of APB
Opinion No. 29.




Accounting for Income Taxes.





Item 7A. Quantitative and Qualitative Disclosures
about Market Risk




|    |                              
|--- | -----------------------------
|(a) | Market and Interest Rate Risk







47



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##### Table of Contents





|    |                                    
|--- | -----------------------------------
|(b) | Foreign Currency Exchange Rate Risk












|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








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

(a) Evaluation of Disclosure Controls and
Procedures.


(b) Changes in Internal Controls over Financial
Reporting.


Managements Report on Internal Control Over Financial
Reporting


Internal Control 
Integrated Framework


48



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Internal Control  Integrated
Framework,







PART III







|         |                                         
|-------- | ----------------------------------------
|Item 10. | Directors and Officers of the Registrant





|                  |  |                                                                                                   
|----------------- |  | --------------------------------------------------------------------------------------------------
|Name              |  | Position                                                                                          
|                  |  |                                                                                                   
|John A. Blaeser   |  | President, Chief Executive Officer and Chairman of the Board                                      
|Douglas A. Batt   |  | Executive Vice President, General Counsel and Clerk                                               
|Melissa H. Cruz   |  | Executive Vice President, Business Services Chief Financial
    Officer, Asst. Clerk and Treasurer
|Ferdinand Engel   |  | Executive Vice President, Engineering and Chief Technology
    Officer                            
|Michael Fabiaschi |  | Executive Vice President and General Manager, Spectrum Business
    Unit                          
|Dayton Semerjian  |  | Executive Vice President, Marketing                                                               
|Ted Williams      |  | Executive Vice President, Worldwide Sales and Professional
    Services                           



John A. Blaeser,


Douglas A. Batt,


Melissa H. Cruz,


49



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Ferdinand Engel,


Michael Fabiaschi,


Dayton Semerjian,


Ted Williams,


www.concord.com/aboutus/invest/corpgovern.shtml.







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








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



50



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PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





|                                                            |                                              |        |    |    | 
|----------------------------------------------------------- | -------------------------------------------- | ------ | -- | -- | 
|                                                            |                                              | Page   |   
|                                                            |                                              | Number |   
|                                                            |                                              |        |   
|Report of Independent Registered Public
    Accounting Firm |                                              |        | 52 |   
|Consolidated Balance Sheets:                                |                                              |        |    |   
|                                                            | December 31, 2004 and 2003                   |        |    | 54 | 
|Consolidated Statements of Operations:                      |                                              |        |    |   
|                                                            | Years ended December 31, 2004, 2003 and 2002 |        |    | 55 | 
|Consolidated Statements of
    Stockholders Equity:        |                                              |        |    |   
|                                                            | Years ended December 31, 2004, 2003 and 2002 |        |    | 56 | 
|Consolidated Statements of Cash Flows:                      |                                              |        |    |   
|                                                            | Years ended December 31, 2004, 2003 and 2002 |        |    | 57 | 
|Notes to Consolidated Financial
    Statements              |                                              |        | 58 |   











51



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Report of Independent Registered Public Accounting Firm








Consolidated financial statements




Internal control over financial reporting


Internal Control  Integrated
Framework Internal Control 
Integrated Framework




52



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| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP





53



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CONCORD COMMUNICATIONS, INC.





CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                           |                                                                                                          |                                                                                                               |        |         |              |  |        |         |         | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------ | ------- | ------------ |  | ------ | ------- | ------- | 
|                                                           |                                                                                                          | December 31,                                                                                                  |        |         | December 31, | 
|                                                           |                                                                                                          | 2004                                                                                                          |        |         | 2003         | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|ASSETS                                                     |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|Current Assets:                                            |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|                                                           | Cash and cash equivalents                                                                                |                                                                                                               | $      | 15,816  |              |  | $      | 69,436  |        
|                                                           | Marketable securities                                                                                    |                                                                                                               |        | 143,639 |              |  |        | 92,455  |        
|                                                           | Restricted cash                                                                                          |                                                                                                               |        | 66      |              |  |        | 194     |        
|                                                           | Accounts receivable, net of allowance of $423 and $1,050 at
    December 31, 2004 and 2003, respectively |                                                                                                               |        | 24,183  |              |  |        | 22,194  |        
|                                                           | Deferred tax assets                                                                                      |                                                                                                               |        | 1,763   |              |  |        | 4,638   |        
|                                                           | Prepaid expenses and other current assets                                                                |                                                                                                               |        | 8,170   |              |  |        | 4,851   |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total current assets                                                                                          |        |         | 193,637      |  |        |         | 193,768 | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|Equipment and improvements:                                |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|                                                           | Equipment                                                                                                |                                                                                                               |        | 22,557  |              |  |        | 19,433  |        
|                                                           | Leasehold improvements                                                                                   |                                                                                                               |        | 6,291   |              |  |        | 6,225   |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          |                                                                                                               | 28,848 |         |              |  | 25,658 |        
|                                                           | Less  accumulated depreciation and amortization                                                         |                                                                                                               |        | 22,622  |              |  |        | 18,961  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          |                                                                                                               | 6,226  |         |              |  | 6,697  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|Goodwill                                                   |                                                                                                          |                                                                                                               | 6,225  |         |              |  | 6,225  |        
|Other intangible assets, net                               |                                                                                                          |                                                                                                               | 2,191  |         |              |  | 3,004  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          |                                                                                                               | 8,416  |         |              |  | 9,229  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|Deferred tax assets                                        |                                                                                                          |                                                                                                               | 12,211 |         |              |  | 4,962  |        
|Unamortized debt issuance costs and other long-term assets |                                                                                                          |                                                                                                               | 3,001  |         |              |  | 3,770  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          |                                                                                                               | 15,212 |         |              |  | 8,732  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total assets                                                                                                  |        | $       | 223,491      |  |        | $       | 218,426 | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                       |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|Current Liabilities:                                       |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|                                                           | Accounts payable                                                                                         |                                                                                                               | $      | 6,334   |              |  | $      | 5,218   |        
|                                                           | Accrued expenses                                                                                         |                                                                                                               |        | 12,171  |              |  |        | 12,627  |        
|                                                           | Deferred revenue                                                                                         |                                                                                                               |        | 27,207  |              |  |        | 26,490  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total current liabilities                                                                                     |        |         | 45,712       |  |        |         | 44,335  | 
|                                                           | Convertible senior notes                                                                                 |                                                                                                               |        | 86,250  |              |  |        | 86,250  |        
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total liabilities                                                                                             |        |         | 131,962      |  |        |         | 130,585 | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|Commitments and Contingencies (Note 9)                     |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|Stockholders Equity:                                      |                                                                                                          |                                                                                                               |        |         |              |  |        |        
|                                                           | Preferred stock, $0.01 par value:                                                                        |                                                                                                               |        |         |              |  |        |         |        
|                                                           |                                                                                                          | Authorized  1,000,000 shares                                                                                 |        |         |              |  |        |         |         | 
|                                                           |                                                                                                          | Issued and outstanding  none                                                                                 |        |         |             |  |        |         |        | 
|                                                           | Common stock, $0.01 par value:                                                                           |                                                                                                               |        |         |              |  |        |         |        
|                                                           |                                                                                                          | Authorized  50,000,000 shares                                                                                |        |         |              |  |        |         |         | 
|                                                           |                                                                                                          | Issued and outstanding  18,449,964 and
    18,121,211 shares at December 31, 2004 and 2003,
    respectively |        |         | 184          |  |        |         | 181     | 
|                                                           | Additional paid-in capital                                                                               |                                                                                                               |        | 117,113 |              |  |        | 111,651 |        
|                                                           | Accumulated other comprehensive (loss) income                                                            |                                                                                                               |        | (427    | )            |  |        | 816     |        
|                                                           | Accumulated deficit                                                                                      |                                                                                                               |        | (25,341 | )            |  |        | (24,807 | )      
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total stockholders equity                                                                                    |        |         | 91,529       |  |        |         | 87,841  | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 
|                                                           |                                                                                                          | Total liabilities and stockholders equity                                                                    |        | $       | 223,491      |  |        | $       | 218,426 | 
|                                                           |                                                                                                          |                                                                                                               |        |         |              | 



54



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CONCORD COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except share and per share data)


|                                                                 |                                              |                                   |                         |            |         |        |        |            |         |        |       |            |        |        |  
|---------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ----------------------- | ---------- | ------- | ------ | ------ | ---------- | ------- | ------ | ----- | ---------- | ------ | ------ | -
|                                                                 |                                              | Year Ended December 31,           |                        
|                                                                 |                                              |                                   |                        
|                                                                 |                                              | 2004                              |                         |            | 2003    |        |        | 2002       |        
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Revenues:                                                        |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | License revenues                             |                                   | $                       | 49,973     |         |        | $      | 54,267     |         |        | $     | 51,230     |       
|                                                                 | Service revenues                             |                                   |                         | 56,215     |         |        |        | 49,796     |         |        |       | 42,614     |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              | Total revenues                    |                         |            | 106,188 |        |        |            | 104,063 |        |       |            | 93,844 |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Cost of Revenues:                                                |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | Cost of license revenues                     |                                   |                         | 3,490      |         |        |        | 3,117      |         |        |       | 1,850      |       
|                                                                 | Cost of service revenues                     |                                   |                         | 17,488     |         |        |        | 16,127     |         |        |       | 15,120     |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              | Total cost of revenues            |                         |            | 20,978  |        |        |            | 19,244  |        |       |            | 16,970 |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              |                                   | Gross profit            |            |         | 85,210 |        |            |         | 84,819 |       |            |        | 76,874 |  
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Operating Expenses:                                              |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | Research and development                     |                                   |                         | 25,218     |         |        |        | 22,827     |         |        |       | 21,973     |       
|                                                                 | Sales and marketing                          |                                   |                         | 49,911     |         |        |        | 48,352     |         |        |       | 47,383     |       
|                                                                 | General and administrative                   |                                   |                         | 11,676     |         |        |        | 9,035      |         |        |       | 7,665      |       
|                                                                 | Acquisition-related charges                  |                                   |                         |           |         |        |        | 40         |         |        |       |           |       
|                                                                 | Acquired in-process research and development |                                   |                         | 100        |         |        |        | 994        |         |        |       |           |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              | Total operating expenses          |                         |            | 86,905  |        |        |            | 81,248  |        |       |            | 77,021 |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              |                                   | Operating (loss) income |            |         | (1,695 | )      |            |         | 3,571  |       |            |        | (147   | )
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Other Income (Expense):                                          |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | Interest income                              |                                   |                         | 4,471      |         |        |        | 2,808      |         |        |       | 3,127      |       
|                                                                 | Interest expense                             |                                   |                         | (3,283     | )       |        |        | (244       | )       |        |       | (17        | )     
|                                                                 | Other expense                                |                                   |                         | (139       | )       |        |        | (480       | )       |        |       | (194       | )     
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              | Total other income, net           |                         |            | 1,049   |        |        |            | 2,084   |        |       |            | 2,916  |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 |                                              | (Loss) income before income taxes |                         |            | (646    | )      |        |            | 5,655   |        |       |            | 2,769  |       
|(Benefit from) provision for income taxes                        |                                              |                                   | (112                    | )          |         |        | (2,015 | )          |         |        | 568   |           
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Net (loss) income                                                |                                              | $                                 | (534                    | )          |         | $      | 7,670  |            |         | $      | 2,201 |           
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Net (loss) income per common and potential common share:         |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | Basic                                        |                                   | $                       | (0.03      | )       |        | $      | 0.44       |         |        | $     | 0.13       |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 | Diluted                                      |                                   | $                       | (0.03      | )       |        | $      | 0.42       |         |        | $     | 0.12       |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|Weighted average common and potential common shares outstanding: |                                              |                                   |                         |            |         |        |        |            |         |        |       |           
|                                                                 | Basic                                        |                                   |                         | 18,280,294 |         |        |        | 17,533,509 |         |        |       | 17,057,188 |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        
|                                                                 | Diluted                                      |                                   |                         | 18,280,294 |         |        |        | 18,207,541 |         |        |       | 17,627,122 |       
|                                                                 |                                              |                                   |                         |            |         |        |        |            |        



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CONCORD COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands, except share data)


|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   |        |   |  |   |        |        |  
|----------------------------------------------------------------------------------------------------------- | -------------------- | ------------ | ---------- | ----- | ----- | - | ---------- | ------- | ----------- | - | ------------ | ----- |  | ------------- | ---- | - | ----------- | - | ------ | ----- |  | ------------- | ------------- | - |  | - | ------ | - |  | - | ------ | ------ | -
|                                                                                                            |                      | Common Stock |            |       |       |   |            |         |             |   |              |       |  |               |     
|                                                                                                            |                      |              |            |       |       |   |            |         | Accumulated |   |              |       |  |               |      |  
|                                                                                                            |                      |              |            | $0.01 |       |   | Additional |         |             |   |              | Other |  |               |      |   |             |   |       
|                                                                                                            |                      | Number of    |            |       | Par   |   |            | Paid-in |             |   | Deferred     |       |  | Comprehensive |      |   | Accumulated |   |        |       |  | Comprehensive |              
|                                                                                                            |                      | Shares       |            |       | Value |   |            | Capital |             |   | Compensation |       |  | Income (Loss) |      |   | Deficit     |   |        | Total |  |               | Income (Loss) |  
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|BALANCE, DECEMBER 31, 2001                                                                                  |                      |              | 16,901,193 |       |       |   | 169        |         |             |   | 96,365       |       |  |               | (242 | ) |             |   | 1,892  |       |  |               | (34,678       | ) |  |   | 63,506 |   |  |   |        |       
|Shares issued in connection with employee stock plans                                                       |                      |              | 344,812    |       |       |   | 3          |         |             |   | 2,604        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 2,607  |   |  |   |        |       
|Reversal of deferred compensation related to forfeitures of
    unvested stock options and restricted stock |                      |              |            |       |       |   |            |         |             |   | (76          | )     |  |               | 76   |   |             |   |        |       |  |               |               |   |  |   |       |   |  |   |        |       
|Amortization of deferred compensation related to grants of stock
    options                                |                      |              |            |       |       |   |            |         |             |   |              |       |  |               | 106  |   |             |   |        |       |  |               |               |   |  |   | 106    |   |  |   |        |       
|Unrealized gains on available-for-sale securities, net of tax of
    $0                                     |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   | 516    |       |  |               |               |   |  |   | 516    |   |  | $ | 516    |       
|Net income                                                                                                  |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               | 2,201         |   |  |   | 2,201  |   |  |   | 2,201  |       
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|                                                                                                            | Comprehensive income |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   |        |   |  |   | $      | 2,717  |  
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|BALANCE, DECEMBER 31, 2002                                                                                  |                      |              | 17,246,005 |       |       |   | 172        |         |             |   | 98,893       |       |  |               | (60  | ) |             |   | 2,408  |       |  |               | (32,477       | ) |  |   | 68,936 |   |  |   |        |       
|Shares issued in connection with employee stock plans                                                       |                      |              | 534,210    |       |       |   | 5          |         |             |   | 4,525        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 4,530  |   |  |   |        |       
|Tax benefit from exercise of stock options                                                                  |                      |              |            |       |       |   |            |         |             |   | 2,726        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 2,726  |   |  |   |        |       
|Shares issued in connection with netViz acquisition                                                         |                      |              | 340,996    |       |       |   | 4          |         |             |   | 4,964        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 4,968  |   |  |   |        |       
|Amortization of deferred compensation related to grants of stock
    options                                |                      |              |            |       |       |   |            |         |             |   |              |       |  |               | 60   |   |             |   |        |       |  |               |               |   |  |   | 60     |   |  |   |        |       
|Unrealized losses on available-for-sale securities, net of tax
    expense of $544                          |                      |              |            |       |       |   |            |         |             |   | 543          |       |  |               |      |   |             |   | (1,592 | )     |  |               |               |   |  |   | (1,049 | ) |  | $ | (1,049 | )     
|Net income                                                                                                  |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               | 7,670         |   |  |   | 7,670  |   |  |   | 7,670  |       
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|                                                                                                            | Comprehensive income |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   |        |   |  |   | $      | 6,621  |  
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|BALANCE, DECEMBER 31, 2003                                                                                  |                      |              | 18,121,211 |       |       | $ | 181        |         |             | $ | 111,651      |       |  | $             |     |   |             | $ | 816    |       |  | $             | (24,807       | ) |  | $ | 87,841 |   |  |   |        |       
|Shares issued in connection with employee stock plans                                                       |                      |              | 328,753    |       |       |   | 3          |         |             |   | 2,660        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 2,663  |   |  |   |        |       
|Unrealized losses on available-for-sale securities, net of tax
    benefit of $806                          |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   | (1,243 | )     |  |               |               |   |  |   | (1,243 | ) |  | $ | (1,243 | )     
|Tax benefit from exercise of stock options                                                                  |                      |              |            |       |       |   |            |         |             |   | 2,802        |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   | 2,802  |   |  |   |        |       
|Net loss                                                                                                    |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               | (534          | ) |  |   | (534   | ) |  |   | (534   | )     
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|                                                                                                            | Comprehensive income |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |   |  |   |        |   |  |   | $      | (1,777 | )
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  
|BALANCE, DECEMBER 31, 2004                                                                                  |                      |              | 18,449,964 |       |       | $ | 184        |         |             | $ | 117,113      |       |  | $             |     |   |             | $ | (427   | )     |  | $             | (25,341       | ) |  | $ | 91,529 |   |  |   |        |       
|                                                                                                            |                      |              |            |       |       |   |            |         |             |   |              |       |  |               |      |   |             |   |        |       |  |               |               |  



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CONCORD COMMUNICATIONS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                                                             |                                                        |                                                |         |       |         |   |        |        |         |   |        |       |         |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------------- | ------- | ----- | ------- | - | ------ | ------ | ------- | - | ------ | ----- | ------- | -
|                                                                                             |                                                        | Year Ended December 31,                        |        
|                                                                                             |                                                        |                                                |        
|                                                                                             |                                                        | 2004                                           |         |       | 2003    |   |        | 2002   |        
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Cash Flows from Operating Activities:                                                        |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|Net (loss) income                                                                            |                                                        | $                                              | (534    | )     |         | $ | 7,670  |        |         | $ | 2,201  |      
|Adjustments to reconcile net (loss) income to net cash provided
    by operating activities: |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|                                                                                             | Depreciation and amortization                          |                                                |         | 4,528 |         |   |        | 5,223  |         |   |        | 6,077 |        
|                                                                                             | Gain on disposal or sale of equipment and improvements |                                                |         | (3    | )       |   |        | (14    | )       |   |        | (7    | )      
|                                                                                             | Stock-based compensation                               |                                                |         |      |         |   |        | 60     |         |   |        | 106   |        
|                                                                                             | Amortization of debt issuance costs                    |                                                |         | 793   |         |   |        | 59     |         |   |        |      |        
|                                                                                             | Deferred tax benefit                                   |                                                |         | (766  | )       |   |        | (2,624 | )       |   |        |      |        
|                                                                                             | Changes in assets and liabilities:                     |                                                |         |       |         |   |        |        |         |   |        |       |        
|                                                                                             |                                                        | Accounts receivable                            |         |       | (1,989  | ) |        |        | (4,473  | ) |        |       | (880    | )
|                                                                                             |                                                        | Prepaid expenses and other current assets      |         |       | (3,319  | ) |        |        | (1,892  | ) |        |       | 176     |  
|                                                                                             |                                                        | Accounts payable                               |         |       | 1,116   |   |        |        | 1,591   |   |        |       | 31      |  
|                                                                                             |                                                        | Accrued expenses                               |         |       | (456    | ) |        |        | 2,292   |   |        |       | (3,217  | )
|                                                                                             |                                                        | Deferred revenue                               |         |       | 717     |   |        |        | 2,551   |   |        |       | 1,207   |  
|                                                                                             |                                                        | Other assets                                   |         |       | 60      |   |        |        | (56     | ) |        |       | 30      |  
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|                                                                                             |                                                        | Net cash provided by operating activities      |         |       | 147     |   |        |        | 10,387  |   |        |       | 5,724   |  
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Cash Flows from Investing Activities:                                                        |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|                                                                                             |                                                        | Purchases of equipment and improvements        |         |       | (3,226  | ) |        |        | (3,203  | ) |        |       | (3,520  | )
|                                                                                             |                                                        | Investments in marketable securities           |         |       | (86,717 | ) |        |        | (58,895 | ) |        |       | (20,363 | )
|                                                                                             |                                                        | Proceeds from sales of marketable securities   |         |       | 33,484  |   |        |        | 27,860  |   |        |       | 17,742  |  
|                                                                                             |                                                        | Deposit of restricted cash                     |         |       | (66     | ) |        |        |        |   |        |       | (839    | )
|                                                                                             |                                                        | Release of restricted cash                     |         |       | 194     |   |        |        | 645     |   |        |       |        |  
|                                                                                             |                                                        | Purchases of software                          |         |       | (99     | ) |        |        |        |   |        |       |        |  
|                                                                                             |                                                        | Acquisition of business  net of cash acquired |         |       |        |   |        |        | (4,981  | ) |        |       |        |  
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|                                                                                             |                                                        | Net cash used for investing activities         |         |       | (56,430 | ) |        |        | (38,574 | ) |        |       | (6,980  | )
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Cash Flows from Financing Activities:                                                        |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|                                                                                             |                                                        | Proceeds from convertible senior notes         |         |       |        |   |        |        | 86,250  |   |        |       |        |  
|                                                                                             |                                                        | Debt issuance costs                            |         |       |        |   |        |        | (3,519  | ) |        |       |        |  
|                                                                                             |                                                        | Proceeds from issuance of common stock         |         |       | 2,663   |   |        |        | 4,530   |   |        |       | 2,607   |  
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|                                                                                             |                                                        | Net cash provided by financing activities      |         |       | 2,663   |   |        |        | 87,261  |   |        |       | 2,607   |  
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Net (decrease) increase in cash and cash equivalents                                         |                                                        |                                                | (53,620 | )     |         |   | 59,074 |        |         |   | 1,351  |      
|Cash and cash equivalents, beginning of year                                                 |                                                        |                                                | 69,436  |       |         |   | 10,362 |        |         |   | 9,011  |      
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Cash and cash equivalents, end of year                                                       |                                                        | $                                              | 15,816  |       |         | $ | 69,436 |        |         | $ | 10,362 |      
|                                                                                             |                                                        |                                                |         |       |         |   |        |        |        
|Supplemental Disclosure of Cash Flow Information:                                            |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|Cash paid for income taxes                                                                   |                                                        | $                                              | 659     |       |         | $ | 513    |        |         | $ | 476    |      
|Cash paid for interest                                                                       |                                                        | $                                              | 2,644   |       |         | $ | 20     |        |         | $ | 17     |      
|Supplemental Disclosure of Noncash Financing and Investing
    Transactions:                 |                                                        |                                                |         |       |         |   |        |        |         |   |        |      
|Reversal of deferred compensation related to forfeitures of
    stock options                |                                                        | $                                              |        |       |         | $ |       |        |         | $ | (76    | )    
|Retirements of fully depreciated equipment and improvements                                  |                                                        | $                                              |        |       |         | $ | 4,615  |        |         | $ |       |      
|Unrealized gain/(loss) on available-for-sale securities                                      |                                                        | $                                              | (2,049  | )     |         | $ | (1,592 | )      |         | $ | 516    |      
|Common stock issued to acquire business                                                      |                                                        | $                                              |        |       |         | $ | 4,968  |        |         | $ |       |      



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CONCORD COMMUNICATIONS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                                 
|--- | ------------------------------------------------
|(1) | Organization and Significant Accounting Policies







|    |                            
|--- | ---------------------------
|(a) | Principles of Consolidation





|    |                                                 
|--- | ------------------------------------------------
|(b) | Cash, Cash Equivalents and Marketable Securities

Accounting for Certain Investments in Debt and Equity
Securities.




|    |                
|--- | ---------------
|(c) | Restricted Cash





|    |                    
|--- | -------------------
|(d) | Revenue Recognition

Software Revenue Recognition, Modification of SOP 97-2, Software
Revenue Recognition With Respect to Certain Transactions.


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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                    
|--- | -------------------
|(e) | Accounts Receivable







|    |                           
|--- | --------------------------
|(f) | Equipment and Improvements





|    |                                                                
|--- | ---------------------------------------------------------------
|(g) | Use of Estimates in the Preparation of Financial
    Statements



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(h) | Financial Instruments, Concentration of Credit Risk and
    Significant Customers





|    |                                              
|--- | ---------------------------------------------
|(i) | Foreign Currency Translation and Transactions

Foreign Currency Translation.




|    |                                 
|--- | --------------------------------
|(j) | Derivative Financial Instruments



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                           
|--- | --------------------------
|(k) | Software Development Costs

Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed,






|    |                         
|--- | ------------------------
|(l) | Stock-Based Compensation

Accounting for Stock
Issued to Employees, Accounting for Stock-Based
Compensation,


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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment
to FASB Statement No. 123


|                                     |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |         |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                     |                                                                                                                                             | Year Ended December 31,               |       
|                                     |                                                                                                                                             |                                       |       
|                                     |                                                                                                                                             | 2004                                  |        |        | 2003 |   |        | 2002   |  
|                                     |                                                                                                                                             |                                       |        |        |      |   |        |        |  
|                                     |                                                                                                                                             | (In thousands, except per share data) |       
|Net income (loss):                   |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |        
|                                     | As reported                                                                                                                                 |                                       | $      | (534   | )    |   | $      | 7,670  |   |   | $       | 2,201   |  
|Add:                                 |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |        
|                                     | Stock-based employee compensation expense included in reported
    net income (loss), net of related taxes                                  |                                       |        | 3,298  |      |   |        | 60     |   |   |         | 106     |  
|Less:                                |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |        
|                                     | Total stock-based employee compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                                       |        | (6,810 | )    |   |        | (9,533 | ) |   |         | (15,553 | )
|                                     |                                                                                                                                             |                                       |        |        |      |   |        |        |  
|Pro forma loss                       |                                                                                                                                             | $                                     | (4,046 | )      |      | $ | (1,803 | )      |   | $ | (13,246 | )      
|                                     |                                                                                                                                             |                                       |        |        |      |   |        |        |  
|Basic net (loss) income per share:   |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |        
|                                     | As reported                                                                                                                                 |                                       | $      | (.03   | )    |   | $      | 0.44   |   |   | $       | 0.13    |  
|                                     | Pro forma                                                                                                                                   |                                       | $      | (.22   | )    |   | $      | (0.10  | ) |   | $       | (0.78   | )
|Diluted net (loss) income per share: |                                                                                                                                             |                                       |        |        |      |   |        |        |   |   |         |        
|                                     | As reported                                                                                                                                 |                                       | $      | (.03   | )    |   | $      | 0.42   |   |   | $       | 0.12    |  
|                                     | Pro forma                                                                                                                                   |                                       | $      | (.22   | )    |   | $      | (0.10  | ) |   | $       | (0.78   | )



|    |                            
|--- | ---------------------------
|(m) | Net (Loss) Income per Share

Earnings Per Share.


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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                    |  |                                                |            |   |      |   |            |      |  |   |            | 
|--------------------------------------------------- |  | ---------------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                                    |  | Year Ended December, 31                        |           
|                                                    |  |                                                |           
|                                                    |  | 2004                                           |            |   | 2003 |   |            | 2002 | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|                                                    |  | (In thousands except share and per share data) |           
|Basic:                                              |  |                                                |            |   |      |   |            |      |  |   |            | 
|Net (loss) income applicable to common stockholders |  | $                                              | (534       | ) |      | $ | 7,670      |      |  | $ | 2,201      | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Weighted average common shares outstanding          |  |                                                | 18,280,294 |   |      |   | 17,533,509 |      |  |   | 17,057,188 | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Basic net (loss) income per share                   |  | $                                              | (.03       | ) |      | $ | 0.44       |      |  | $ | 0.13       | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Diluted:                                            |  |                                                |            |   |      |   |            |      |  |   |            | 
|Net (loss) income applicable to common stockholders |  | $                                              | (534       | ) |      | $ | 7,670      |      |  | $ | 2,201      | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Weighted average common shares outstanding          |  |                                                | 18,280,294 |   |      |   | 17,533,509 |      |  |   | 17,057,188 | 
|Potential common shares pursuant to stock options   |  |                                                |           |   |      |   | 674,032    |      |  |   | 569,934    | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Diluted weighted average shares                     |  |                                                | 18,280,294 |   |      |   | 18,207,541 |      |  |   | 17,627,122 | 
|                                                    |  |                                                |            |   |      |   |            |      | 
|Diluted net (loss) income per share                 |  | $                                              | (.03       | ) |      | $ | 0.42       |      |  | $ | 0.12       | 
|                                                    |  |                                                |            |   |      |   |            |      | 



Accounting Issues Related to
Certain Features of Contingently Convertible Debt and the Effect
on Diluted Earnings per Share,




|    |                            
|--- | ---------------------------
|(n) | Comprehensive Income (Loss)





|    |                  
|--- | -----------------
|(o) | Reclassifications



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                 
|--- | --------------------------------
|(p) | Recent Accounting Pronouncements

Share-Based Payment.


Exchanges of Nonmonetary Assets  Amendment of APB
Opinion No. 29.


Accounting for Income
Taxes.


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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                  
|--- | ---------------------------------
|(2) | Acquisition of netViz Corporation

e








|                                         |                                   |                              |        |       |        | 
|---------------------------------------- | --------------------------------- | ---------------------------- | ------ | ----- | ------ | 
|                                         |                                   | (In thousands)               |       
|Total consideration:                     |                                   |                              |        |      
|                                         | Cash                              |                              | $      | 5,000 |       
|                                         | Stock                             |                              |        | 5,000 |       
|                                         | Transaction costs                 |                              |        | 342   |       
|                                         |                                   |                              |       
|                                         |                                   | Total purchase consideration |        | $     | 10,342 | 
|                                         |                                   |                              |       
|Allocation of the purchase consideration |                                   |                              |        |      
|                                         | Current assets                    |                              | $      | 813   |       
|                                         | Equipment and improvements        |                              |        | 51    |       
|                                         | Deferred tax asset                |                              |        | 750   |       
|                                         | Identifiable intangible assets    |                              |        | 3,410 |       
|                                         | Goodwill                          |                              |        | 6,225 |       
|                                         |                                   |                              |       
|                                         |                                   | Total assets acquired        |        |       | 11,249 | 
|                                         | Fair value of liabilities assumed |                              |        | (907  | )     
|                                         |                                   |                              |       
|                                         |                                   | $                            | 10,342 |      
|                                         |                                   |                              |       

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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |                                       |                |       |              |            |  |   |   | 
|------------------------------- | ------------------------------------- | -------------- | ----- | ------------ | ---------- |  | - | - | 
|                                |                                       |                |       | Amortization |           
|                                |                                       | Amount         |       |              | Period     | 
|                                |                                       |                |       |              |            | 
|                                |                                       | (In thousands) |       |              | (In years) | 
|Completed technology (software) |                                       | $              | 2,130 |              |            |  | 4 |  
|Reseller relationships          |                                       |                | 570   |              |            |  | 5 |  
|Maintenance relationships       |                                       |                | 340   |              |            |  | 5 |  
|Contractor agreements           |                                       |                | 300   |              |            |  | 4 |  
|Trade name/trademark            |                                       |                | 70    |              |            |  | 3 |  
|                                |                                       |                |       |              |            | 
|                                | Total                                 |                | $     | 3,410        |            |  |   |   | 
|                                |                                       |                |       |              |            | 
|                                | Weighted average amortization period: |                |       |              |            |  |   | 4 | 









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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                              
| | -----------------------------
| | Pro Forma Results (Unaudited)



|                             |  |                         |         |  |      |   |        | 
|---------------------------- |  | ----------------------- | ------- |  | ---- | - | ------ | 
|                             |  | Year Ended December 31, |        
|                             |  |                         |        
|                             |  | 2003                    |         |  | 2002 |  
|                             |  |                         |         |  |      |  
|Revenues                     |  | $                       | 106,067 |  |      | $ | 97,947 | 
|Net income                   |  | $                       | 7,420   |  |      | $ | 2,215  | 
|Net income per diluted share |  | $                       | 0.41    |  |      | $ | 0.13   | 





|    |                                     
|--- | ------------------------------------
|(3) | Goodwill and Other Intangible Assets



|                                |  |        |       |  |            |   |       |       |  |   |       | 
|------------------------------- |  | ------ | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | 
|                                |  | MSP/TC |       |  | Enterprise |   |       | Total | 
|                                |  |        |       |  |            |   |       |       | 
|Balance as of January 1, 2003   |  | $      |      |  |            | $ |      |       |  | $ |      | 
|Goodwill acquired during year   |  |        | 2,800 |  |            |   | 3,425 |       |  |   | 6,225 | 
|Impairment losses               |  |        |      |  |            |   |      |       |  |   |      | 
|                                |  |        |       |  |            |   |       |       | 
|Balance as of December 31, 2003 |  |        | 2,800 |  |            |   | 3,425 |       |  |   | 6,225 | 
|Goodwill acquired during year   |  |        |      |  |            |   |      |       |  |   |      | 
|Impairment losses               |  |        |      |  |            |   |      |       |  |   |      | 
|                                |  |        |       |  |            |   |       |       | 
|Balance as of December 31, 2004 |  | $      | 2,800 |  |            | $ | 3,425 |       |  | $ | 6,225 | 
|                                |  |        |       |  |            |   |       |       | 





|                                |  |                         |       |             |              |   |      |     |  |   |             |  |  |              |       |  |     |   |        |   |  |   |       | 
|------------------------------- |  | ----------------------- | ----- | ----------- | ------------ | - | ---- | --- |  | - | ----------- |  |  | ------------ | ----- |  | --- | - | ------ | - |  | - | ----- | 
|                                |  | Year Ended December 31, |      
|                                |  |                         |      
|                                |  | 2003                    |       |             | 2004         |  
|                                |  |                         |       |             |              |  
|                                |  |                         |       | Accumulated |              |   |      |     |  |   | Accumulated |  |  |             
|                                |  | Cost                    |       |             | Amortization |   |      | Net |  |   | Cost        |  |  | Amortization |       |  | Net |  
|                                |  |                         |       |             |              |   |      |     |  |   |             |  |  |              |       |  |     |  
|Completed technology (software) |  | $                       | 2,130 |             |              | $ | (266 | )   |  | $ | 1,864       |  |  | $            | 2,130 |  |     | $ | (799   | ) |  | $ | 1,331 | 
|Reseller relationships          |  |                         | 570   |             |              |   | (57  | )   |  |   | 513         |  |  |              | 570   |  |     |   | (171   | ) |  |   | 399   | 
|Maintenance relationships       |  |                         | 340   |             |              |   | (34  | )   |  |   | 306         |  |  |              | 340   |  |     |   | (102   | ) |  |   | 238   | 
|Contractor agreements           |  |                         | 300   |             |              |   | (37  | )   |  |   | 263         |  |  |              | 300   |  |     |   | (112   | ) |  |   | 188   | 
|Trade name/trademark            |  |                         | 70    |             |              |   | (12  | )   |  |   | 58          |  |  |              | 70    |  |     |   | (35    | ) |  |   | 35    | 
|                                |  |                         |       |             |              |   |      |     |  |   |             |  |  |              |       |  |     |  
|Total                           |  | $                       | 3,410 |             |              | $ | (406 | )   |  | $ | 3,004       |  |  | $            | 3,410 |  |     | $ | (1,219 | ) |  | $ | 2,191 | 
|                                |  |                         |       |             |              |   |      |     |  |   |             |  |  |              |       |  |     |  



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|            |  |          |       |  |           |   |     |       |  |   |       | 
|----------- |  | -------- | ----- |  | --------- | - | --- | ----- |  | - | ----- | 
|            |  | Cost of  |       |  | Operating |   |     |      
|Year Ending |  | Revenues |       |  | Expenses  |   |     | Total | 
|            |  |          |       |  |           |   |     |       | 
|2005        |  |          | 532   |  |           |   | 280 |       |  |   | 812   | 
|2006        |  |          | 532   |  |           |   | 269 |       |  |   | 801   | 
|2007        |  |          | 267   |  |           |   | 219 |       |  |   | 486   | 
|2008        |  |          |      |  |           |   | 92  |       |  |   | 92    | 
|            |  |          |       |  |           |   |     |       | 
|Total       |  | $        | 1,331 |  |           | $ | 860 |       |  | $ | 2,191 | 
|            |  |          |       |  |           |   |     |       | 



|    |                                             
|--- | --------------------------------------------
|(4) | Acquired In-Process Research and Development







| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) the detail program design has been completed,
    documented, and traced to product specifications and its
    high-risk development issues have been resolved; or
|
| | b) a working model of the product has been finished and
    determined to be complete and consistent with the product design.                                        







e




|    |                         
|--- | ------------------------
|(5) | Convertible Senior Notes



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|    |                      
|--- | ---------------------
|(6) | Marketable Securities



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |  |                     |        |  |                   |   |     |            |  |            |         |  |  |            |            |   |        |   |         |  |  |   |      |  
|--------------------------------------- |  | ------------------- | ------ |  | ----------------- | - | --- | ---------- |  | ---------- | ------- |  |  | ---------- | ---------- | - | ------ | - | ------- |  |  | - | ---- | -
|                                        |  | Less Than 12 Months |        |  | 12 Months or More |   |     | Total      | 
|                                        |  |                     |        |  |                   |   |     |            | 
|                                        |  | Fair                |        |  | Unrealized        |   |     |            |  | Unrealized |         |  |  |            | Unrealized |  
|Description of Securities               |  | Value               |        |  | Losses            |   |     | Fair Value |  |            | Losses  |  |  | Fair Value |            |   | Losses |  
|                                        |  |                     |        |  |                   |   |     |            |  |            |         |  |  |            |            |   |        |  
|US government and municipal obligations |  | $                   | 13,824 |  |                   | $ |    |            |  | $          | 20,391  |  |  | $          | (126       | ) |        | $ | 34,215  |  |  | $ | (126 | )
|Foreign government obligations          |  |                     |       |  |                   |   |    |            |  |            |        |  |  |            |           |   |        |   |        |  |  |   |     |  
|Corporate bonds and notes               |  |                     | 23,331 |  |                   |   | (44 | )          |  |            | 86,093  |  |  |            | (519       | ) |        |   | 109,424 |  |  |   | (563 | )
|                                        |  |                     |        |  |                   |   |     |            |  |            |         |  |  |            |            |   |        |  
|Total                                   |  | $                   | 37,155 |  |                   | $ | (44 | )          |  | $          | 106,484 |  |  | $          | (645       | ) |        | $ | 143,639 |  |  | $ | (689 | )
|                                        |  |                     |        |  |                   |   |     |            |  |            |         |  |  |            |            |   |        |  



|                                        |  |                     |        |  |                   |   |     |       |  |   |            |  |  |       |       |  |            |   |        |  |  |   |       | 
|--------------------------------------- |  | ------------------- | ------ |  | ----------------- | - | --- | ----- |  | - | ---------- |  |  | ----- | ----- |  | ---------- | - | ------ |  |  | - | ----- | 
|                                        |  | Less Than 12 Months |        |  | 12 Months or More |   |     | Total | 
|                                        |  |                     |        |  |                   |   |     |       | 
|                                        |  | Fair                |        |  | Unrealized        |   |     | Fair  |  |   | Unrealized |  |  | Fair  |       |  | Unrealized |  
|Description of Securities               |  | Value               |        |  | Gains             |   |     | Value |  |   | Gains      |  |  | Value |       |  | Gains      |  
|                                        |  |                     |        |  |                   |   |     |       |  |   |            |  |  |       |       |  |            |  
|US government and municipal obligations |  | $                   | 16,512 |  |                   | $ | 67  |       |  | $ | 8,251      |  |  | $     | 267   |  |            | $ | 24,763 |  |  | $ | 334   | 
|Foreign government obligations          |  |                     | 1,032  |  |                   |   | 27  |       |  |   |           |  |  |       |      |  |            |   | 1,032  |  |  |   | 27    | 
|Corporate bonds and notes               |  |                     | 16,523 |  |                   |   | 123 |       |  |   | 50,137     |  |  |       | 876   |  |            |   | 66,660 |  |  |   | 999   | 
|                                        |  |                     |        |  |                   |   |     |       |  |   |            |  |  |       |       |  |            |  
|Total                                   |  | $                   | 34,067 |  |                   | $ | 217 |       |  | $ | 58,388     |  |  | $     | 1,143 |  |            | $ | 92,455 |  |  | $ | 1,360 | 
|                                        |  |                     |        |  |                   |   |     |       |  |   |            |  |  |       |       |  |            |  



|    |                   
|--- | ------------------
|(7) | Stock Option Plans



|    |                              
|--- | -----------------------------
|(a) | Employee Stock Purchase Plans







|    |                   
|--- | ------------------
|(b) | Stock Option Plans



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                        |  |                         |          |   |      |  |         |      |  |  |         |  
|----------------------- |  | ----------------------- | -------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | Year Ended December 31, |         
|                        |  |                         |         
|                        |  | 2004                    |          |   | 2003 |  |         | 2002 | 
|                        |  |                         |          |   |      |  |         |      | 
|Risk-free interest rate |  |                         | 3.49     | % |      |  | 3.65    | %    |  |  | 3.90    | %
|Expected dividend yield |  |                         | 0        | % |      |  | 0       | %    |  |  | 0       | %
|Expected lives          |  |                         | 5  years |   |      |  | 5 years |      |  |  | 7 years |  
|Expected volatility     |  |                         | 91       | % |      |  | 96      | %    |  |  | 91      | %

71



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                |               |                     |             |          |                     |                  |          |         |                |  |           |             |       |         |                |  |           |  |  |   |       | 
|--------------- | ------------- | ------------------- | ----------- | -------- | ------------------- | ---------------- | -------- | ------- | -------------- |  | --------- | ----------- | ----- | ------- | -------------- |  | --------- |  |  | - | ----- | 
|                |               | Options Outstanding |             |          | Options Exercisable |                 
|                |               |                     |             |          |                     |                 
|                |               |                     |             | Weighted |                     |                  | Weighted |         |                |  |           | Weighted    |      
|                |               | Number of           |             |          | Average             |                  |          | Average |                |  | Number of |             |       | Average |               
|Range of        |               |                     | Shares      |          |                     | Remaining        |          |         | Exercise Price |  |           | Shares      |       |         | Exercise Price | 
|Exercise Prices |               |                     | Outstanding |          |                     | Contractual Life |          |         | per Share      |  |           | Exercisable |       |         | per Share      | 
|                |               |                     |             |          |                     |                  |          |         |                |  |           |             |       |         |                | 
|$               | 1.66 - 6.69   |                     |             |          | 386,076             |                  |          |         | 2.70           |  |           | $           | 6.40  |         |                |  | 366,339   |  |  | $ | 6.43  | 
|                | 6.81 - 8.69   |                     |             |          | 242,479             |                  |          |         | 4.47           |  |           |             | 7.90  |         |                |  | 122,186   |  |  |   | 7.80  | 
|                | 8.72 - 9.01   |                     |             |          | 493,472             |                  |          |         | 4.02           |  |           |             | 9.00  |         |                |  | 236,596   |  |  |   | 9.00  | 
|                | 9.03 - 9.51   |                     |             |          | 445,625             |                  |          |         | 6.22           |  |           |             | 9.36  |         |                |  | 131,622   |  |  |   | 9.33  | 
|                | 9.55 - 12.50  |                     |             |          | 220,594             |                  |          |         | 5.57           |  |           |             | 11.71 |         |                |  | 28,587    |  |  |   | 11.49 | 
|                | 12.51 - 13.05 |                     |             |          | 409,389             |                  |          |         | 2.85           |  |           |             | 13.04 |         |                |  | 291,942   |  |  |   | 13.05 | 
|                | 13.19 - 14.65 |                     |             |          | 382,689             |                  |          |         | 5.96           |  |           |             | 14.48 |         |                |  | 112,744   |  |  |   | 14.33 | 
|                | 14.69 - 17.38 |                     |             |          | 353,455             |                  |          |         | 3.31           |  |           |             | 16.68 |         |                |  | 144,173   |  |  |   | 16.87 | 
|                | 17.56 - 21.56 |                     |             |          | 349,928             |                  |          |         | 3.09           |  |           |             | 20.39 |         |                |  | 239,690   |  |  |   | 20.63 | 
|                | 21.63 - 53.00 |                     |             |          | 212,963             |                  |          |         | 2.03           |  |           |             | 25.01 |         |                |  | 209,837   |  |  |   | 25.05 | 
|                |               |                     |             |          |                     |                  |          |         |                |  |           |             |       |         |                | 
|                |               |                     |             |          | 3,496,670           |                  |          |         |                |  |           | $           | 12.82 |         |                |  | 1,883,716 |  |  | $ | 13.30 | 
|                |               |                     |             |          |                     |                  |          |         |                |  |           |             |       |         |                | 



|                                 |            |           |           |            |           |          |            |            |  |   |       |       | 
|-------------------------------- | ---------- | --------- | --------- | ---------- | --------- | -------- | ---------- | ---------- |  | - | ----- | ----- | 
|                                 |            |           |           |            |           | Weighted |           
|                                 |            |           |           |            |           | Average  |           
|                                 |            | Number of |           |            | Price per |          |            | Price per  | 
|                                 |            | Shares    |           |            | Share     |          |            | Share      | 
|                                 |            |           |           |            |           |          |            |            | 
|Outstanding at December 31, 2001 |            |           | 4,154,700 |            |           | $        | 0.10-64.25 |            |  | $ | 22.15 |      
|                                 | Granted    |           |           | 935,350    |           |          |            | 5.05-23.80 |  |   |       | 10.71 | 
|                                 | Exercised  |           |           | (161,412   | )         |          |            | 0.10-21.75 |  |   |       | 6.82  | 
|                                 | Terminated |           |           | (736,185   | )         |          |            | 0.10-64.25 |  |   |       | 22.39 | 
|                                 |            |           |           |            |           |          |            |            | 
|Outstanding at December 31, 2002 |            |           | 4,192,453 |            |           |          | 0.10-62.03 |            |  |   | 20.14 |      
|                                 | Granted    |           |           | 939,875    |           |          |            | 6.66-21.06 |  |   |       | 14.78 | 
|                                 | Exercised  |           |           | (326,684   | )         |          |            | 0.10-18.95 |  |   |       | 8.85  | 
|                                 | Terminated |           |           | (494,709   | )         |          |            | 5.08-62.03 |  |   |       | 19.77 | 
|                                 |            |           |           |            |           |          |            |            | 
|Outstanding at December 31, 2003 |            |           | 4,310,935 |            |           |          | 0.10-62.03 |            |  |   | 19.86 |      
|                                 | Granted    |           |           | 622,750    |           |          |            | 8.02-20.88 |  |   |       | 11.43 | 
|                                 | Exercised  |           |           | (119,359   | )         |          |            | 0.10-14.07 |  |   |       | 7.60  | 
|                                 | Terminated |           |           | (1,317,656 | )         |          |            | 0.40-62.03 |  |   |       | 35.88 | 
|                                 |            |           |           |            |           |          |            |            | 
|Outstanding at December 31, 2004 |            |           | 3,496,670 |            |           | $        | 1.66-53.00 |            |  | $ | 12.82 |      
|                                 |            |           |           |            |           |          |            |            | 
|Exercisable at December 31, 2004 |            |           | 1,883,716 |            |           | $        | 1.66-53.00 |            |  | $ | 13.30 |      
|Exercisable at December 31, 2003 |            |           | 2,327,447 |            |           | $        | 0.10-62.03 |            |  | $ | 25.97 |      
|Exercisable at December 31, 2002 |            |           | 1,984,413 |            |           | $        | 0.10-62.03 |            |  | $ | 27.55 |      



72



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                  
|--- | -----------------
|(c) | Option Repurchase







|                                |                  |                          |      |      | 
|------------------------------- | ---------------- | ------------------------ | ---- | ---- | 
|Option Exercise Price per Share |                  | Purchase Price per Share |     
|                                |                  |                          |     
|                                | $25.00 to $29.99 |                          | $    | 4.07 | 
|                                | $30.00 to $34.99 |                          | $    | 3.84 | 
|                                | $35.00 to $39.99 |                          | $    | 3.54 | 
|                                | $40.00 to $44.99 |                          | $    | 3.40 | 
|                                | $45.00 to 49.99  |                          | $    | 3.16 | 
|                                | $50.00 to $54.99 |                          | $    | 2.99 | 
|                                | $55.00 to $59.99 |                          | $    | 2.91 | 
|Greater than $60.00             |                  | $                        | 2.76 |     





|    |             
|--- | ------------
|(8) | Income Taxes



73



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |                    |                         |       |        |      |   |        |       | 
|---------------------------------------------- | ------------------ | ----------------------- | ----- | ------ | ---- | - | ------ | ----- | 
|                                               |                    | Year Ended December 31, |      
|                                               |                    |                         |      
|                                               |                    | 2004                    |       |        | 2003 |  
|                                               |                    |                         |       |        |      |  
|Net operating loss carry forwards              |                    |                         | 8,192 |        |      | $ | 5,870  |      
|Research and development and other tax credits |                    |                         | 2,820 |        |      |   | 3,020  |      
|Accruals not yet deductible for tax purposes   |                    |                         | 1,071 |        |      |   | 1,824  |      
|Depreciation                                   |                    |                         | 1,436 |        |      |   | 882    |      
|Deferred revenue                               |                    |                         | 778   |        |      |   | 1,064  |      
|Capitalized research and development expenses  |                    |                         | 30    |        |      |   | 195    |      
|Other                                          |                    |                         | 50    |        |      |   | 42     |      
|Marketable securities                          |                    |                         | 262   |        |      |   | (544   | )    
|NetViz Intangibles                             |                    |                         | (665  | )      |      |   | (974   | )    
|Valuation reserve                              |                    |                         |      |        |      |   | (1,779 | )    
|                                               |                    |                         |       |        |      |  
|                                               | Deferred tax asset |                         | $     | 13,974 |      |   | $      | 9,600 | 
|                                               |                    |                         |       |        |      |  







74



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |         |                         |      |      |      |   |        |        |        |   |     |     |     | 
|------------------------------------ | ------- | ----------------------- | ---- | ---- | ---- | - | ------ | ------ | ------ | - | --- | --- | --- | 
|                                     |         | Year Ended December 31, |     
|                                     |         |                         |     
|                                     |         | 2004                    |      |      | 2003 |   |        | 2002   |       
|                                     |         |                         |      |      |      |   |        |        |       
|Current:                             |         |                         |      |      |      |   |        |        |        |   |     |    
|                                     | Federal |                         | $    |     |      |   | $      | 50     |        |   | $   |    |    
|                                     | State   |                         |      | 109  |      |   |        | 100    |        |   |     | 116 |    
|                                     | Foreign |                         |      | 546  |      |   |        | 459    |        |   |     | 452 |    
|                                     |         |                         |      |      |      |   |        |        |       
|                                     |         | Total current           |      |      | 655  |   |        |        | 609    |   |     |     | 568 | 
|                                     |         |                         |      |      |      |   |        |        |       
|Deferred:                            |         |                         |      |      |      |   |        |        |        |   |     |    
|                                     | Federal |                         |      | (802 | )    |   |        | (2,524 | )      |   |     |    |    
|                                     | State   |                         |      | 35   |      |   |        | (100   | )      |   |     |    |    
|                                     | Foreign |                         |      |     |      |   |        |       |        |   |     |    |    
|                                     |         |                         |      |      |      |   |        |        |       
|                                     |         | Total deferred          |      |      | (767 | ) |        |        | (2,624 | ) |     |     |    | 
|                                     |         |                         |      |      |      |   |        |        |       
|Total income tax (benefit) provision |         | $                       | (112 | )    |      | $ | (2,015 | )      |        | $ | 568 |    
|                                     |         |                         |      |      |      |   |        |        |       



|                                          |  |                         |       |    |      |  |       |      |  |  |       |  
|----------------------------------------- |  | ----------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -
|                                          |  | Year Ended December 31, |      
|                                          |  |                         |      
|                                          |  | 2004                    |       |    | 2003 |  |       | 2002 | 
|                                          |  |                         |       |    |      |  |       |      | 
|Statutory rate                            |  |                         | (34.0 | )% |      |  | 34.0  | %    |  |  | 34.0  | %
|State tax rate, net of federal benefit    |  |                         | 8.3   |    |      |  | 1.2   |      |  |  | 2.8   |  
|Foreign earnings taxed at different rates |  |                         | 12.9  |    |      |  | (1.1  | )    |  |  | 3.9   |  
|Research and development tax credits      |  |                         |      |    |      |  | (3.5  | )    |  |  |      |  
|Non-deductible expenses                   |  |                         | 27.0  |    |      |  | 1.6   |      |  |  | 2.9   |  
|Change in valuation allowance             |  |                         | 0.0   |    |      |  | (68.6 | )    |  |  | (24.6 | )
|Other                                     |  |                         | (31.6 | )  |      |  | 0.8   |      |  |  | 1.5   |  
|                                          |  |                         |       |    |      |  |       |      | 
|                                          |  |                         | (17.4 | )% |      |  | (35.6 | )%   |  |  | 20.5  | %
|                                          |  |                         |       |    |      |  |       |      | 



|    |                              
|--- | -----------------------------
|(9) | Commitments and Contingencies



|    |       
|--- | ------
|(a) | Leases





|      |  |   |       | 
|----- |  | - | ----- | 
|2005  |  | $ | 4,053 | 
|2006  |  |   | 2,275 | 
|2007  |  |   | 887   | 
|2008  |  |   | 196   | 
|2009  |  |   | 3     | 
|      |  |   |      
|Total |  | $ | 7,414 | 
|      |  |   |      

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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |          
|--- | ---------
|(b) | Royalties





|    |                 
|--- | ----------------
|(c) | Indemnifications







76



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|(d) | Legal Proceedings









77



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##### Table of Contents



CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                 
|---- | ----------------
|(10) | Accrued Expenses



|                            |  |              |        |  |              |   |        | 
|--------------------------- |  | ------------ | ------ |  | ------------ | - | ------ | 
|                            |  | December 31, |        |  | December 31, |  
|                            |  | 2004         |        |  | 2003         |  
|                            |  |              |        |  |              |  
|Payroll and payroll-related |  | $            | 5,820  |  |              | $ | 5,293  | 
|Customer deposits           |  |              | 295    |  |              |   | 1,901  | 
|Deferred rent               |  |              | 761    |  |              |   | 1,025  | 
|Administrative services     |  |              | 1,019  |  |              |   | 638    | 
|Royalties                   |  |              | 866    |  |              |   | 423    | 
|Sales and marketing         |  |              | 508    |  |              |   | 321    | 
|Taxes                       |  |              | 881    |  |              |   | 943    | 
|Travel-related              |  |              | 528    |  |              |   | 566    | 
|Other                       |  |              | 1,493  |  |              |   | 1,517  | 
|                            |  |              |        |  |              |  
|                            |  | $            | 12,171 |  |              | $ | 12,627 | 
|                            |  |              |        |  |              |  



|     |                      
|---- | ---------------------
|(11) | Employee Benefit Plan





|     |                                  
|---- | ---------------------------------
|(12) | Valuation and Qualifying Accounts



|     |  |            |       |     |               |   |      |            |  |            |             |   |  |   |       | 
|---- |  | ---------- | ----- | --- | ------------- | - | ---- | ---------- |  | ---------- | ----------- | - |  | - | ----- | 
|     |  |            |       | Net |               |   |      |            | 
|     |  | Balance at |       |     | Charges to/   |   |      |            |  |           
|     |  | Beginning  |       |     | (Reversal of) |   |      |            |  | Balance at |            
|     |  | of Year    |       |     | Expense       |   |      | Write-offs |  |            | End of Year |  
|     |  |            |       |     |               |   |      |            |  |            |             |  
|2002 |  | $          | 1,410 |     |               | $ | 355  |            |  | $          | (285        | ) |  | $ | 1,480 | 
|2003 |  | $          | 1,480 |     |               | $ | (222 | )          |  | $          | (208        | ) |  | $ | 1,050 | 
|2004 |  | $          | 1,050 |     |               | $ | (512 | )          |  | $          | (115        | ) |  | $ | 423   | 





|     |                                             
|---- | --------------------------------------------
|(13) | Segment Reporting and Geographic Information

,
Disclosures about Segments of an Enterprise and Related
Information.


78



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                            |  |                         |         |  |      |   |         |      |  |   |        | 
|--------------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|                            |  | Year Ended December, 31 |        
|                            |  |                         |        
|                            |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|                            |  |                         |         |  |      |   |         |      | 
|United States               |  | $                       | 69,549  |  |      | $ | 59,325  |      |  | $ | 57,812 | 
|United Kingdom              |  |                         | 7,526   |  |      |   | 10,412  |      |  |   | 5,731  | 
|Europe (excluding the U.K.) |  |                         | 16,112  |  |      |   | 19,907  |      |  |   | 16,640 | 
|Rest of the World           |  |                         | 13,001  |  |      |   | 14,419  |      |  |   | 13,661 | 
|                            |  |                         |         |  |      |   |         |      | 
|Total                       |  | $                       | 106,188 |  |      | $ | 104,063 |      |  | $ | 93,844 | 
|                            |  |                         |         |  |      |   |         |      | 









|           |  |                         |         |  |      |   |         |      |  |   |        | 
|---------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|           |  | Year Ended December, 31 |        
|           |  |                         |        
|           |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|           |  |                         |         |  |      |   |         |      | 
|MSP/ TC    |  | $                       | 48,374  |  |      | $ | 46,872  |      |  | $ | 39,636 | 
|Enterprise |  |                         | 57,814  |  |      |   | 57,191  |      |  |   | 54,208 | 
|           |  |                         |         |  |      |   |         |      | 
|Total      |  | $                       | 106,188 |  |      | $ | 104,063 |      |  | $ | 93,844 | 
|           |  |                         |         |  |      |   |         |      | 



|     |                  
|---- | -----------------
|(14) | Subsequent Events



|    |                                            
|--- | -------------------------------------------
|(a) | Acquisition of Vitel Software, Incorporated



79



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                         |                                         |                              |       |       |       | 
|---------------------------------------- | --------------------------------------- | ---------------------------- | ----- | ----- | ----- | 
|                                         |                                         | (In thousands)               |      
|Total consideration:                     |                                         |                              |       |      
|                                         | Cash                                    |                              | $     | 4,000 |      
|                                         | Transaction costs                       |                              |       | 125   |      
|                                         |                                         |                              |      
|                                         |                                         | Total purchase consideration |       | $     | 4,125 | 
|                                         |                                         |                              |      
|Allocation of the purchase consideration |                                         |                              |       |      
|                                         | Current assets, including cash of $32   |                              | $     | 145   |      
|                                         | Fixed assets                            |                              |       | 7     |      
|                                         | Net deferred tax asset                  |                              |       | 79    |      
|                                         | Identifiable intangible assets          |                              |       | 790   |      
|                                         | Goodwill                                |                              |       | 3,957 |      
|                                         |                                         |                              |      
|                                         |                                         | Total assets acquired        |       |       | 4,978 | 
|                                         | Less: fair value of liabilities assumed |                              |       | 853   |      
|                                         |                                         |                              |      
|                                         |                                         | $                            | 4,125 |      
|                                         |                                         |                              |      



|                                |       |                |     |              |            |  |   |  | 
|------------------------------- | ----- | -------------- | --- | ------------ | ---------- |  | - |  | 
|                                |       |                |     | Amortization |           
|                                |       | Amount         |     |              | Period     | 
|                                |       |                |     |              |            | 
|                                |       | (In thousands) |     |              | (In years) | 
|Completed technology (software) |       | $              | 320 |              |            |  | 5 | 
|Maintenance relationships       |       |                | 400 |              |            |  | 6 | 
|Reseller relationships          |       |                | 70  |              |            |  | 5 | 
|                                |       |                |     |              |            | 
|                                | Total |                | $   | 790          |            |  |   |  | 
|                                |       |                |     |              |            | 



80



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                                      
|--- | -------------------------------------
|(b) | Acquisition of Aprisma Holdings, Inc.



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CONCORD COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                                                        
|---- | -------------------------------------------------------
|(15) | Supplemental Quarterly Financial Disclosure (Unaudited)

|                                                             |                           |                                          |        |       |       |   |        |       |  |   |        |      |  |   |        |       |  
|------------------------------------------------------------ | ------------------------- | ---------------------------------------- | ------ | ----- | ----- | - | ------ | ----- |  | - | ------ | ---- |  | - | ------ | ----- | -
|                                                             |                           | Q1-04                                    |        |       | Q2-04 |   |        | Q3-04 |  |   | Q4-04  |     
|                                                             |                           |                                          |        |       |       |   |        |       |  |   |        |     
|                                                             |                           | (In thousands, except per share amounts) |       
|Revenue                                                      |                           | $                                        | 23,845 |       |       | $ | 26,705 |       |  | $ | 26,897 |      |  | $ | 28,741 |      
|Gross profit                                                 |                           |                                          | 19,074 |       |       |   | 21,494 |       |  |   | 21,566 |      |  |   | 23,076 |      
|Net income (loss)                                            |                           |                                          | (482   | )     |       |   | 333    |       |  |   | 230    |      |  |   | (615   | )    
|Per common and potential common share:                       |                           |                                          |        |       |       |   |        |       |  |   |        |      |  |   |        |      
|                                                             | Basic net income (loss)   |                                          | $      | (0.03 | )     |   | $      | 0.02  |  |   | $      | 0.01 |  |   | $      | (0.03 | )
|                                                             | Diluted net income (loss) |                                          | $      | (0.03 | )     |   | $      | 0.02  |  |   | $      | 0.01 |  |   | $      | (0.03 | )
|Shares used in computing basic net income per common share   |                           |                                          | 18,160 |       |       |   | 18,258 |       |  |   | 18,304 |      |  |   | 18,398 |      
|Shares used in computing diluted net income per common share |                           |                                          | 18,160 |       |       |   | 18,564 |       |  |   | 18,456 |      |  |   | 18,398 |      

|                                                             |                    |                                          |        |      |       |   |        |       |  |   |        |      |  |   |        |      | 
|------------------------------------------------------------ | ------------------ | ---------------------------------------- | ------ | ---- | ----- | - | ------ | ----- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                                             |                    | Q1-03                                    |        |      | Q2-03 |   |        | Q3-03 |  |   | Q4-03  |     
|                                                             |                    |                                          |        |      |       |   |        |       |  |   |        |     
|                                                             |                    | (In thousands, except per share amounts) |       
|Revenue                                                      |                    | $                                        | 24,117 |      |       | $ | 25,615 |       |  | $ | 26,560 |      |  | $ | 27,771 |     
|Gross profit                                                 |                    |                                          | 19,486 |      |       |   | 20,887 |       |  |   | 21,649 |      |  |   | 22,797 |     
|Net income                                                   |                    |                                          | 836    |      |       |   | 1,197  |       |  |   | 481    |      |  |   | 5,156  |     
|Per common and potential common share:                       |                    |                                          |        |      |       |   |        |       |  |   |        |      |  |   |        |     
|                                                             | Basic net income   |                                          | $      | 0.05 |       |   | $      | 0.07  |  |   | $      | 0.03 |  |   | $      | 0.29 | 
|                                                             | Diluted net income |                                          | $      | 0.05 |       |   | $      | 0.07  |  |   | $      | 0.03 |  |   | $      | 0.27 | 
|Shares used in computing basic net income per common share   |                    |                                          | 17,254 |      |       |   | 17,372 |       |  |   | 17,500 |      |  |   | 18,000 |     
|Shares used in computing diluted net income per common share |                    |                                          | 17,449 |      |       |   | 18,022 |       |  |   | 18,238 |      |  |   | 19,081 |     

82



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CONCORD COMMUNICATIONS, INC.


FORM 10-K, December 31, 2004





SIGNATURES






| |                                 
| | --------------------------------
| | Concord Communications,
    INC.
|
| | /s/ Melissa H. Cruz             
| |                                 
| | Name: Melissa H. Cruz           

| |        |                                                                                                                                                 
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Title: | Executive Vice President, Business Services 
     Chief Financial Officer and Treasurer 
     (Principal Financial and 
     Accounting Officer)



|                                                           |  |                                                                                                                                          |  |                |  | 
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                                  |  | Title                                                                                                                                    |  | Date          
|                                                           |  |                                                                                                                                          |  |               
|                                                          
|/s/ John A. BlaeserJohn
    A. Blaeser                     |  | President, Chief Executive Officer and Chairman of the Board
    (Principal Executive Officer)                                           |  | March 16, 2005
|                                                          
|/s/ Melissa H. CruzMelissa
    H. Cruz                     |  | Executive Vice President, Business Services, Chief Financial
    Officer and Treasurer, (Principal Financial and Accounting
    Officer) |  | March 16, 2005
|                                                          
|/s/ Frederick W.W.
    BolanderFrederick
    W.W. Bolander |  | Director                                                                                                                                 |  | March 16, 2005
|                                                          
|/s/ Richard M. Burnes,
    Jr.Richard
    M. Burnes, Jr.   |  | Director                                                                                                                                 |  | March 16, 2005
|                                                          
|/s/ Robert M. WadsworthRobert
    M. Wadsworth             |  | Director                                                                                                                                 |  | March 16, 2005
|                                                          
|/s/ Jack M. CooperJack
    M. Cooper                       |  | Director                                                                                                                                 |  | March 16, 2005
|                                                          
|/s/ Robert E. DonahueRobert
    E. Donahue                 |  | Director                                                                                                                                 |  | March 16, 2005

83



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EXHIBIT INDEX




|        |         |  |             |                                                                                                                                |                        |                                                                            
|------- | ------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------ | ---------------------- | ---------------------------------------------------------------------------
|Exhibit |         |  |             |                                                                                                                                |                       
|No.     |         |  | Description |                                                                                                                                | SEC Document Reference
|        |         |  |             |                                                                                                                                |                       
|        | 3.01    |  |             | Restated Articles of Organization of the Company                                                                               |                        | Exhibit No. 3.01 to Form 10-K, for the period ended
    December 31, 1997  
|        | *3.02   |  |             | Restated By-laws of the Company as restated June 30, 2004                                                                      |                        |                                                                            
|       
|        | 4.01    |  |             | Indenture by and between the Company and Wilmington Trust
    Company, as Trustee dated as of December 8, 2003                 |                        | Exhibit No. 4.3 to Registration Statement On Form S-3
    (No. 333-112091) 
|       
|        | 4.02    |  |             | Registration Rights Agreement by and between the Company and
    Bear, Stearns & Co. Inc. dated as of December 8,
    2003     |                        | Exhibit No. 4.4 to Registration Statement On Form S-3
    (No. 333-112091) 
|       
|        | 10.03   |  |             | Equipment Line of Credit Letter Agreement between the Company
    and Fleet Bank dated as of June 9, 1997                      |                        | Exhibit No. 10.03 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.04  |  |             | 1995 Stock Option Plan of the Company                                                                                          |                        | Exhibit No. 10.04 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | *10.06 |  |             | 1997 Stock Plan of the Company, as amended through March 8,
    2000                                                           |                        | Exhibit No. 10.06 to Form 10-K, for the period ended
    December 31, 1997 
|       
|        | 10.07  |  |             | 1997 Employee Stock Purchase Plan of the Company                                                                               |                        | Exhibit No. 10.06 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | *10.08 |  |             | 1997 Non-Employee Director Stock Option Plan as amended through
    August 20, 2004                                            |                        |                                                                            
|       
|        | 10.09  |  |             | The Profit Sharing/401(K) Plan of the Company                                                                                  |                        | Exhibit No. 10.08 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.10   |  |             | Lease Agreement between the Company and John Hancock Mutual Life
    Insurance Company dated March 17, 1994                    |                        | Exhibit No. 10.09 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.11   |  |             | First Amendment to Lease Agreement between the Company and John
    Hancock Mutual Life Insurance Company dated March 25, 1997 |                        | Exhibit No. 10.10 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.12   |  |             | Form of Indemnification Agreement for directors and officers of
    the Company                                                |                        | Exhibit No. 10.11 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.13   |  |             | Restated Common Stock Registration Rights Agreement between the
    Company and certain investors dated August 7, 1986         |                        | Exhibit No. 10.12 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.14   |  |             | Amended and Restated Registration Rights Agreement between the
    Company and certain investors dated December 28, 1995       |                        | Exhibit No. 10.13 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | 10.15  |  |             | Management Change in Control Agreement between the Company and
    John A. Blaeser dated as of August 7, 1997                  |                        | Exhibit No. 10.14 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | *10.16 |  |             | 2004 Non-Executive Employee Stock Purchase Plan                                                                                |                        |                                                                            
|       
|        | 10.17  |  |             | Management Change in Control Agreement between the Company and
    Ferdinand Engel dated July 23, 1997                         |                        | Exhibit No. 10.16 to Registration Statement on
    Form S-1 (No. 333-33227)
|       
|        | *10.18 |  |             | Form of 1997 Non-Qualified Stock Option Agreement for
    Non-Employee Directors                                               |                        |                                                                            

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##### Table of Contents



|        |         |  |             |                                                                                                               |                        |                                                                                                  
|------- | ------- |  | ----------- | ------------------------------------------------------------------------------------------------------------- | ---------------------- | -------------------------------------------------------------------------------------------------
|Exhibit |         |  |             |                                                                                                               |                       
|No.     |         |  | Description |                                                                                                               | SEC Document Reference
|        |         |  |             |                                                                                                               |                       
|       
|        | 10.19  |  |             | Management Change in Control Agreement dated June 12, 2000
    between the Company and Melissa Cruz           |                        | Exhibit No. 10.18 to Form 10-Q filed on August 14, 2000                                          
|       
|        | 10.21  |  |             | Stock Option Agreement dated January 1, 1996 between the Company
    and John A. Blaeser                      |                        | Exhibit No. 10.19 to Registration Statement on
    Form S-1 (No. 333-33227)                      
|       
|        | 10.22  |  |             | Stock Option Agreement dated January 1, 1996 between the Company
    and John A. Blaeser                      |                        | Exhibit No. 10.20 to Registration Statement on
    Form S-1 (No. 333-33227)                      
|       
|        | 10.24   |  |             | Form of Shrink-Wrap License                                                                                   |                        | Exhibit No. 10.22 to Registration Statement on
    Form S-1 (No. 333-33227)                      
|       
|        | *10.25 |  |             | Form of 1997 Non-Qualified Employee Stock Option Agreement                                                    |                        |                                                                                                  
|       
|        | 10.26   |  |             | Stock Purchase Agreement between the Company and Aprisma
    Holdings, Inc.                                   |                        | Exhibit 2.1 to Form 8-K filed on January 8, 2005                                                 
|       
|        | 10.27   |  |             | Schedule T.O. Tender Offer Statement and related amendments                                                   |                        | File No. 05-52793, Filed September 27, 2004 and amended
    October 20, 2004 and October 27, 2004
|       
|        | 10.28  |  |             | 2000 Non-Executive Employee Equity Incentive Plan                                                             |                        | Exhibit 10.28 to Form 10-K, for the period ended
    December 31, 2000                           
|       
|        | 10.29  |  |             | Management Change in Control Agreement between the Company and
    Michael Fabiaschi                          |                        | Exhibit No. 10.1 to Form 8-K filed on March 15, 2005.                                            
|       
|        | *10.30 |  |             | Form of 1997 Executive Incentive Stock Option Agreement                                                       |                        |                                                                                                  
|       
|        | 10.31  |  |             | 2001 Non-Executive Employee Stock Purchase Plan                                                               |                        | Exhibit No. 10.31 to Form 10-Q filed on November 5,
    2001                                     
|       
|        | *10.33 |  |             | Aprisma Management Technologies, Inc. 2003 Equity Participation
    and Retention Plan                        |                        |                                                                                                  
|       
|        | 10.34  |  |             | Management Change in Control Agreement between the Company and
    Douglas Batt dated as of November 18, 2002 |                        | Exhibit No. 10.34 to Form 10-K filed on March 19, 2003                                           
|       
|        | 10.37   |  |             | Registration Rights Agreement by and between the Company and Vo
    Ngoc Tran dated July 17, 2003.            |                        | Exhibit No. 4.1 to Registration Statement on Form S-3
    (No. 333-108068)                       
|       
|        | *10.40 |  |             | Management Change in Control Agreement between the Company and
    Ted D. Williams                            |                        |                                                                                                  
|       
|        | 10.41  |  |             | Restricted Stock Grant Agreement between the Company and Michael
    Fabiaschi                                |                        | Exhibit No. 10.2 to Form 8-K filed on March 15, 2005.                                            
|       
|        | *10.42 |  |             | Form of Restricted Stock Grant Agreement of the Company                                                       |                        |                                                                                                  
|       
|        | 12.01   |  |             | Statement regarding Computation of Ratio of Earnings to Fixed
    Charges                                     |                        | Exhibit No. 12.01 to Registration Statement on
    Form S-3 (No. 333-112091)                     
|       
|        | *21.01  |  |             | Subsidiaries of the Company                                                                                   |                        |                                                                                                  
|       
|        | *23.01  |  |             | Consent of PricewaterhouseCoopers LLP                                                                         |                        |                                                                                                  
|       
|        | *31.1   |  |             | Certification of John A. Blaeser pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                |                        |                                                                                                  
|       
|        | *31.2   |  |             | Certification of Melissa H. Cruz pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                |                        |                                                                                                  

85



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##### Table of Contents



|        |       |  |             |                                                                                                |                        | 
|------- | ----- |  | ----------- | ---------------------------------------------------------------------------------------------- | ---------------------- | 
|Exhibit |       |  |             |                                                                                                |                       
|No.     |       |  | Description |                                                                                                | SEC Document Reference
|        |       |  |             |                                                                                                |                       
|       
|        | *32.1 |  |             | Certification of John A. Blaeser pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |                        | 
|       
|        | *32.2 |  |             | Certification of Melissa H. Cruz pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |                        | 






|  |               
|- | --------------
|* | filed herewith



|  |                                                                         
|- | ------------------------------------------------------------------------
| | Indicates a management contract or compensatory plan or
    arrangement.

86