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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON DC 20549

                                   FORM 10-K

      [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

          For the fiscal year ended December 31, 2001

                                       OR

      [ ]      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)

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<S>                                            <C>
                MASSACHUSETTS                                    04-2710876
           (State of incorporation)                 (IRS Employer Identification Number)
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                               600 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)

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing sale price of the Company's common stock on
March 4, 2002, as reported on the Nasdaq National Market was approximately
$359,916,664.

     The number of shares outstanding of Common Stock as of March 4, 2002 was
16,961,200.

                      DOCUMENTS INCORPORATED BY REFERENCE

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                         DOCUMENT                           FORM 10-K REFERENCE
                         --------                           -------------------
<S>                                                         <C>
Portions of the Registrant's Proxy Statement for its        Part III, Items 10,
Annual Meeting of Stockholders to be held on April 24,      11 and 12
2002.
</Table>

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                                     PART I

     This document contains forward-looking statements. Any statements contained
herein that do not describe historical facts are forward-looking statements.
Concord makes such forward-looking statements under the provisions of the "safe
harbor" section of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements contained herein are based on current expectations,
but are subject to a number of risks and uncertainties. Concord's actual future
results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed elsewhere in this Form 10-K under the heading "Factors
That Could Affect Future Results."

ITEM 1.  BUSINESS

INTRODUCTION

     Concord develops, markets and supports the eHealth(TM) Suite of scalable
information technology (IT) infrastructure fault and performance management
software solutions. eHealth(TM) integrates fault and performance management of
the applications, systems and networks that comprise today's IT infrastructure.
Concord's solutions are designed to optimize the performance and availability of
IT infrastructures on which enterprises, managed service providers and
telecommunication carriers depend for their day-to-day business and operational
success. Concord was organized as a Massachusetts corporation in 1980 under the
name Concord Data Systems, Inc., and changed its name to Concord Communications,
Inc. in 1986 and its headquarters are located in Marlborough, Massachusetts.

     Over the last few years there has been a significant change in the way
companies use information technology to conduct business. The advent of
cost-effective, universal connectivity enables a more effective way to offer
high quality service to business customers. These services, ranging from on-line
banking and point of sales credit authorization to managed application or
location/co-location services, are referred to as IT services. The ability to
provide fast, easy to access, and high availability IT services has become a
differentiator for many successful businesses. Concord's products are designed
to enable businesses to optimize the availability and performance of their IT
systems by providing an end-to-end view across the application software,
systems, and networks comprising the IT infrastructure.

     Over 2600 customers, including enterprises, managed service providers and
telecommunication carriers use our eHealth(TM) fault and performance management
software to manage their IT infrastructures. eHealth(TM) enables our customers
to reduce down time, manage the usage of current resources, and limit the need
for incremental IT personnel as their business IT infrastructures expand.
Concord's eHealth(TM) Suite software enables managed service provider and
telecommunication carrier customers to monitor compliance with service level
agreements and to introduce new services for their customers.

     Our eHealth(TM) Suite is designed to fit the needs of both enterprises
providing IT services and the managed service providers and telecommunication
carriers on which enterprises rely. These service providers use the eHealth(TM)
Suite to help ensure the quality of services such as network and bandwidth
services (carriers), Web hosting, data center/co-location services, internet
service providers (ISPs), managed service providers (MSPs) and outsourcing
services.

     Concord's software is a single-vendor solution that combines real time
fault information with performance data. The eHealth(TM) Suite enables our
customers to detect faults as they happen, as well as identify and resolve
subtle variations in performance that may signify potential outages before
problems occur. Our eHealth(TM) software presents information on network
devices, client and server systems and applications using a flexible graphical
user interface. The information collected from those components can be
associated with the business services they impact. When faults and performance
degradations are detected, eHealth(TM) notifies IT operations staff via email,
page, or console alarm, isolates the sources of delay, and enables the
automation of corrective action to resolve problems. Using the customizable
MyHealth Web-based interface, IT operators can tailor their own view of business
services. MyHealth enables users to select particular infrastructure components
and combine them for an end-to-end view of the business service. These results
are displayed, on

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our eHealth(TM) Live Status(TM) diagram, in a unique organization-centric or
customer-centric view by business organization.

     Concord's target markets include enterprises, managed service providers and
telecommunication carriers. Concord markets to these potential customers through
our own sales force, sales agents, value-added resellers, distributors, network
service providers, telecommunication carriers, and orginial equipment
manufacturers (OEMs). As of December 31, 2001, Concord had more than 2,600
customers operating in and serving a variety of industries. In 2001, enterprise
customers comprised 56% of revenue and managed service providers and
telecommunication carriers comprised 46% of revenue.

THE CONCORD SOLUTION

     Concord provides a single-vendor solution to manage the IT infrastructure
in real-time with historical context. Concord's eHealth(TM) Suite is a family of
automated, scaleable, Web-based management solutions for critical applications,
systems, and networks. eHealth(TM) helps users manage the availability of the IT
infrastructure by (i) detecting faults and potential outages, (ii) notifying IT
operations staff of problems, (iii) isolating sources of delay, (iv) enabling
the automation of corrective action, and (v) providing data analysis and reports
of both real-time status and historical reports that track changing conditions
over time.

     Our solution is capable of data collection, consolidation, analysis and
reporting for up to 80,000 elements by a single console. Furthermore, our
distributed architecture allows configurations, viewable from a single console
that supports collection and reporting of up to 1,000,000 data elements. In
addition, our self-managing distributed systems and application management
agents can work autonomously on any number of systems.

     Concord's eHealth(TM) Suite of software products provides organizations
with the following benefits:

          (i) Implementation -- provides embedded intelligence, detailed
     knowledge, and automated analysis for over 450 different types of devices,
     enabling solutions to be up and running within hours or days rather than
     weeks, months, or even years;

          (ii) Detection of faults before they occur -- combines real-time
     management with historical context to detect developing problem conditions
     that have been pervasive, or that differ from normal behavior, in order to
     alert IT operators to problems before services are impacted;

          (iii) Trap reception -- allows the receipt and analysis of traps,
     faults, and events coming from applications, systems and networks, creating
     an ability to respond to changing IT priorities and environments;

          (iv) Business view of service management -- enables association of
     organizations and business processes with the underlying infrastructure
     components -- applications, systems and networks -- on which they depend;

          (v) Predictive and real-time analysis -- provides information about
     the availability and response time of critical applications and services so
     that IT management can adjust capacities in a proactive manner to comply
     with service level agreements; and

          (vi) Alignment of management operations with customer business
     goals -- provides a view into the end-to-end performance and availability
     of the end-user customer environment so that enterprises, carriers or
     managed service providers can deliver services based on their business
     needs.

     In providing these benefits, Concord's eHealth(TM) product family
incorporates the following features:

     AUTOMATED SOLUTION.  Concord's products are designed to provide solutions
for fully automated fault, availability, and performance management.
Installation can be accomplished in a few hours for most products, and for
certain products, installation can occur remotely, over the Web. Once installed,
our products provide real-time information and also historical reports on
critical areas such as (i) trends and changes for application response times,
system and network availability and capacity; (ii) situations that may give rise
to potential delays or failures in services and processes; and (iii) exceptions
analysis for identifying deviations from specified performance and service
levels.

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     SCALEABLE, SOFTWARE-ONLY SOLUTION.  The eHealth(TM) product family is
designed to simplify management of the various network devices, client and
server operating systems, hardware platforms, technologies, and applications
that typically comprise today's IT infrastructures. Our products are scaleable,
in order to meet the demands for management as an organization's IT
infrastructure expands. Our eHealth(TM) solution provides managers with the
ability to purchase add-on software licenses or additional agent software as
needed.

     MULTI-LEVEL REPORTING.  Concord's eHealth(TM) product family generates a
package of graphical reports that provide information and analyses on a variety
of pre-configured parameters. Information is provided for use at multiple levels
of management, from a general overview of capacity, availability and response
time for chief information officers -- to analyses of specific transactions,
client and server components, hardware equipment components, bandwidth
components and network services.

     BROAD TECHNOLOGY COVERAGE.  Our eHealth(TM) product family provides
management across a spectrum of industry standard applications like Microsoft
Exchange and Information Internet Server; open source Apache; Lotus Notes; ERP
systems from SAP, Baan and Peoplesoft; industry standard operating systems like
UNIX, Microsoft Windows NT and Windows 2001, and Linux; and industry standard
networking technologies like ATM, Frame Relay and IP.

PRODUCTS AND TECHNOLOGY

     The eHealth(TM) Suite of products is composed of the eHealth(TM) console, a
centralized console and repository where information gathered from throughout
the infrastructure is consolidated and analyzed; technology-area solution sets
that contain products pertaining to applications, systems and networks
management; and a number of cross-technology, suite-wide products that operate
across all technology areas.

     EHEALTH(TM) CONSOLE -- This solution provides IT personnel with a
centralized view of faults, availability and performance across applications,
systems and networks. The eHealth console combines a customizable graphical user
interface with an engine for collecting data, an industry standard relational
database, data analysis algorithms, and flexible reporting capabilities. This
combination enables our eHealth console to collect and analyze data and provide
on-demand or scheduled reporting which can be viewed on the console or accessed
via standard Web-based browsers. The eHealth console also provides an interface
for administration and configuration tasks such as associating business
organizations or processes with underlying resources and scheduling reports.
Different technology license keys enable the eHealth console to collect, analyze
and report on information from different technology areas including
applications, systems, networks, and application service response. eHealth
console can discover and report on more than 450 different types of networks,
systems, and application devices and information; new types of devices can be
added. Its historical reports include: Top-N-Reporting, which helps to identify
trouble spots; At-A-Glance Reporting, which enables users to examine critical
resources; and Trend Reporting, which provides tools to build custom reports.
The MyHealth interface allows users to tailor their own views of business
services, selecting from reports on a particular component such as the network,
or combining reports across the network, systems, and application components for
an end-to-end view of a business service.

     EHEALTH(TM) LIVE HEALTH(TM) -- This solution provides access -- with its
features such as eHealth Live Status diagram, Live Exceptions analysis engine
and browser, and Live Trend application -- to real-time performance and
availability management for problem diagnosis. The eHealth Live Status diagram
is a customizable high-level business overview of the current status of key
elements in the IT environment. Live Exceptions browser gives a detailed list of
alarms. Both of them show the performance alarms and hard faults (generated by
Concord's eHealth Live Health - Fault Manager product) in our eHealth console.
They identify who is at risk for an outage or service degradation by delivering
correlated impact analysis organized by customers, services, technologies, and
regions. Our Live Health solution automatically notifies IT personnel about the
alarms via e-mail or pager or by forwarding alarms to a network management
system or by invoking user-specified action. With Live Trend, IT personnel can
monitor performance patterns of their internet infrastructure. Live Health uses
historical data collection to establish context to raw data. Live Health covers
customers' entire IT infrastructures -- applications, systems, and networks. It
is designed to provide out of the box profiles that detect "brownouts" and
service delays without configuring complicated rules. By using the

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data collected by Concord's eHealth Suite products, our eHealth Live Health
solution provides real-time management and historical analysis with no
additional network traffic or overhead. It also provides the flexibility to
monitor customers' e-business delivery systems at user-defined intervals on
specified days, and to "un-monitor" them depending on the users' needs.

     EHEALTH(TM) LIVE HEALTH(TM) -- FAULT MANAGER -- This solution provides IT
personnel access to real-time fault management across applications, systems and
networks for problem diagnosis. Analysis algorithms process traps and create a
low number of intelligent alarms; thus, reducing noise and displaying alarms
indicating important problems. Alarms resulting from traps can be associated to
elements managed by eHealth Suite, permitting IT personnel to review current and
historical information. Our eHealth Live Health -- Fault Manager solution uses
the features of our eHealth Live Health solution set; the eHealth Live Status
diagram, combined with this Fault Manager solution, highlights customers'
business topology with current alarm status and is a navigation point to review
current and historical reports while the eHealth Live Health browser shows
details of alarms that result from our Fault Manager solution's trap analysis
algorithms.

     EHEALTH(TM) -- NETWORK -- This solution set helps IT personnel manage
performance and optimize availability of key network resources including LANs,
WANs, Frame Relay, ATM, Quality of Service (QoS), Wireless LAN, DSL, VoIP, cable
technologies and Remote Access Equipment. It also integrates with technologies
and operational support systems (OSS) from Lucent, Newbridge and Cisco's VPN
Solutions Center and NetFlow products. Our eHealth -- Network technology license
key enables the eHealth console to automatically discover, collect information
from, analyze, and report on network resources enabling network managers to
track performance, plan capacity, and detect sources of service delay across
their networks. Another product in this category, Traffic Accountant, works with
RMON2 probes and Cisco NetFlow routers to track network traffic and report
resource consumption by users, business units, regions, or applications, thus
enabling network managers to allocate network usage costs back to individual
departments or users. Reports from the eHealth -- Network solution set allow
network managers to understand service levels, proactively address potential
network failures, manage bandwidth and capacity, watch for security violations,
and understand the usage patterns of the network and the network's various
elements.

     EHEALTH(TM) -- SYSTEM -- This solution provides IT personnel compiled
information and analysis about their business-critical workstations and servers.
Our eHealth -- System solution is designed to enable IT personnel to deliver
scalable performance optimization, analyze performance in detail, and
proactively detect system "brownouts." Our eHealth -- System solution provides
information about key performance metrics, including CPU, memory, disk,
availability, and line utilization, in an easy-to-understand format for
historical trend analysis, capacity planning, performance tuning, and
service-level management. Our eHealth -- System solution collects system
information from our eHealth SystemEDGE(TM) agents and other third party agents
residing on NT, LINUX or UNIX systems, and stores that information in the
eHealth Suite database. From the eHealth console, IT personnel can perform
analysis on numerous combinations of metrics and time periods. eHealth -- System
information is also delivered to Concord's eHealth Live Health application for
real-time detection of system faults, potential outages, and delays.

     EHEALTH(TM) -- RESPONSE -- This solution enables IT personnel to measure
end-user response, detect performance degradations, maintain service levels, and
manage application performance and availability. The information is stored in
the eHealth database and reports are available within the eHealth Suite to help
IT personnel proactively manage application performance and availability.
Application data provided using eHealth -- Response, in conjunction with server
and network data, enables eHealth Suite to provide comprehensive performance and
availability management across customers' applications and their complete
infrastructures. Our eHealth -- Response solution captures application
information from eHealth -- Response agents that perform observational
monitoring as well as active performance and availability testing. Observational
monitoring collects application performance information from end users in a
non-intrusive, observational manner; it occurs at the client desktop and
measures the actual experience of the end user. Active testing can take place at
the desktop, server, or router, providing performance and availability data from
these strategic locations in customers' infrastructures based on executing
repeatable, scheduled application tests. From the eHealth console, IT personnel
can perform analysis on numerous combinations of response metrics

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and time periods. eHealth -- Response information is also delivered to the
eHealth -- Live Health product for real-time detection of degrading performance,
service level breaches, and declining availability.

     EHEALTH(TM) -- APPLICATION INSIGHT -- This solution delivers aggregated
information and analyses for business-critical applications, such as Microsoft
Exchange and SQL Server, Oracle, and CheckPoint. Our eHealth -- Application
Insight solution works by collecting vital application metrics from eHealth
application insight modules residing on application servers. This information is
brought back to the eHealth console, where real-time analysis takes place. This
data is also stored inside the eHealth database, enabling IT personnel to run
analyses on various combinations of metrics and time periods. This information
is presented on the eHealth console in reports for historical trend analysis,
capacity planning, performance tuning, troubleshooting, and service-level
management. Our eHealth -- Application Insight solution also delivers data to
our eHealth Live Health application for the real-time analysis and detection of
application faults, trouble spots and areas of delays. eHealth Live Health
baselines customers' business applications to identify normal behavior patterns
based on critical performance metrics.

     EHEALTH(TM) -- SPV DISTRIBUTED -- This solution provides an end-to-end
service management tool that allows managed service providers and
telecommunication carriers to manage large networks and speed customers' time to
market. Our solution supports multiple vendors' equipment within our workflow
and reporting structure, which is designed to enable service providers and
carriers to evolve their network and services without affecting operational
support. With eHealth -- SPV Distributed, Concord's distributed architecture
allows these businesses to support the growing network in large, complex
implementations.

CUSTOMER SERVICE

     Concord's post-sales support organization is responsible for providing
ongoing technical support and training for our customers. For an annual fee, a
customer receives telephone, email and web-based support, as well as updated
product releases. We offer support coverage 24 hours a day, seven days a week to
customers for an additional fee. We offer a web-based tool, Service Express,
which enables customers to find, via our website, answers to questions and
solutions to technical support issues. We also provide a toll-free customer
support line to all customers. Support personnel are on call to answer the
technical support calls and generally provide same-day responses to questions
that cannot be resolved during the initial call. All calls are logged, opened,
tracked, and closed with regular updates to the customer, our sales teams and
our executive management team. As of December 31, 2001, we employed 45 technical
post-sales support personnel, 5 inside sales representatives and one
administrative customer service person. In addition, we also had 43 professional
service and training personnel who provide services to our customers on a
fee-for-service basis.

SALES AND MARKETING

     Concord markets our products in the United States to large and medium-sized
organizations, as well as service providers, including telecommunication
carriers, ISPs, MSPs, systems integrators and outsourcers primarily through a
direct sales force, sales agents and through value added resellers (VARs).
Internationally, Concord markets primarily through distributors. Additionally,
we have entered into joint marketing and joint development arrangements with a
number of companies.

     As of December 31, 2001, Concord had 25 North America sales teams, each
comprised of one direct sales person and one or two technical support people
targeting the following four regions: East, Central, West and Federal. We had 12
international sales teams, also comprised of one direct sales person and one or
two technical support people, targeting the following three geographic regions:
Europe, Middle East and Africa (EMEA); Asia/Pacific; and Latin America. In
addition, we employed 26 inside sales and technical management individuals who
support both the North America and International sales teams. No single customer
accounted for more than 10% of Concord's revenue during the last three years.

     As of December 31, 2001, we had relationships with 61 North American VARs
and 78 international distributors. It is the responsibility of each sales team
to manage all sales within its geographic territory by signing up, training, and
managing sales agents, VARs, distributors, network service providers and
outsourcers, as well as selling directly to customers. Concord generates sales
leads through seminars, trade shows, Internet

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postings, press articles, referrals, mass mailings and cold calling as well as
through relationships with sales agents, distributors, VARs, network service
providers and outsourcers.

     As of December 31, 2001, Concord had relationships with over 500
telecommunication carriers and managed service providers. These service
providers offer our products as part of their service offerings. As of December
31, 2001, we also had joint marketing and development partners that work with
our direct sales force, including Alcatel SA, Aprisma Management Technologies,
Cap Gemini Ernst & Young, Cisco Systems, Inc., Hewlett-Packard Co., KPMG
Consulting, Lucent Technologies, Inc., Micromuse, Inc., Nortel Networks Corp.,
Orchestream Holdings PLC, Riversoft and Siemens AG. We also have a professional
services referral program aimed at our key network-consulting partners. Under
this program, Concord will provide professional services through these partners
directly to our customers.

     As of December 31, 2001, Concord employed 52 marketing personnel who
position, promote and market our products. These individuals are engaged in a
variety of activities, including direct marketing, public relations, tradeshows,
advertising, Internet postings, and seminars. As of December 31, 2001, we
employed 130 sales personnel.

PRODUCT DEVELOPMENT

     We believe that our future success depends in large part on our success in
enhancing existing products and developing new products that maintain
technological competitiveness and deliver value to existing and new customers.
We have made and intend to continue to make substantial investments in product
development. Extensive product development input is obtained through customers
and our monitoring of end user needs and changes in the marketplace.

     Concord introduced the initial version of our Network Health product
focused at the LAN and WAN environments in the first quarter of 1995. During
1996, we introduced three additional versions of our Network Health
software -- Frame Relay, Router/Switch and Traffic Accountant. During 1997, we
introduced two additional versions of Network Health software -- Server and
Service Level Reporting. During 1998, we introduced two additional versions of
our Network Health product -- ATM and Remote Access. During 1999, we introduced
one additional version of our Network Health product -- Response, which is now
incorporated into our Application Health product. During 2000, we introduced our
eHealth(TM) Suite that offers performance, capacity and availability management
across applications, systems, and networks. The introduction of the eHealth(TM)
Suite is the result of the integration of the products of Empire Technologies,
Inc. and FirstSense Software, Inc. which we acquired in 1999 and 2000,
respectively, into our eHealth(TM) product: Systems and Application Management
from Empire and Application Response Management, from FirstSense. During 2000,
we also introduced our first fault management application, Live Health(TM),
which detects and reports performance and availability faults in real time. The
eHealth(TM) historical database provides the Live Health(TM) application the
historical context to reduce fault notifications and to detect performance
brownouts as well as hard faults. During 2001, we introduced our second fault
management solution, eHealth(TM) Live Health(TM) -- Fault Manager, which
combines embedded intelligence and analysis algorithms to create a low number of
intelligence alarms; this enables IT personnel to focus on taking corrective
action rather than researching potential issues. During 2001, we also introduced
our real-time display tool, Live Status(TM), which provides individual users an
overview of the business topology of the IT infrastructure. We are now
developing a new distributed infrastructure with a focus on large-scale
installations and ease of administration. The introduction of new technologies
like DSL, VoIP, VPN, SAN, Wireless, and others round out the end-to-end solution
set.

     Concord's total expenses for research and development were $24.0 million,
$21.1 million and $14.4 million in 2001, 2000 and 1999, respectively. We
anticipate that we will continue to commit substantial resources to research and
development in the future and that product development expenses may increase in
absolute dollars in future periods. To date, our development efforts have not
resulted in any capitalized software development costs. As of December 31, 2001,
our product development organization consisted of 132 people.

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COMPETITION

     The market for Concord's products is highly competitive and subject to
rapid technological and competitive landscape changes. Although we have
experienced limited competition to date from products with comparable
capabilities, we expect competition to increase in the future. Further
development by our principal competitors, and acquisitions of smaller companies
by large established vendors and the integration of their products may be the
main source of future competition for us. We currently compete principally on
the basis of: (i) providing the market an integrated fault, performance, and
availability solution for applications, systems and networks, as a single
vendor; (ii) the automated, scaleable, ease of use, and cost effective nature of
our products; and (iii) our experience gained from years of interaction with
customers. While we believe that we currently compete favorably overall with
respect to these factors, there can be no assurance that we will be able to
continue to do so.

     We compete or may compete directly or indirectly with the following
categories of companies:

          (i) report toolset vendors;

          (ii) fault management software vendors;

          (iii) application performance software vendors;

          (iv) enterprise management software, framework and platform providers;

          (v) large, well established management framework companies that have
              developed network management platforms;

          (vi) developers of network element management solutions; and

          (vii) probe vendors.

     Additional competitors, including large networking or telecommunication
equipment manufacturers, telecommunication service providers, and computer
hardware and software companies, may enter this market, thereby further
intensifying competition. Additionally, there can be no assurance that one or
more of our customers may not attempt to develop competing products internally
or that one or more of the companies we have developed relationships with, such
as the network management platform developers and probe vendors, will not try to
develop one or more products that compete more directly with our products.

     Many of our current and prospective competitors have significantly greater
financial, sales and marketing, technical and other resources than Concord. As a
result, these competitors may be able to devote greater resources than Concord
to the development, promotion, sale and support of their products. Moreover,
these companies may introduce additional products that are competitive with or
better than Concord's products or may enter into strategic relationships to
offer better products than those currently offered. There can be no assurance
that our products would effectively compete with such new products. In addition
to the risk that other products will be developed, current and prospective
competitors may be able to market, sell and support their products more
effectively.

     To remain competitive, we must continue to invest in research and
development, sales and marketing, and customer service and support. In addition,
as we enter new markets and utilize different distribution channels, the
technical requirements and levels and bases of competition may be different than
those experienced in our current market. There can be no assurance that we will
be able to successfully compete against either current or potential competitors
in the future.

PROPRIETARY RIGHTS

     Our success depends significantly upon our proprietary technology. We rely
on a combination of patent, copyright, trademark and trade secret laws,
non-disclosure agreements, and other contractual provisions to establish,
maintain, and protect our proprietary rights; however, use of contractual,
statutory and common law protections of our proprietary technologies offers only
limited protection.

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     We have ten issued U.S. patents and seven pending U.S. patent applications,
and various foreign counterparts. We cannot ensure that patents will issue from
our pending applications or from any future applications or that, if issued, any
claims allowed will be sufficiently broad to protect our technology. In
addition, we cannot ensure that any patents that have been or may be issued will
not be challenged, invalidated or circumvented, or that any rights granted by
those patents would protect our proprietary rights. Failure of any patents to
protect our technology may make it easier for our competitors to offer
equivalent or superior technology.

     We also have sought to protect our intellectual property through the use of
copyright, trademark, and trade secret laws registered or applied for
registration for certain trademarks, and will continue to evaluate the
registration of additional trademarks as appropriate. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or services, or to obtain and use information that we regard as
proprietary. Third parties may also independently develop similar technology
without breach of our proprietary rights.

     In addition, the laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. In addition,
many of our products are licensed under end user license agreements (also known
as shrinkwrap licenses) that are not signed by licensees. The law governing the
enforceability of shrinkwrap license agreements is not settled in most
jurisdictions. There can be no guarantee that we would achieve success in
enforcing one or more shrinkwrap license agreements if we sought to do so in a
court of law.

REVENUE BY GEOGRAPHIC REGION

     The following table presents Concord's revenue by major geographic regions
(in thousands):

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                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
United States...........................................  $54,746   $62,015   $54,924
Europe..................................................   20,142    17,290     9,084
Rest of the world.......................................   13,090    12,179     4,812
                                                          -------   -------   -------
Total...................................................  $87,978   $91,484   $68,820
                                                          =======   =======   =======
</Table>

No one country, except the United States, accounts for greater than 10% of total
revenues.

EMPLOYEES

     As of December 31, 2001, we had a total of 471 employees, all but 49 of
whom were based in the United States. Of the total, 132 were in research and
development, 94 were in customer service, 130 were in sales, 52 were in
marketing, 30 were in operations and information technology and 33 were in
finance, human resources and administration. Our future performance depends in
part, upon the continued service of our key engineering, technical support and
sales personnel. Competition for such personnel can be intense and there can be
no assurance that we will be successful in attracting or retaining such
personnel in the future. Except for two employees in Brazil, none of our
employees are represented by a labor union or are subject to a collective
bargaining agreement. We have not experienced any work stoppages and consider
our relations with our employees to be good.

                                        8
<PAGE>

                    FACTORS THAT COULD AFFECT FUTURE RESULTS

     References in these risk factors to "we," "our," the "Company," 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.

     This Annual Report on Form 10-K contains forward-looking statements. Any
statements contained in this document that do not describe historical facts are
forward-looking statements. Concord makes such forward-looking statements under
the provisions of the "safe harbor" section of the Private Securities Litigation
Reform Act of 1995. In particular, statements contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are not historical facts (including, but not limited to, statements concerning:
the plans and objectives of management; increases in sales and marketing,
research and development, customer support and service, and general and
administrative expenses; expectations regarding increased competition and
Concord's ability to compete successfully; sustenance of revenue growth both
domestically and internationally; the size, scope and description of Concord's
target customer market; future product development, including but not limited to
anticipated expense levels to fund product development, acquisitions and the
integration of acquired companies; and our expected liquidity and capital
resources) constitute forward-looking statements. Forward-looking statements
contained herein are based on current expectations, but are subject to a number
of risks and uncertainties. Concord's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause such differences include, but are not limited to, the factors
discussed below.

OUR FUTURE OPERATING RESULTS ARE UNCERTAIN.

     Prior to 2001, we marketed and sold our products primarily in the
performance management market. In 2001, our product functionality was expanded
to include both fault and performance management features to penetrate the fault
management market. Accordingly, we have a limited operating history in this
expanded market upon which we can evaluate our business. As currently developed,
our product is an integrated fault and performance management tool that manages
applications, systems and networks. The integrated fault and performance market
is highly competitive and rapidly evolving. Additionally, many of our
competitors in this new market have a longer operating history and greater
resources. Our limited operating history and the uncertain economic climate
makes the prediction of future results of operations difficult or impossible.
Our prospects must be considered in light of the risks, costs, and difficulties
frequently encountered by emerging companies operating in the highly competitive
software industry.

THE MARKET FOR INTEGRATED FAULT AND PERFORMANCE MANAGEMENT SOFTWARE IS EMERGING.

     The market for our integrated fault and performance solution is in an early
stage of development. Although the rapid expansion and increasing complexity of
computer applications, systems, and networks in recent years has increased the
demand for fault and performance management software products, the awareness of,
and the need for, an integrated fault and performance solution is a recent
development. Because the market for this solution is only beginning to develop,
it is difficult to assess:

     - the size of this market;

     - the appropriate features and prices for products to address this market;

     - the optimal distribution strategy; and

     - the competitive environment that will develop.

     The development of this market and our growth will depend significantly
upon the desire and success of telecommunication carriers, managed services
providers, and enterprises to integrate fault and performance management for
their applications, systems, and networks. Moreover, it will depend on the
willingness of telecommunication carriers, managed service providers, systems
integrators, and outsourcers to integrate fault and performance management
software into their product and service offerings. The market for integrated

                                        9
<PAGE>

fault and performance management software may not grow or we may fail to assess
and address the needs of this market.

THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE.

     The market for our products is new, intensely competitive, rapidly
evolving, and subject to technological change. Our current and future
competitors include:

     - report toolset vendors;

     - fault management software vendors;

     - application performance software vendors;

     - enterprise management software, framework and platform providers;

     - large, well established management framework companies that have
       developed network management platforms;

     - developers of network element management solutions;

     - probe vendors.

     We expect competition to persist, increase, and intensify in the future
with possible price competition developing in our markets. Many of our current
and potential competitors have longer operating histories and significantly
greater financial, technical and marketing resources and name recognition than
us. We do not believe our market will support a large number of competitors and
their products. If we do not provide products that achieve success in our market
in the short term, we could suffer an insurmountable loss in market share and
brand name acceptance. We cannot ensure that we will compete effectively with
current and future competitors.

THE MARKET FOR PERFORMANCE AND FAULT MANAGEMENT OF SOFTWARE APPLICATIONS,
SYSTEMS AND NETWORKS IS BECOMING INCREASINGLY TARGETED BY LARGER COMPANIES WITH
SUBSTANTIALLY GREATER RESOURCES.

     A considerable portion of our revenue is generated from sales of products
that manage both the fault and performance aspects of software applications and
systems. This market is very competitive and we are in direct competition with
larger companies with substantially greater resources. These larger companies
are able to devote considerable resources to the development of competitive
products and the creation and maintenance of direct and indirect sales channels.
The continued presence of these larger companies in this market may impact our
ability to retain or increase our market share.

MARKET ACCEPTANCE OF OUR EHEALTH(TM) PRODUCT FAMILY IS CRITICAL TO OUR SUCCESS.

     We currently derive substantial product revenues from our eHealth(TM)
product family, and we expect that revenues from these products will continue to
account for almost all of our product revenues in the foreseeable future. Broad
market acceptance of these products is critical to our future success. We cannot
ensure that market acceptance of our eHealth(TM) Suite of products will increase
or even remain at current levels. Factors that may affect the market acceptance
of our integrated solution include:

     - the availability and price of competing solutions, products and
       technologies; and

     - the success of our sales efforts and those of our marketing partners.

     Moreover, if demand for integrated fault and performance management
software products increases, we anticipate that our competitors will introduce
additional competitive products and new competitors could enter our market and
offer alternative products resulting in decreased market acceptance of our
products.

                                        10
<PAGE>

WE MAY NEED FUTURE CAPITAL FUNDING.

     We plan to continue to expend substantial funds on the continued
development, marketing, and sale of the eHealth(TM) product family. We cannot
ensure that our existing capital resources, the proceeds from our initial public
offering during October 1997, and any funds that may be generated from future
operations together will be sufficient to finance our future operations or that
other sources of funding will be available on terms acceptable to us, if at all.
In addition, future sales of substantial amounts of our securities in the public
market could adversely affect prevailing market prices and could impair our
future ability to raise capital through the sale of our securities.

WE MUST INTRODUCE PRODUCT ENHANCEMENTS AND NEW PRODUCTS ON A TIMELY BASIS.

     Because of rapid technological change in the software industry and
potential changes in the IT infrastructure, fault and performance management
software market, and changes in industry standards, the life cycle of versions
of our eHealth(TM) products is difficult to estimate. We cannot ensure that:

     - we will successfully develop and market enhancements to our eHealth(TM)
       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 such enhancements or new
       products; or

     - such 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.

     Our products manage the performance of computer applications, systems, and
networks. Presently, manufacturers of both hardware and software have not
implemented these management functions into their products in any significant
manner. These products typically include, but are not limited to, operating
systems, workstations, network devices, and software. If manufacturers begin to
incorporate these management functions into their products it may decrease the
value of our products and have a substantial impact on our business.

WE CANNOT ENSURE THAT OUR REVENUES WILL GROW OR THAT WE WILL BE PROFITABLE.

     As a company, we have expended considerable resources to develop innovative
products that have enabled us to penetrate new markets both in the United States
and internationally. As a result of these efforts, we achieved revenue growth
and profitability for the fiscal years ended 2000, 1999, and 1998. However, as
the worldwide economy weakened in 2001, our revenues did not grow at expected
levels. We operated at a net loss and we cannot ensure that we can generate
revenue growth on a quarterly or annual basis, or that we can achieve or sustain
any revenue growth in the future. Our annual revenue in 2002 may be lower than
our annual revenue in 2001.

     In an effort to return to profitability, we have reduced our operating
expenses for 2001 and plan to continue to limit operating expenses for 2002.
However, competition in the marketplace may require us to increase our operating
expenses in the future in order to:

     - fund higher levels of research and development;

     - increase our sales and marketing efforts;

     - develop new distribution channels;

     - broaden our customer support capabilities; and

     - expand our administrative resources in anticipation of future growth.

                                        11
<PAGE>

     To the extent that increases in our expenses precede or are not followed by
increased revenue, our profitability will continue to suffer. Our revenue must
grow substantially in order for us to become profitable on a quarterly or annual
basis. In addition, in view of the rapidly evolving nature of our business and
markets and our limited operating history in our current market, we believe that
one should not rely on period-to-period comparisons of our financial results as
an indication of our future performance.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.

     We are likely to experience significant fluctuations in our quarterly
operating results caused by many factors, including, but not limited to:

     - changes in the demand for our products by customers or group of
       customers;

     - the timing, composition, and size of orders from our customers, including
       the tendency for significant bookings to occur in the last month of each
       fiscal quarter;

     - our customers' spending patterns and budgetary resources for fault and
       performance management software solutions;

     - 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 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;

     - changes in the features and functions of products sold by us and our
       competitors;

     - 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

     - geopolitical conditions in the world.

     Though our services revenue has been increasing as a percentage of total
revenues, we do not have a significant ongoing revenue stream that may mitigate
quarterly fluctuations in operating results, as do other software companies with
a longer history of operations. Increases in our revenues will also depend on
our successful implementation of our distribution strategy as we attempt to
expand our channels of distribution. Due to the buying patterns of certain of
our customers and also to our own sales incentive programs focused on annual
sales goals, revenues in our fourth quarter could be higher than revenues in our
first quarter of the following year. There also may be other factors, such as
seasonality and the timing of receipt and delivery of orders within a fiscal
quarter, that significantly affect our quarterly results, which are difficult to
predict given our limited operating history.

     Our quarterly sales and operating results depend generally on:

     - the volume and timing of orders within the quarter;

     - the tendency of sales to occur late in fiscal quarters; and

     - our fulfillment of orders received within the quarter.

     A significant portion of our product sales occurs in the final month of
each fiscal quarter. Any delay in the shipment of products prior to the end of
the quarter may result in decreased revenues for the quarter.

                                        12
<PAGE>

Additionally, intense competition and budgetary constraints placed upon our
customers typically increase during the final month of a fiscal quarter and may
adversely affect the revenues for that quarter.

     In addition, our expense levels are based in part on our expectations of
future orders and sales, which are extremely difficult to predict. A substantial
portion of our operating expenses is related to personnel, facilities, and sales
and marketing programs. Accordingly, we may not be able to adjust our fixed
expenses quickly enough to address any significant shortfall in demand for our
products in relation to our expectations.

     Due to all of the foregoing factors, we believe that our quarterly
operating results are likely to vary significantly in the future. Therefore, in
some future quarter our results of operations may fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would likely suffer.

THE IMPACT OF THE RECENT TERRORIST ATTACKS AND THE RISK OF FUTURE TERRORIST
ATTACKS MAY ADVERSELY IMPACT OUR REVENUE.

     The tragic events of September 11, 2001 impacted our sales to companies in
the New York City area and our sales to the United States government. These
markets have not yet recovered from the events of September 11, 2001 and it is
impossible to determine when, and if, they will recover. Sales in the New York
City area and sales to the United States government are a significant source of
revenue for us and our business may be adversely affected as these areas
recover. Additionally, recent terrorist warnings, both in the United States and
internationally, suggest the possibility of future terrorist attacks. As we sell
products both in the United States and internationally, the occurrence of future
terrorist attacks may adversely affect our business.

OUR SUCCESS IS DEPENDENT UPON SALES TO TELECOMMUNICATION CARRIERS, SERVICE
PROVIDERS, AND ENTERPRISE CUSTOMERS.

     We derive and likely will continue to derive a significant portion of our
revenues from the sales of our products to telecommunication carriers, service
providers, and enterprise customers. These markets worldwide have suffered from
a turbulent economy during 2000 and 2001, turbulence that has been exacerbated
by the tragic events of September 11, 2001 and their aftermath. Concord has been
negatively affected by the downturn in capital spending within this market. The
volume of sales of our products and services to telecommunication carriers,
service providers, and enterprise customers may increase slower than we expect
or may decrease.

OUR COMMON STOCK PRICE COULD EXPERIENCE SIGNIFICANT VOLATILITY.

     The market price of our common stock may be highly volatile and could be
subject to wide fluctuations in response to:

     - variations in results of operations;

     - announcements of technological innovations or new products by us or our
       competitors;

     - changes in financial estimates by securities analysts; or

     - other events or factors.

     In addition, the financial markets have experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies or have resulted from the failure
of the operating results of such companies to meet market expectations in a
particular quarter. Broad market fluctuations or any failure of our operating
results in a particular quarter to meet market expectations may adversely affect
the market price of our common stock leading to an increased risk of securities
class action litigation. Such litigation could result in substantial costs and a
diversion of our attention and resources.

                                        13
<PAGE>

OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. OUR SUCCESS DEPENDS UPON
MAINTENANCE OF STANDARD PROTOCOLS.

     The software industry is characterized by:

     - rapid technological change;

     - frequent introductions of new products;

     - changes in customer demands; and

     - evolving industry standards.

     The introduction of products embodying new technologies and the emergence
of new industry standards can render existing products and integrated solutions
obsolete and unmarketable. Our eHealth(TM) -- Network product's analysis and
reporting, as well as the quality of its reports, depends upon its utilization
of the industry-standard Simple Network Management Protocol (SNMP) and the data
resident in conventional Management Information Bases (MIBs). Any change in
these industry standards, the development of vendor-specific proprietary MIB
technology, or the emergence of new network technologies could affect the
compatibility of our eHealth(TM) -- Network products with these devices, which
in turn could affect its analysis and generation of comprehensive reports or the
quality of the reports. Similarly, our Live Health(TM) -- Fault Manager product
receives only SNMP traps from failing devices, systems, and applications. Any
change in these industry standards could hinder the effectiveness of this
product. Furthermore, although our eHealth(TM) Suite of products currently runs
on industry-standard UNIX operating systems and Windows NT, any significant
change in industry-standard operating systems could affect the demand for, or
the pricing of, our products and solutions.

WE RELY ON STRATEGIC PARTNERS AND OTHER EVOLVING DISTRIBUTION CHANNELS.

     Our distribution strategy is to develop multiple distribution channels,
including sales through:

     - strategic marketing partners;

     - value added resellers;

     - system integrators;

     - telecommunication carriers;

     - original equipment manufacturers ("OEMs"); and

     - independent software vendors and international distributors.

     We have developed a number of these relationships and intend to continue to
develop new "channel partner" relationships. Our success will depend in large
part on our development of these additional distribution relationships and on
the performance and success of these third parties, particularly
telecommunication carriers and other network service providers. We sell our
products in the United States through both direct sales to customers and
indirect sales to customers through our channel partners. Internationally, we
sell our products almost exclusively through indirect sales via our channel
partners. Our international channel partners are located in Europe, the Middle
East, Africa, Asia, and North and South America and are subject to local laws,
regulations, and customs that may make it difficult to accurately assess the
potential revenue that can be generated from a certain market. Our success
depends upon our ability to attract and retain valuable channel partners and to
accurately assess the size and vitality of the markets in which our products are
sold. While we have implemented policies and procedures to achieve this, we
cannot predict the extent to which we are able to attract and retain valuable
channel partners. Additionally, our channel partners may not be successful in
marketing and selling our products. We may:

     - fail to attract important and effective channel partners;

     - fail to penetrate our targeted market segments through the use of channel
       partners; or

                                        14
<PAGE>

     - lose any of our channel partners, as a result of competitive products
       offered by other companies, or products developed internally by these
       channel partners or otherwise.

WE MAY FAIL TO MANAGE SUCCESSFULLY OUR GROWTH.

     We have experienced significant growth in our sales and operations
personnel; our products have become increasingly complex; and our product
distribution channels are being developed and expanded. Our growth, coupled with
the rapid evolution of our markets, has placed, and is likely to continue to
place, significant strains on our administrative, operational, and financial
resources and increase demands on our internal systems, procedures, and controls
that may affect the overall profitability of the company.

OUR SUCCESS DEPENDS ON OUR RETENTION OF KEY PERSONNEL.

     Our performance depends substantially on the performance of our key
technical and senior management personnel. We may lose the services of any of
such persons. We do not maintain key person life insurance policies on any of
our employees. Our success depends on our continuing ability to identify, hire,
train, motivate, and retain highly qualified management, technical, and sales
and marketing personnel. We experience intense competition for such personnel
and are constantly exploring new avenues for attracting and retaining key
personnel. However, we cannot ensure that we will successfully attract,
assimilate, or retain highly qualified technical, managerial or sales and
marketing personnel in the future.

OUR FAILURE TO EXPAND INTO INTERNATIONAL MARKETS COULD HARM OUR BUSINESS.

     We intend to continue to expand our operations outside of the United States
and enter additional international markets, primarily through the establishment
of channel partner arrangements. We expect to commit additional time and
development resources to customizing our products and services for selected
international markets and to developing international sales and support
channels. We cannot ensure that such efforts will be successful.

     We face certain difficulties and risks inherent in doing business
internationally, including, but not limited to:

     - 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 collection;

     - potentially adverse tax consequences;

     - the burden of complying 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 successful expansion into certain countries will require additional
modification of our products, particularly national language support. Presently,
virtually all of our current export sales are denominated in

                                        15
<PAGE>

United States dollars. To the extent that international sales do continue to be
denominated in U.S. dollars, an increase in the value of the United States
dollar relative to other currencies could make our products and services more
expensive and, therefore, potentially less competitive in international markets.
In certain European Union countries, however, we have introduced pricing in
Euros in 2002. To the extent that future international sales are denominated in
foreign currency, our operating results will be subject to risks associated with
foreign currency fluctuation. Additionally, as we increase our international
sales, seasonal fluctuations in revenue generation resulting from lower sales
that typically occur during the summer months in Europe and other parts of the
world may affect our total revenues.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY HARM OUR COMPETITIVE
POSITION.

     Our success depends significantly upon our proprietary technology. We rely
on a combination of patent, copyright, trademark and trade secret laws,
non-disclosure agreements, and other contractual provisions to establish,
maintain, and protect our proprietary rights. These means afford only limited
protection.

     We have ten issued and seven pending U.S. patents, and various foreign
counterparts. We cannot ensure that patents will issue from our pending
applications or from any future applications or that, if issued, any claims
allowed will be sufficiently broad to protect our technology. In addition, we
cannot ensure that any patents that have been or may be issued will not be
challenged, invalidated or circumvented, or that any rights granted by those
patents would protect our proprietary rights. Failure of any patents to protect
our technology may make it easier for our competitors to offer equivalent or
superior technology.

     We have sought also to protect our intellectual property through the use of
copyright, trademark, and trade secret laws. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or services, or to obtain and use information that we regard as
proprietary. Third parties may also independently develop similar technology
without breach of our proprietary rights.

     In addition, the laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States. In addition,
many of our products are licensed under end user license agreements (also known
as "shrinkwrap" licenses) that are not signed by licensees. The law governing
the enforceability of shrinkwrap license agreements is not settled in most
jurisdictions. There can be no guarantee that we would achieve success in
enforcing one or more shrinkwrap license agreements if we sought to do so in a
court of law.

WE LICENSE CERTAIN TECHNOLOGIES FROM THIRD PARTIES.

     We license from third parties, generally on a non-exclusive basis, certain
technologies used in our products. The termination of any such licenses, or the
failure of the third-party licensors to adequately maintain or update their
products, could result in delay in our shipment of certain of our products while
we seek to implement technology offered by alternative sources, and any required
replacement licenses could prove costly. While it may be necessary or desirable
in the future to obtain other licenses relating to one or more of our products
or relating to current or future technologies, we cannot ensure that we will be
successful in doing so on commercially reasonable terms or at all.

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WOULD HARM OUR BUSINESS.

     Although we do not believe that we are infringing upon the intellectual
property rights of others, claims of infringement are becoming increasingly
common as the software industry develops legal protections for software
products. Litigation may be necessary to protect our proprietary technology, and
third parties may assert infringement claims against us with respect to their
proprietary rights. Any claims or litigation can be time-consuming and expensive
regardless of their merit. Infringement claims against us can cause product
release delays, require us to redesign our products, or require us to enter into
royalty or license agreements, which agreements may not be available on terms
acceptable to us or at all.

                                        16
<PAGE>

PRODUCT DEFECTS COULD RESULT IN THE LOSS OF OR DELAY IN MARKET ACCEPTANCE OF OUR
PRODUCTS.

     As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. We
cannot ensure that, despite testing by us and testing and use by current and
potential customers, errors will not be found in new products we ship or, if
discovered, that we will successfully correct such errors in a timely manner or
at all. The occurrence of errors and failures in our products could result in
loss of, or delay in, market acceptance of our products, and alleviating such
errors and failures could require significant expenditure of capital and other
resources by us.

WE MAY NOT HAVE SUFFICIENT PROTECTION AGAINST PRODUCT LIABILITY CLAIMS.

     Because our products are used by our customers to identify and predict
current and future application, system, and network problems and to avoid
failures of the network to support critical business functions, design defects,
software errors, misuse of our products, incorrect data from network elements,
or other potential problems, within or out of our control, may arise from the
use of our products and could result in financial or other damages to our
customers. While we do not maintain product liability insurance, our license
agreements with our customers typically contain provisions designed to limit our
exposure to potential claims as well as any liabilities arising from such
claims. As a matter of practice, our license agreements limit our liability in
regards to product liability claims, and in many agreements, our maximum
liability for product liability claims is limited to the equivalent of the cost
of the products licensed under that agreement. However, any litigation or
similar procedure related to a product liability claim may require considerable
resources to be expended that could adversely affect the business and decrease
future revenue.

ITEM 2.  PROPERTIES

     Concord's corporate office and principal facilities are located in
Marlborough, Massachusetts. In March 2000 we signed a 7-year operating lease for
our principal operating facilities. Aggregate rental payments under the lease
will be $18.8 million. This facility accommodates finance, administration and
operations, research and development, customer support, marketing and sales
management. We also lease, on a short-term basis, sales office space in Atlanta,
GA; Dallas, TX; Plymouth, MI; Seattle, WA; Vienna, VA; England, France, the
Netherlands, Spain, Australia, Hong Kong, Japan, Singapore, Mexico and Brazil.

ITEM 3.  LEGAL PROCEEDINGS

     Concord is not a party to any litigation that we believe could have a
material adverse effect on our business, results of operations or financial
condition.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2001.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

PRICE RANGE OF COMMON STOCK

     Concord affected its initial public offering on October 24, 1997 at a price
of $14.00 per share. Since that date, Concord's Common Stock has traded on the
Nasdaq National Market under the symbol CCRD. The

                                        17
<PAGE>

following table sets forth, for the period indicated, the high and low sales
prices for the Common Stock, all as reported by the Nasdaq National Market.

<Table>
<Caption>
PERIOD                                                         HIGH     LOW
------                                                        ------   ------
<S>                                                           <C>      <C>
Fiscal 1999:
  First Quarter.............................................  $69.75   $42.25
  Second Quarter............................................   58.50    29.63
  Third Quarter.............................................   62.13    32.56
  Fourth Quarter............................................   65.38    37.38
Fiscal Year.................................................  $69.75   $29.63
Fiscal 2000:
  First Quarter.............................................  $57.81   $32.56
  Second Quarter............................................   42.00    20.25
  Third Quarter.............................................   45.00    20.88
  Fourth Quarter............................................   26.50     6.25
Fiscal Year.................................................  $57.81   $ 6.25
Fiscal 2001:
  First Quarter.............................................  $16.00   $ 6.50
  Second Quarter............................................   10.10     5.13
  Third Quarter.............................................   10.87     7.70
  Fourth Quarter............................................   23.25     8.27
Fiscal Year.................................................  $23.25   $ 5.13
</Table>

As of March 4, 2002, Concord had approximately 7,027 holders of our common
stock.

DIVIDEND POLICY

     We currently anticipate that we will retain all future earnings for use in
our business and we do not anticipate that we will pay any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements and the general financial
condition of the Company, general business conditions and contractual
restrictions on payment of dividends, if any.

USE OF PROCEEDS

     On October 16, 1997, Concord commenced an initial public offering ("IPO")
of 2,900,000 shares of common stock, par value $0.01 per share, pursuant to the
Company's final prospectus dated October 15, 1997 (the "Prospectus"). The
Prospectus was contained in the Company's Registration Statement on Form S-1,
which was declared effective by the Securities and Exchange Commission (SEC File
No. 333-33227) on October 15, 1997. Of the 2,900,000 shares of common stock
registered, 2,300,000 shares were offered and sold by the Company and 600,000
shares were offered and sold by certain stockholders of the Company. As part of
the IPO, the Company granted the several underwriters an overallotment option to
purchase up to an additional 435,000 shares of common stock (the "Underwriters'
Option"). The IPO closed on October 21, 1997 upon the sale of 2,900,000 shares
of Common Stock to the underwriters. The managing underwriters for the IPO were
Nationsbanc Montgomery Securities Inc., BancAmerica Roberston Stephens and
Wessels, Arnold and Henderson, L.L.C (the "Representatives"). On October 24,
1997, the Representatives, on behalf of the several underwriters, exercised the
Underwriters' Option, purchasing 435,000 additional shares of Common Stock from
the Company. The aggregate offering price of the IPO to the public was
$40,600,000 (exclusive of the Underwriters' Option), with proceeds to the
Company and selling shareholders, after deduction of the underwriting discount,
of $29,946,000 (before deducting offering expenses payable by the Company) and
$7,812,000 respectively. The aggregate offering price of the Underwriters'
Option exercised was $6,090,000, with proceeds to the Company, after deduction
of the underwriting discount, of $5,663,700

                                        18
<PAGE>

(before deducting offering expenses payable by the Company). The aggregate
amount of expenses incurred by the Company in connection with the issuance and
distribution of the shares of Common Stock offered and sold in the IPO were
approximately $3.6 million, including $2.7 million in underwriting discounts and
commissions and $950,000 in other offering expenses.

     None of the expenses paid by the Company in connection with the IPO or the
exercise of the Underwriters' Option was paid, directly or indirectly, to
directors, officers, persons owning ten percent or more of the Company's equity
securities, or affiliates of the Company.

     The net proceeds to the Company from the IPO, after deducting underwriting
discounts and commissions and other offering expenses were approximately $34.7
million. To date, the Company has not utilized any of the net proceeds from the
IPO. The Company has invested all such net proceeds primarily in US treasury
obligations and other interest bearing investment grade securities. None of the
net proceeds from the IPO was used to pay, directly or indirectly, directors,
officers, persons owning ten percent or more of the Company's equity securities,
or affiliates of the Company.

ISSUANCE OF SECURITIES

     On October 29, 1999, the Company completed a merger with Empire
Technologies, Inc. Concord issued an aggregate of 815,248 shares of Concord
common stock to the stockholders of Empire in the merger in a private placement
transaction pursuant to Section 4(2) under the Securities Act of 1933. A Form
S-3 Registration Statement to cover the resale of the securities issued in this
merger was declared effective by the Securities and Exchange Commission.

     On February 4, 2000, the Company completed a merger with FirstSense
Software, Inc. The Company issued an aggregate of 1,940,000 shares of Concord
common stock to the stockholders of FirstSense in the merger in a private
placement transaction pursuant to Section 4(2) under the Securities Act of 1933.
A Form S-3 Registration Statement to cover the resale of the securities issued
in the merger was declared effective by the Securities and Exchange Commission.

                                        19
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

<Table>
<Caption>
                                                           FISCAL YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                    2001      2000      1999      1998      1997
                                                  --------   -------   -------   -------   -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>        <C>       <C>       <C>       <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
  License revenues..............................  $ 54,406   $69,464   $53,924   $35,048   $18,455
  Services revenues.............................    33,572    22,020    14,896     6,921     2,421
                                                  --------   -------   -------   -------   -------
     Total revenues.............................    87,978    91,484    68,820    41,969    20,876
Cost of Revenues:
  Cost of license revenues......................     2,272     1,997     2,300     1,666     1,536
  Cost of service revenues......................    15,544    11,104     6,202     3,218     1,411
                                                  --------   -------   -------   -------   -------
     Total cost of revenues.....................    17,816    13,101     8,502     4,884     2,947
                                                  --------   -------   -------   -------   -------
     Gross profit...............................    70,162    78,383    60,318    37,085    17,929
                                                  --------   -------   -------   -------   -------
Operating Expenses:
  Research and development......................    23,969    21,102    14,432     9,880     5,929
  Sales and marketing...........................    51,041    42,996    29,442    19,885    10,325
  General and administrative....................     8,700     8,113     5,337     3,595     2,363
  Asset impairment charge.......................        --     2,337        --        --        --
  Stock-based compensation......................       320       812     3,039     1,126        64
  Acquisition-related charges...................        --     4,300       551        --        --
                                                  --------   -------   -------   -------   -------
     Total operating expenses...................    84,030    79,660    52,801    34,486    18,681
                                                  --------   -------   -------   -------   -------
  Operating (loss) income.......................   (13,868)   (1,277)    7,517     2,599      (752)
Other income, net...............................     3,160     3,066     2,964     2,515       367
                                                  --------   -------   -------   -------   -------
     (Loss) income before income taxes..........   (10,708)    1,789    10,481     5,114      (385)
Provision (benefit) for income taxes............       446       447     4,286      (986)     (174)
                                                  --------   -------   -------   -------   -------
(Loss) income before extraordinary items........   (11,154)    1,342     6,195     6,100      (211)
Extraordinary loss on early extinguishment of
  debt, net of tax benefit of $72,000...........        --      (216)       --        --        --
                                                  --------   -------   -------   -------   -------
Net (loss) income...............................  $(11,154)  $ 1,126   $ 6,195   $ 6,100   $  (211)
                                                  ========   =======   =======   =======   =======
Accretion of redeemable preferred stock.........        --        --       125       120        44
                                                  --------   -------   -------   -------   -------
Net (loss) income available to common
  shareholders..................................  $(11,154)  $ 1,126   $ 6,070   $ 5,980   $  (255)
                                                  ========   =======   =======   =======   =======
Pro forma provision for income taxes on
  Subchapter S-Corporation income
  (unaudited)(1)................................                           146        41        --
                                                                       -------   -------   -------
Pro forma net (loss) income (unaudited)(1)......                       $ 5,924   $ 5,939   $  (255)
                                                                       =======   =======   =======
Net (loss) income per common and potential
  common share:
  Basic.........................................  $  (0.67)  $  0.07   $  0.42   $  0.44   $ (0.07)
  Diluted.......................................  $  (0.67)  $  0.07   $  0.36   $  0.37   $ (0.07)
  Pro forma diluted (unaudited)(1)..............                       $  0.35   $  0.37   $ (0.02)
Weighted average common and potential common
  shares outstanding:
  Basic.........................................    16,683    16,144    14,395    13,570     3,896
  Diluted.......................................    16,683    16,746    16,722    16,200     3,896
  Pro forma diluted (unaudited)(1)..............                        16,722    16,200    10,473
</Table>

---------------

(1) Pro forma information assumes that the earnings from Empire Technologies,
    Inc., an acquired Subchapter S-Corporation accounted for as a pooling of
    interests, were taxed at the Company's effective tax rate.

                                        20
<PAGE>

<Table>
<Caption>
                                                          FISCAL YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------
                                                   2001       2000      1999      1998      1997
                                                 --------   --------   -------   -------   -------
                                                                  (IN THOUSANDS)
<S>                                              <C>        <C>        <C>       <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities...................................  $ 68,344   $ 63,251   $63,569   $56,619   $40,081
Working capital................................    48,965     54,131    55,213    47,913    36,465
Total assets...................................   102,480    102,276    89,787    67,981    46,745
Long-term debt, net of current portion.........        --         --     2,064       242       189
Redeemable convertible preferred stock.........        --         --    11,723    11,598     5,471
Total stockholders' equity.....................    63,507     70,746    52,476    41,213    33,389
</Table>

                                        21
<PAGE>

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

OVERVIEW

     Concord develops, markets and supports the eHealth(TM) Suite of scalable
information technology (IT) infrastructure fault and performance management
software solutions. eHealth(TM) integrates fault and performance management of
the systems, applications and networks that comprise today's IT infrastructure.
Concord's solutions optimize the performance and availability of IT
infrastructures on which enterprises, managed service providers and
telecommunication carriers depend for their day-to-day business and operational
success. Concord's software solutions monitor fault conditions throughout the
infrastructure in real time; test availability and responsiveness of critical
services; collect, consolidate, normalize and analyze a high volume of data from
the IT infrastructure; alert IT personnel to faults and potential outages,
maximize uptime of the IT infrastructure and automatically execute corrective
action to restore availability, if desired.

     Concord does not provide forecasts of its future financial performance.
From time to time, however, the information provided by Concord or statements
made by our employees may contain forward-looking statements. In particular,
some statements contained in Concord's Form 10-K for the fiscal year ended
December 31, 2001, are not historical statements (including, but not limited to,
statements concerning the plan and objectives of management; increases in
revenue (domestically and internationally); increases in sales and marketing,
research and development and general and administrative expenses (domestically
and internationally), Concord's ability to use deferred tax assets, Concord's
success in competing in international markets, Concord's expected future
profitability and Concord's expected liquidity and capital resources). This
document contains forward-looking statements. Any statements contained herein
that do not describe historical facts are forward-looking statements. The
Company makes such forward-looking statements under the provisions of the "safe
harbor" section of the Private Securities Litigation Reform Act of 1995.

     The forward-looking statements contained herein are based on current
expectations but are subject to a number of risks and uncertainties. The facts
that could cause actual results to differ materially from current expectations
include the following: risks of intellectual property rights and litigation,
risks in technology development and commercialization, risks in product
development and market acceptance of and demand for the Company's products,
risks of downturns in economic conditions generally, and in the software,
networking and telecommunications industries specifically, risks associated with
competition and competitive pricing pressures, risks associated with
international sales, risks associated with the Company's recent acquisitions and
other risks detailed in the Company's filings with the Securities and Exchange
Commission.

     On February 4, 2000, the Company completed its acquisition of all of the
capital stock of FirstSense Software, Inc., a Delaware corporation (FirstSense).
The Company accounted for the transaction as a pooling of interests in
accordance with Accounting Principles Board (APB) Opinion No. 16, Business
Combinations. As required by APB Opinion No. 16, the Company restated all of its
financial statements to reflect the combined results of both entities for all
periods presented. All transactions between the two companies have been
eliminated in the combined results. FirstSense is a provider of applications
performance and service level management software designed for distributed
applications, including packaged, custom and e-business applications.

IMPACT OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS

     The terrorist attacks of September 11, 2001 had an adverse impact on our
business as license and services revenue from both the New York City area and
the United States government decreased following the attacks. These areas are a
significant source of revenue for us and we are unable to determine when the
local economies will recover. We are currently unable to quantify the effect of
the September 11, 2001 terrorist attacks on our business. Our daily operations
(excluding sales operations) were not materially impacted by the terrorist
attacks.

CRITICAL ACCOUNTING POLICIES

     In December 2001, the SEC requested that all registrants list their three
to five most "critical accounting policies" in the Management Discussion and
Analysis section of their Annual Report on Form 10-K. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the

                                        22
<PAGE>

company's financial condition and results and requires management's most
difficult, subjective or complex judgements, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe that the following three accounting policies fit this definition:
Revenue Recognition, Accounts Receivable and Accounting for Income Taxes.

  REVENUE RECOGNITION POLICY

     We recognize revenue from the sale of software licenses when persuasive
evidence of an arrangement exists, the product has been delivered, the fee is
fixed and determinable and collection of the resulting receivable is reasonably
assured. Delivery generally occurs when product is delivered to a common carrier
and the delivery terms are FOB Concord. All revenues generated from our
worldwide operations are approved at our corporate headquarters, located in the
United States.

     At the time of the transaction, we assess whether the fee associated with
our revenue transaction is fixed and determinable and whether or not collection
is reasonably assured. We assess whether the fee is fixed and determinable based
on the payment terms associated with the transaction. If a significant portion
of a fee is due after our normal payment terms, which are usually 30 to 60 days
from invoice date, we account for the fee as not being fixed and determinable.
In these cases, we usually recognize revenue upon receipt of cash.

     We assess collection based on a number of factors, including past
transaction history with the customer and the credit-worthiness of the customer.
We do not request collateral from our customers. If we determine that collection
of a fee is not reasonably assured, we defer the fee and usually recognize
revenue upon receipt of cash.

     For all sales, we use either a purchase order or signed license agreement
as evidence of an arrangement. Sales through our resellers are usually evidenced
by a master agreement governing the relationship together with purchase orders
on a transaction-by-transaction basis.

     For arrangements with multiple obligations (for example, undelivered
maintenance and support), we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. This means that we defer revenue from the fee arrangement
equivalent to the fair values of the undelivered elements. We determine fair
values for ongoing maintenance and support obligations using our internal
pricing policies for maintenance and by referencing the prices at which we have
sold separate maintenance contract renewals to our customers. We determine fair
values of services, such as training or consulting, by referencing the prices at
which we have separately sold comparable services to our customers.

     Our arrangements do not generally include clauses involving acceptance of
our products by our customers. However, if an arrangement includes an acceptance
provision, revenue recognition occurs upon the earlier of receipt of a written
customer acceptance or expiration of the acceptance period.

  ACCOUNTS RECEIVABLE POLICY

     We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer's current credit worthiness,
as determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based on a percentage of our accounts receivable, our
historical experience and any specific customer collection issues that we have
identified. While such credit losses have historically been within our
expectations and appropriate reserves have been established, we cannot guarantee
that we will continue to experience the same credit loss rates that we have
experienced in the past.

  ACCOUNTING FOR INCOME TAXES POLICY

     As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. To do this, we estimate our actual current tax liabilities,
while also assessing temporary differences resulting from differing treatment of
items, such as deferred revenue, for tax and accounting purposes. These
differences result in deferred tax assets and
                                        23
<PAGE>

liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income. To the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations.

     Significant management judgement is required in determining our provision
for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of $18.4 million as of December 31, 2001, due to
uncertainties related to our ability to utilize some of our deferred tax assets,
primarily consisting of the utilization of certain net operating loss
carryforwards from prior years. We are unsure whether we will have sufficient
future taxable income to allow us to use these net operating losses, before they
expire. The valuation allowance is based on our estimates of taxable income by
jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods we may need to
establish an additional valuation. Establishing new or additional valuation
allowances could materially adversely impact our financial position and results
of operations.

     Our net deferred tax assets as of December 31, 2001 were $3.5 million, net
of a valuation allowance of $18.4 million.

     The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States, with no need for management's judgement in their
application. There are also areas in which the exercise of management's
judgement in selecting an available alternative would not produce a materially
different result. See our audited consolidated financial statements and notes
thereto which begin on page F-1 of this Annual Report on Form 10-K and which
contain accounting policies and other disclosures required by generally accepted
accounting principles.

                                        24
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth, for the period indicated, certain financial
data as percentages of Concord's total revenue. All prior-period financial
statements have been restated to reflect the acquisitions of Empire
Technologies, Inc. and FirstSense Software, Inc. (see Note 3 to financial
statements).

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Revenues:
  License revenues..........................................   61.8%    75.9%    78.4%
  Service revenues..........................................   38.2     24.1     21.6
                                                              -----    -----    -----
     Total revenues.........................................  100.0    100.0    100.0
Cost of Revenues:
  Cost of license revenues..................................    2.6      2.2      3.4
  Cost of service revenues..................................   17.7     12.1      9.0
                                                              -----    -----    -----
     Total cost of revenues.................................   20.3     14.3     12.4
                                                              -----    -----    -----
       Gross profit.........................................   79.7     85.7     87.6
                                                              -----    -----    -----
Operating Expenses:
  Research and development..................................   27.2     23.1     21.0
  Sales and marketing.......................................   58.0     47.0     42.8
  General and administrative................................    9.9      8.9      7.7
  Asset impairment charge...................................    0.0      2.5      0.0
  Stock-based compensation..................................    0.4      0.9      4.4
  Acquisition-related charges...............................    0.0      4.7      0.8
                                                              -----    -----    -----
     Total operating expenses...............................   95.5     87.1     76.7
                                                              -----    -----    -----
       Operating (loss) income..............................  (15.8)    (1.4)    10.9
Total other income, net.....................................    3.6      3.4      4.3
                                                              -----    -----    -----
     (Loss) income before income taxes......................  (12.2)     2.0     15.2
Provision for income taxes..................................    0.5      0.5      6.2
                                                              -----    -----    -----
(Loss) income before extraordinary items....................  (12.7)     1.5      9.0
Extraordinary loss on early extinguishment of debt, net of
  tax benefit of $72,000....................................    0.0     (0.2)     0.0
                                                              -----    -----    -----
Net (loss) income...........................................  (12.7)%    1.3%     9.0%
                                                              =====    =====    =====
</Table>

REVENUES

     Concord's revenues consist of software license revenues and service
revenues. Software license revenues are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position (SOP)
97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions. Under
SOP 97-2, software license revenues are recognized upon execution of a contract
and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management.
Revenues under multiple-element arrangements, which typically include software
products and maintenance sold together, are allocated to each element using the
residual method in accordance with SOP 98-9. Service revenues are recognized as
the services are performed. Maintenance revenues are derived from customer
support agreements generally entered into in connection with initial license
sales and subsequent renewals. Maintenance revenues are recognized ratably over
the term of the maintenance period. Payments for maintenance fees are generally
made in advance.

TOTAL REVENUES

     Total revenues were $88.0 million, $91.5 million and $68.8 million in 2001,
2000 and 1999, respectively, representing a decrease of 3.8% from 2000 to 2001
and an increase of 32.9% from 1999 to 2000.

                                        25
<PAGE>

LICENSE REVENUES

     Concord's license revenues are derived from the licensing of software
products. License revenues were $54.4 million, $69.5 million and $53.9 million
in 2001, 2000 and 1999, respectively, representing a decrease of 21.7% from 2000
to 2001 and an increase of 28.8% from 1999 to 2000. License revenues accounted
for 61.8%, 75.9% and 78.4% of total revenues in 2001, 2000 and 1999,
respectively. The decrease in license revenues in absolute dollars from 2000 to
2001 is due, to some extent, from the events of September 11, 2001 and the
general slowdown of the economy in the United States and abroad which negatively
affected IT infrastructure spending. The increase in license revenues in
absolute dollars from 1999 to 2000 resulted from increased penetration of the
international markets, sales to new customers and additional sales to existing
customers for new products. The decrease in license revenues as a percent of
total revenues from 2000 to 2001 was the result of the decline of license
revenue combined with a significant increase in service revenues, consisting
mainly of maintenance revenues. The decrease in license revenues as a percent of
total revenues from 1999 to 2000 was due to a slower growth in license revenues
versus an increase in the growth of service revenues. There were no material
price increases for products during 2001.

SERVICE REVENUES

     Concord's service revenues consist of fees for maintenance, training and
professional services. Service revenues were $33.6 million, $22.0 million and
$14.9 million in 2001, 2000 and 1999, respectively, representing increases of
52.5% from 2000 to 2001 and 47.8% from 1999 to 2000. Service revenues accounted
for 38.2%, 24.1% and 21.6% of total revenues in 2001, 2000 and 1999,
respectively. The increase in service revenues was mainly due to a significant
increase in maintenance revenue which is generated from new and renewed
maintenance contracts. An increase in the number of the Company's customers and
the resulting demand for these services further helped drive the increase in
service revenue from 2000 to 2001 and from 1999 to 2000. At December 31, 2001,
Concord had over 2,600 customers worldwide.

INTERNATIONAL REVENUES

     Concord recognized $33.2 million, $29.5 million and $13.9 million of
revenues from international locations in 2001, 2000 and 1999, representing
37.8%, 32.2% and 20.2% of total revenues, respectively. Our revenues from
international locations were primarily generated from customers located in
Europe. Revenues from customers located in Europe accounted for 22.9%, 18.9% and
13.2% of total revenues in 2001, 2000 and 1999, respectively. The continued
increase in revenues from international locations as a percentage of total
revenues is primarily the result of Concord's expansion of its operations
outside the United States, which has included both the hiring of additional
personnel as well as the establishment of additional reseller relationships. We
believe that continued growth and profitability will require further expansion
of our sales, marketing and customer service functions in international markets.
We expect to commit additional time and development resources to customizing our
products and services for selected international markets.

COST OF REVENUES

     Cost of revenues includes expenses associated with royalty costs,
production, fulfillment and product documentation, along with personnel costs
associated with providing customer support in connection with maintenance,
training and professional services contracts. Royalty costs are composed of
third party software costs. Cost of revenues were $17.8 million, $13.1 million
and $8.5 million in 2001, 2000 and 1999, respectively, representing increases of
36.0% from 2000 to 2001 and 54.1% from 1999 to 2000. Cost of revenues accounted
for 20.3%, 14.3% and 12.4% of total revenues in 2001, 2000 and 1999,
respectively, resulting in gross margins of 79.7%, 85.7% and 87.6% in each
respective period. The increase in cost of revenues, as well as the decrease in
the gross margin percentages, was primarily the result of a shift in the revenue
mix from license to service revenues as well as an increase in customer support
spending associated with service revenue to be more responsive to growing
customer needs. We expect to decrease our cost of revenues as a percentage of
total revenues; however, this will depend upon our royalty costs and our revenue
growth, among other factors. Accordingly, there can be no assurance that we will
be successful in decreasing our cost of revenues either on an absolute basis or
as a percentage of total revenues.
                                        26
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses consist primarily of personnel costs
associated with software development. Research and development expenses were
$24.0 million, $21.1 million and $14.4 million in 2001, 2000 and 1999,
respectively, representing an increase of 13.6% from 2000 to 2001 and 46.2% from
1999 to 2000. Research and development expenses accounted for 27.2%, 23.1% and
21.0% of total revenues in 2001, 2000 and 1999, respectively. Increases in our
research and development costs were primarily due to higher compensation
expenses associated with software developers and development support personnel,
as well as associated benefits and facilities costs. Headcount in research and
development was 132, 128 and 97 people in 2001, 2000 and 1999 respectively. We
anticipate that we will continue to commit substantial resources to research and
development in the future and that product development expenses may increase in
absolute dollars in future periods; however, we intend to decrease our research
and development expenses as a percentage of total revenues. Our ability to
decrease these expenses as a percentage of revenue will depend upon our revenue
growth, among other factors. Accordingly, there can be no assurance that we will
be successful in decreasing our cost of revenues either on an absolute basis or
as a percentage of total revenues.

SALES AND MARKETING EXPENSES

     Sales and marketing expenses consist primarily of salaries, commissions to
sales personnel and agents, travel, tradeshow participation, public relations
and other promotional expenses. Sales and marketing expenses were $51.0 million,
$43.0 million and $29.4 million in 2001, 2000 and 1999, respectively,
representing increases of 18.7% from 2000 to 2001 and 46.0% from 1999 to 2000.
Sales and marketing expenses accounted for 58.0%, 47.0% and 42.8% of total
revenues in 2001, 2000 and 1999, respectively. The increase in absolute dollars
was primarily the result of increased headcount needed to build the direct sales
force along with strong channel partners to penetrate the market. Additionally,
the costs to market a multi-product, multi-market solution set are higher than
the single-product, single-market solution sold in prior years. Headcount in
sales and marketing was 182, 163 and 134 people in 2001, 2000 and 1999
respectively. We anticipate that we will continue to commit substantial
resources to sales and marketing in the future and that sales and marketing
expenses may increase in absolute dollars in future periods; however, we intend
to decrease our sales and marketing expenses as a percentage of total revenues.
Our ability to decrease these expenses as a percentage of revenue will depend
upon our revenue growth, among other factors. Accordingly, there can be no
assurance that we will be successful in decreasing our cost of revenues either
on an absolute basis or as a percentage of total revenues.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses consist primarily of salaries for
financial, accounting, legal, administrative and management personnel. General
and administrative expenses were $8.7 million, $8.1 million and $5.3 million in
2001, 2000 and 1999, respectively, representing increases of 7.2% from 2000 to
2001 and 52.0% from 1999 to 2000. General and administrative expenses accounted
for 9.9%, 8.9% and 7.8% of total revenues in 2001, 2000 and 1999, respectively.
From 2000 to 2001, the increase in absolute dollars is attributable to increased
administrative fees such as legal fees and accounting costs necessary to support
the growth of our international operations. From 1999 to 2000, the increase in
absolute dollars is due mainly to the increase in personnel and an increase in
administrative costs and bad debt expenses. Headcount in general and
administrative was 33, 44 and 37 people in 2001, 2000 and 1999 respectively. We
expect to decrease these expenses as a percentage of revenue; this will
ultimately depend upon our revenue growth, among other factors. Accordingly,
there can be no assurance that we will be successful in decreasing our cost of
revenues either on an absolute basis or as a percentage of total revenues.

ASSET IMPAIRMENT CHARGE

     Concord acquired a $3 million interest in Broadband Investment Group
(Broadband) in September 2000 in exchange for our products and services. In
November 2000, Broadband publicly announced that it was ceasing operations and
liquidating its remaining assets following its inability to raise additional
capital due to unfavorable market conditions. As a result, Concord recorded a
charge of approximately $2.3 million to write
                                        27
<PAGE>

off its investment in Broadband. The remainder of the carrying value of our
Broadband investment was reversed against the related deferred revenue for
services not yet rendered.

STOCK-BASED COMPENSATION

     Stock-based compensation relates to the issuance of stock options with
exercise prices below the deemed fair value of the Company's common stock at the
date of grant. The Company recorded a reversal of deferred stock-based
compensation of approximately $949,000 and $1.2 million related to the
forfeiture of unvested stock options and restricted stock in 2001 and 2000
respectively. Deferred stock-based compensation represents the difference
between the stock option exercise price and the deemed fair value of the
Company's common stock at the date of grant and is reported as deferred
compensation, a component of stockholders' equity (deficit). Deferred
stock-based compensation is amortized through charges to operations over the
vesting period of the options, which is generally four years. Stock-based
compensation was approximately $320,000, $812,000 and $3 million in 2001, 2000
and 1999 respectively.

ACQUISITION-RELATED CHARGES

     Acquisition-related charges incurred in 2000 included accounting, legal and
investment banking fees associated with the acquisition of FirstSense. Similar
charges were incurred in 1999 for the acquisition of Empire Technologies, Inc.
These acquisition-related charges were approximately $4.3 million and $551,000
in 2000 and 1999, respectively, and they accounted for 4.7% and 0.8% of total
revenues in 2000 and 1999, respectively.

OTHER INCOME, NET

     Other income consists of interest earned on funds available for investment
net of interest expense in connection with the financing of capital equipment in
1999. Concord realized net other income of $3.2 million, $3.1 million and $3.0
million, respectively, in 2001, 2000 and 1999.

INCOME TAXES

     In 2001, the Company did not provide for domestic federal income taxes as a
result of the net loss incurred. The Company did provide approximately $446,000
primarily related to foreign taxes resulting from the profitability of certain
of the Company's foreign operations. In 2000, the difference between the
expected combined federal and state tax rate of approximately 40% and Concord's
effective tax rate relates primarily to the use of currently generated tax
credits, favorable tax rates on international sales and previously unrecognized
net operating loss carryforwards, partially offset by non-deductible acquisition
costs. The 1999 effective tax rate approximates the combined statutory rate.

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

     The Company recognized an extraordinary loss of $216,000 (net of the
related tax benefit of $72,000) in 2000 related to the early extinguishment of
certain debt that the Company assumed as a part of the First-Sense acquisition.

LIQUIDITY AND CAPITAL RESOURCES

     Concord has financed its operations primarily through the sale of equity
securities and a credit line for equipment purchases. Concord had working
capital of $49.0 million at December 31, 2001.

     Net cash provided by operating activities was $5.7 million, $8.7 million
and $11.5 million in 2001, 2000 and 1999, respectively. Cash, cash equivalents
and marketable securities was $68.3 million, $63.3 million and $63.6 million at
December 31, 2001, 2000 and 1999, respectively. Accounts receivable decreased
$3.5 million from 2000 to 2001 due to lower license revenue. Deferred revenue
increased from 2000 to 2001 by $4.7 million due to an increase of the Company's
installed base; $2.7 million of this increase came from deferred

                                        28
<PAGE>

maintenance contracts and $2.0 million was the result of service and software
license sales with remaining contingencies such as completion of services and
credit worthiness.

     Investing activities consisted of the acquisition of property and
equipment, most notably computer and networking equipment to support the
corporate infrastructure, and also investments in marketable securities. Concord
manages its market risk on its marketable securities by selecting investment
grade securities with the highest credit ratings with relatively short duration
that trade in highly liquid markets.

     Financing activities consisted primarily of the issuance of common stock
from the exercise of options during 2001, 2000 and 1999 and from the repayments
in 2000 of borrowings on a subordinated debt financing by FirstSense.

     Pursuant to the Tax Reform Act of 1986, the utilization of net operating
loss (NOL) carryforwards for tax purposes may be subject to an annual limitation
if a cumulative change of ownership of more than 50% occurs over a three-year
period. As a result of the Company's 1995 preferred stock financings, such a
change in ownership occurred. As a result of this ownership change, the use of
the NOL carryforwards generated prior to the ownership change will be limited.
The Company has determined that its initial public offering did not cause
another ownership change. As a result of the Company's ownership change
described above, the utilization of certain of the Company's NOL carryforwards
is limited to only $330,000 per year. The substantial majority of the Company's
NOL carryforwards generated prior to the ownership change will expire before
they can be used. As of December 31, 2001, the Company has determined that
approximately $2,309,000 of these NOL carryforwards will become unrestricted
prior to their expiration. The remainder of the Company's previous NOLs
generated prior to the change in ownership will expire prior to becoming
unrestricted and have been written off against the valuation allowance. In
addition, the utilization of approximately $15.7 million of NOL carryforwards
that were acquired as a result of the FirstSense acquisition is also restricted
as a result of a prior ownership change of FirstSense. Utilization of the
FirstSense NOL carryforwards is limited to $4.3 million per year.

     The Company has deferred tax assets of approximately $21.9 million, the
largest component of which represents NOL carryforwards and research and
development credits. The Company has partially reserved for these deferred tax
assets by recording a valuation allowance of $18.4 million. The resulting net
deferred tax asset is based on the Company's estimate of NOL carryforwards it
expects to use in the next two years; all other tax assets have been fully
reserved. Pursuant to paragraphs 20 to 25 of SFAS No. 109, the Company
considered both positive and negative evidence in assessing the need for a
valuation allowance at December 31, 2000 and 2001. The factors that weighed most
heavily on the Company's decision to record a valuation allowance were (i) the
substantial restrictions on the use of certain of its existing NOL and credit
carryforwards and (ii) the uncertainty of future profitability. In addition, the
Company is subject to rapid technological change, competition from substantially
larger competitors, a limited family of products and other related risks, as
more thoroughly described in the "Risk Factors" section of the Company's Form
10K. As a result, the Company found the evidence described above to be the most
reliable objective evidence available in determining that a valuation allowance
against its tax assets would be necessary.

     As of December 31, 2001, the Company's NOL deferred tax asset includes
approximately $2.3 million pertaining to the benefit associated with the
exercise and subsequent disqualifying disposition of incentive stock options by
the Company's employees. When and if the Company realizes this asset, the
resulting change in the valuation allowance will be credited directly to
additional paid-in capital, pursuant to the provisions of SFAS No. 109.

     During the year ended December 31, 2000 and 1999, the Company received a
tax benefit of approximately $469,000 and $4.9 million, respectively, pursuant
to the exercise of employee stock options. The Company recorded this benefit as
a component of additional paid-in capital. As a result of the uncertainty of the
realizability in 2001, the Company did not record a tax benefit to additional
paid-in capital related to the exercise of employee stock options during the
year ended December 31, 2001.

     As of December 31, 2001, Concord's principal sources of liquidity included
cash and marketable securities. We believe that our current cash and marketable
securities and cash provided by future operations

                                        29
<PAGE>

will be sufficient to meet our working capital and anticipated capital
expenditure requirements for the next 12 months. Although operating activities
may provide cash in certain periods, to the extent Concord experiences growth in
the future, our operating and investing activities may require significant cash.
Consequently, any such future growth may require Concord to obtain additional
equity or debt financing.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE
COMMODITY INSTRUMENTS

     Concord does not invest in derivative financial instruments, other
financial instruments or derivative commodity instruments as defined by
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. All of our investments are in
investment grade securities with high credit ratings of relatively short
duration that trade in highly liquid markets and are carried at fair value on
our books. Accordingly, Concord has no quantitative information concerning the
market risk of participating in such investments.

PRIMARY MARKET RISK EXPOSURES

     Concord's primary market risk exposure is in the area of interest rate
risk. Our investment portfolio of cash equivalents and marketable securities is
subject to interest rate fluctuations, but we believe this risk is immaterial
due to the short-term nature of these investments. Substantially all of our
business outside the United States is conducted in U.S. dollar-denominated
transactions, whereas our operating expenses in our international branches are
denominated in local currency. We have no foreign exchange contracts, option
contracts or other foreign hedging arrangements. We believe that the operating
expenses of our foreign operations are immaterial, and therefore any associated
market risk is unlikely to have a material adverse effect on our business,
results of operations or financial condition.

     Concord's current export sales are denominated in United States dollars. To
the extent that international sales continue to be denominated in United States
dollars, an increase in the value of United States dollar relative to other
currencies could make our products and services more expensive and, therefore,
potentially less competitive in international markets.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Concord's financial statements together with the related notes and the
reports of Arthur Andersen LLP and KPMG LLP, independent public accountants, are
set forth beginning on page F-1 of Item 14.

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

     The information under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" as set forth in the Concord's
Proxy Statement for its annual stockholders' meeting to be held April 24, 2002
is incorporated herein by reference.

                                        30
<PAGE>

     Our executive officers and their ages as of December 31, 2001 are as
follows:

<Table>
<Caption>
NAME                                 AGE                       POSITION
----                                 ---                       --------
<S>                                  <C>   <C>
John A. Blaeser....................  60    Chief Executive Officer, President and Director
Melissa H. Cruz....................  39    Executive Vice President, Business Services Chief
                                           Financial Officer, Asst. Clerk and Treasurer
Kevin J. Conklin...................  48    Executive Vice President, Business Development
Ferdinand Engel....................  53    Executive Vice President, Engineering and Chief
                                           Technology Officer
John Hamilton......................  49    Executive Vice President, Worldwide Sales and
                                           Technical Services
Ellen Kokos........................  49    Executive Vice President, Marketing
</Table>

     Set forth below is certain information relating to each executive officer's
business experience:

     John A. Blaeser has been Concord's Chief Executive Officer and President
since January 1996 and a director of Concord since 1985. Prior to joining
Concord as Chief Executive Officer and President, from 1991 until 1996, Mr.
Blaeser was Managing General Partner of EG&G Venture Management, a venture
capital firm.

     Melissa H. Cruz has been Concord's Executive Vice President, Business
Services and Chief Financial Officer since April 2000, Vice President Finance
from January 2000 until April 2000, Director of Finance from August 1998 until
January 2000 and Manager, Financial Planning from August 1997 until August 1998.
Prior to joining Concord, Ms. Cruz was Director of Finance at SeaChange
International, Inc. from November 1996 to August 1997, International Controller
at Bay Networks, Inc. from November 1993 to July 1996 and from December 1984 to
November 1993, Ms. Cruz held a variety of financial management roles at Digital
Equipment Corporation.

     Kevin J. Conklin has been Concord's Executive Vice President, Business
Development since April 2000, Senior Vice President of Marketing from September
1999 until April 2000 and Vice President of Marketing of Concord from March 1994
until September 1999. Prior to joining Concord, Mr. Conklin was Vice President
of Product Marketing and Development at Artel Communications, Inc. from June
1993 until joining Concord in March 1994, and from July 1991 to June 1993 Mr.
Conklin served as Director of Marketing at Artel Communications.

     Ferdinand Engel has been Concord's Executive Vice President of Engineering
and Chief Technology Officer since April 2000, Senior Vice President of
Engineering of Concord from September 1999 until April 2000 and Vice President
of Engineering of Concord from 1989 until September 1999. Prior to joining
Concord, Mr. Engel was Vice President of Engineering for Technology Concepts at
Bell Atlantic Corp.

     John Hamilton has been Concord's Executive Vice President of Worldwide
Sales and Technical Service since November 2000, Vice President of Worldwide
Sales from April 2000 until November 2000, Vice President North American Sales
from September 1999 until April 2000 and National Sales Director from July 1997
until September 1999. Prior to joining Concord, Mr. Hamilton was Area Vice
President at FTP Software from February 1996 until July 1997 and from February
1995 until February 1996 Mr. Hamilton was the national sales manager for Oxford
& Associates, Inc. He also held various management positions at EMC Corporation,
Stratus Corporation and International Business Machines Corporation.

     Ellen Kokos has been Concord's Executive Vice President, Marketing since
February 2001. Prior to joining Concord, Ms. Kokos was Vice President at Epicon,
Inc. from November 1998 until September 2000. From July 1996 until September
1997, Ms. Kokos was Vice President, Marketing at Agile Networks, a subsidiary of
Lucent Technologies. In 1995, Ms. Kokos was Corporate Vice President, Marketing
at Chipcom prior to its acquisition by 3COM, Inc. Ms. Kokos also held executive
positions at Digital Equipment Corporation, Novell, Inc. and Sun Microsystems,
Inc.

                                        31
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     The information under the caption "Executive Compensation" as set forth in
the Company's Proxy Statement for its annual stockholders' meeting to be held
April 24, 2002 is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information under the caption "Securities Ownership of Certain
Beneficial Owners and Management" as set forth in Concord's Proxy Statement for
its annual stockholders' meeting to be held April 24, 2002 is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Not applicable.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Form:

     1.  Consolidated Financial Statements:

<Table>
<Caption>
                                                               PAGE
                                                              NUMBER
                                                              ------
<S>                                                           <C>
Reports of Independent Public Accountants...................   F-1
Consolidated Balance Sheets:
  December 31, 2001 and December 31, 2000...................   F-3
Consolidated Statements of Operations:
  Years ended December 31, 2001, December 31, 2000 and
     December 31, 1999......................................   F-4
Consolidated Statements of Stockholders' Equity:
  Years ended December 31, 2001, December 31, 2000 and
     December 31, 1999......................................   F-5
Consolidated Statements of Cash Flows:
  Years ended December 31, 2001, December 31, 2000 and
     December 31, 1999......................................   F-6
Notes to the Consolidated Financial Statements..............   F-7
</Table>

     2.  Consolidated Financial Statement Schedules

     Schedule II -- Valuation and Qualifying Accounts Included in Note 11 of
Notes to the Consolidated Financial Statements

(b) Exhibits:

     See Index to Exhibits. The Exhibits listed in the accompanying Index to
Exhibits are filed or incorporated by reference as part of this report.

(c) Reports on Form 8-K:

     None.

                                        32
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Concord Communications, Inc.:

     We have audited the accompanying consolidated balance sheets of Concord
Communications, Inc. (a Massachusetts corporation) as of December 31, 2001 and
December 31, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of FirstSense Software, Inc., a company acquired during 2000 in a
transaction accounted for as a pooling of interests, as discussed in Note 3(b),
or for any periods prior to its acquisition. Such statements are included in the
consolidated financial statements of Concord Communications, Inc. and reflect
total revenues of 2% for the year ended December 31, 1999, of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for FirstSense Software, Inc., is based solely on the report of
the other auditors.

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

     In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Concord Communications, Inc. as of December
31, 2001 and December 31, 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in United States.

                                          /s/ ARTHUR ANDERSEN LLP
                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 16, 2002

                                       F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
FirstSense Software, Inc.:

     We have audited the statements of operations, stockholders' (deficit)
equity and cash flows of FirstSense Software, Inc. for the year ended December
31, 1999 (not presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the cash flows of
FirstSense Software, Inc. for the year ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States of America.

                                          /s/ KPMG LLP
                                          KPMG LLP

Boston, Massachusetts
April 5, 2000

                                       F-2
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2001           2000
                                                              ------------   ------------
<S>                                                           <C>            <C>
ASSETS
Current Assets:
  Cash and cash equivalents.................................  $  9,010,811   $ 10,725,265
  Marketable securities.....................................    59,333,068     52,526,162
  Accounts receivable, net of allowance of $1,409,835 and
     $1,525,965 in 2001 and 2000, respectively..............    16,537,131     20,000,193
  Prepaid expenses and other current assets.................     3,057,797      2,409,350
                                                              ------------   ------------
     Total current assets...................................    87,938,807     85,660,970
                                                              ------------   ------------
Equipment and Improvements, at cost:
  Equipment.................................................    19,636,704     16,085,465
  Leasehold improvements....................................     5,956,710      6,080,105
                                                              ------------   ------------
                                                                25,593,414     22,165,570
  Less -- Accumulated depreciation and amortization.........    14,798,688      9,140,170
                                                              ------------   ------------
                                                                10,794,726     13,025,400
                                                              ------------   ------------
Deferred Tax Asset..........................................     3,500,000      3,500,000
Other Long-Term Assets......................................       246,655         89,689
                                                              ------------   ------------
     Total long-term assets.................................     3,746,655      3,589,689
                                                              ------------   ------------
                                                              $102,480,188   $102,276,059
                                                              ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................  $  3,553,417   $  3,117,627
  Accrued expenses..........................................    13,278,825     10,928,921
  Deferred revenue..........................................    22,141,078     17,483,928
                                                              ------------   ------------
     Total current liabilities..............................    38,973,320     31,530,476
                                                              ------------   ------------
Commitments and Contingencies (Note 8)
Stockholders' Equity:
  Common Stock, $0.01 par value:
     Authorized -- 50,000,000 shares
     Issued and outstanding -- 16,901,193 and 16,554,944
     shares at December 31, 2001 and 2000, respectively.....       169,012        165,549
  Additional paid-in capital................................    96,365,287     95,479,340
  Deferred compensation.....................................      (241,547)    (1,509,880)
  Accumulated other comprehensive income....................     1,892,264        135,159
  Accumulated deficit.......................................   (34,678,148)   (23,524,585)
                                                              ------------   ------------
     Total stockholders' equity.............................    63,506,868     70,745,583
                                                              ------------   ------------
                                                              $102,480,188   $102,276,059
                                                              ============   ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-3
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                               YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------
                                                           2001          2000          1999
                                                       ------------   -----------   -----------
<S>                                                    <C>            <C>           <C>
Revenues:
  License revenues...................................  $ 54,406,217   $69,463,790   $53,924,271
  Service revenues...................................    33,571,892    22,020,064    14,896,175
                                                       ------------   -----------   -----------
     Total revenues..................................    87,978,109    91,483,854    68,820,446
Cost of Revenues:
  Cost of license revenues...........................     2,271,729     1,997,050     2,299,810
  Cost of service revenues...........................    15,543,963    11,104,222     6,202,481
                                                       ------------   -----------   -----------
     Total cost of revenues..........................    17,815,692    13,101,272     8,502,291
                                                       ------------   -----------   -----------
       Gross profit..................................    70,162,417    78,382,582    60,318,155
                                                       ------------   -----------   -----------
Operating Expenses:
  Research and development...........................    23,968,991    21,101,448    14,432,334
  Sales and marketing................................    51,041,001    42,996,124    29,442,304
  General and administrative.........................     8,700,514     8,113,239     5,336,912
  Asset impairment charge (Note 13)..................            --     2,336,465            --
  Stock-based compensation (Note 5)..................       319,834       812,333     3,038,796
  Acquisition-related charges (Note 3)...............            --     4,300,000       550,601
                                                       ------------   -----------   -----------
     Total operating expenses........................    84,030,340    79,659,609    52,800,947
                                                       ------------   -----------   -----------
       Operating (loss) income.......................   (13,867,923)   (1,277,027)    7,517,208
                                                       ------------   -----------   -----------
Other Income (Expense):
  Interest income....................................     3,361,073     3,066,333     3,136,026
  Interest expense...................................            --            --       (39,560)
  Other expense......................................      (200,420)           --      (132,809)
                                                       ------------   -----------   -----------
     Total other income, net.........................     3,160,653     3,066,333     2,963,657
                                                       ------------   -----------   -----------
     (Loss) income before income taxes...............   (10,707,270)    1,789,306    10,480,865
Provision for income taxes...........................       446,293       447,000     4,285,509
                                                       ------------   -----------   -----------
(Loss) income before extraordinary items.............   (11,153,563)    1,342,306     6,195,356
Extraordinary loss on early extinguishment of debt,
  net of tax benefit of $72,000 (Note 4).............            --      (216,010)           --
                                                       ------------   -----------   -----------
Net (loss) income....................................  $(11,153,563)  $ 1,126,296   $ 6,195,356
                                                       ============   ===========   ===========
Accretion of redeemable preferred stock..............            --            --       125,285
                                                       ------------   -----------   -----------
Net (loss) income applicable to common
  stockholders.......................................  $(11,153,563)  $ 1,126,296   $ 6,070,071
                                                       ============   ===========   ===========
Pro forma provision for income taxes on Subchapter
  S-Corporation income (unaudited)...................                                   146,325
                                                                                    -----------
Pro forma net income (unaudited).....................                               $ 5,923,746
                                                                                    ===========
Net (loss) income per common and potential common
  share:
  Basic..............................................  $      (0.67)  $      0.07   $      0.42
                                                       ============   ===========   ===========
  Diluted............................................  $      (0.67)  $      0.07   $      0.36
                                                       ============   ===========   ===========
  Pro forma diluted (unaudited)......................                               $      0.35
                                                                                    ===========
Weighted average common and potential common shares
  outstanding:
  Basic..............................................    16,682,634    16,143,867    14,395,339
                                                       ============   ===========   ===========
  Diluted............................................    16,682,634    16,745,742    16,722,140
                                                       ============   ===========   ===========
  Pro forma diluted (unaudited)......................                                16,722,140
                                                                                    ===========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
                                         COMMON STOCK
                                     ---------------------                                 ACCUMULATED
                                                   $0.01     ADDITIONAL                       OTHER
                                       NUMBER       PAR        PAID-IN       DEFERRED     COMPREHENSIVE   ACCUMULATED
                                     OF SHARES     VALUE       CAPITAL     COMPENSATION   INCOME (LOSS)     DEFICIT
                                     ----------   --------   -----------   ------------   -------------   ------------
<S>                                  <C>          <C>        <C>           <C>            <C>             <C>
BALANCE, DECEMBER 31, 1998.........  13,522,440   $135,224   $70,528,649   $  (687,939)    $   149,606    $(28,912,998)
Shares issued in connection with
  employee stock plans.............   1,287,093     12,871     2,844,365            --              --              --
Accretion of dividends on preferred
  Stock............................          --         --      (125,285)           --              --              --
Tax benefit associated with
  employee stock options...........          --         --     4,900,000            --              --              --
Deferred compensation related to
  grants of stock options and
  restricted stock.................          --         --     3,417,025    (3,417,025)             --              --
Amortization of deferred
  compensation related to grants of
  stock options....................          --         --            --       547,170              --              --
Issuance of warrants...............          --         --       357,486            --              --              --
Unrealized losses on
  available-for-sale securities....          --         --            --            --      (1,535,731)             --
Distribution to shareholders.......          --         --            --            --              --      (1,933,239)
Net income.........................          --         --            --            --              --       6,195,356
                                     ----------   --------   -----------   -----------     -----------    ------------
  Comprehensive Income.............
BALANCE, DECEMBER 31, 1999.........  14,809,533    148,095    81,922,240    (3,557,794)     (1,386,125)    (24,650,881)
Shares issued in connection with
  employee stock plans.............     474,762      4,748     2,193,416            --              --              --
Conversion of redeemable preferred
  stock............................   1,252,616     12,526    11,710,491            --              --              --
Exercise of warrants...............      18,033        180       419,820            --              --              --
Tax benefit associated with
  employee stock options...........          --         --       468,954            --              --              --
Reversal of deferred compensation
  related to forfeitures of
  unvested stock options and
  restricted stock.................          --         --    (1,235,581)    1,235,581              --              --
Amortization of deferred
  compensation related to grants of
  stock options....................          --         --            --       812,333              --              --
Unrealized gains on
  available-for-sale securities....          --         --            --            --       1,521,284              --
Net income.........................          --         --            --            --              --       1,126,296
                                     ----------   --------   -----------   -----------     -----------    ------------
  Comprehensive Income.............
BALANCE, DECEMBER 31, 2000.........  16,554,944    165,549    95,479,340    (1,509,880)        135,159     (23,524,585)
Shares issued in connection with
  employee stock plans.............     346,249      3,463     1,834,446            --              --              --
Reversal of deferred compensation
  related to forfeitures of
  unvested stock options and
  restricted stock.................          --         --      (948,499)      948,499              --              --
Amortization of deferred
  compensation related to grants of
  stock options....................          --         --            --       319,834              --              --
Unrealized gains on
  available-for-sale securities....          --         --            --            --       1,757,105              --
Net loss...........................          --         --            --            --              --     (11,153,563)
                                     ----------   --------   -----------   -----------     -----------    ------------
  Comprehensive Loss...............
BALANCE, DECEMBER 31, 2001.........  16,901,193   $169,012   $96,365,287   $  (241,547)    $ 1,892,264    $(34,678,148)
                                     ==========   ========   ===========   ===========     ===========    ============

<Caption>

                                                    COMPREHENSIVE
                                        TOTAL       INCOME (LOSS)
                                     ------------   -------------
<S>                                  <C>            <C>
BALANCE, DECEMBER 31, 1998.........  $ 41,212,542   $         --
Shares issued in connection with
  employee stock plans.............     2,857,236             --
Accretion of dividends on preferred
  Stock............................      (125,285)            --
Tax benefit associated with
  employee stock options...........     4,900,000             --
Deferred compensation related to
  grants of stock options and
  restricted stock.................            --             --
Amortization of deferred
  compensation related to grants of
  stock options....................       547,170             --
Issuance of warrants...............       357,486             --
Unrealized losses on
  available-for-sale securities....    (1,535,731)    (1,535,731)
Distribution to shareholders.......    (1,933,239)            --
Net income.........................     6,195,356      6,195,356
                                     ------------   ------------
  Comprehensive Income.............                 $  4,659,625
                                                    ============
BALANCE, DECEMBER 31, 1999.........    52,475,535             --
Shares issued in connection with
  employee stock plans.............     2,198,164             --
Conversion of redeemable preferred
  stock............................    11,723,017             --
Exercise of warrants...............       420,000             --
Tax benefit associated with
  employee stock options...........       468,954             --
Reversal of deferred compensation
  related to forfeitures of
  unvested stock options and
  restricted stock.................            --             --
Amortization of deferred
  compensation related to grants of
  stock options....................       812,333             --
Unrealized gains on
  available-for-sale securities....     1,521,284      1,521,284
Net income.........................     1,126,296      1,126,296
                                     ------------   ------------
  Comprehensive Income.............                 $  2,647,580
                                                    ============
BALANCE, DECEMBER 31, 2000.........    70,745,583
Shares issued in connection with
  employee stock plans.............     1,837,909             --
Reversal of deferred compensation
  related to forfeitures of
  unvested stock options and
  restricted stock.................            --             --
Amortization of deferred
  compensation related to grants of
  stock options....................       319,834             --
Unrealized gains on
  available-for-sale securities....     1,757,105      1,757,105
Net loss...........................   (11,153,563)   (11,153,563)
                                     ------------   ------------
  Comprehensive Loss...............                 $ (9,396,458)
                                                    ============
BALANCE, DECEMBER 31, 2001.........  $ 63,506,868
                                     ============
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-5
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                                        YEAR ENDED DECEMBER 31,
                                                              -------------------------------------------
                                                                  2001           2000           1999
                                                              ------------   ------------   -------------
<S>                                                           <C>            <C>            <C>
Cash Flows from Operating Activities:
Net (loss) income...........................................  $(11,153,563)  $  1,126,296   $   6,195,356
Adjustments to reconcile net (loss) income to net cash
  provided by operating activities --
  Depreciation and amortization.............................     6,289,836      5,104,220       2,280,469
  Loss on sale of fixed assets..............................        24,000             --              --
  Stock-based compensation..................................       319,834        812,333         547,170
  Amortization of debt issuance costs.......................            --             --          59,502
  Deferred tax benefit......................................            --       (500,000)     (1,307,194)
  Changes in current assets and liabilities:
    Accounts receivable.....................................     3,463,062     (6,023,264)     (8,339,081)
    Prepaid expenses and other currents assets..............      (648,447)    (1,218,203)       (725,395)
    Accounts payable........................................       435,790        997,209       1,120,144
    Accrued expenses........................................     2,349,904        685,012       2,073,466
    Deferred revenue........................................     4,657,150      7,222,594       4,740,055
    Tax benefit associated with exercise of options.........            --        468,954       4,900,000
                                                              ------------   ------------   -------------
    Net cash provided by operating activities...............     5,737,566      8,675,151      11,544,492
                                                              ------------   ------------   -------------
Cash Flows from Investing Activities:
Purchases of equipment and improvements.....................    (4,083,162)   (10,080,218)     (6,883,305)
Change in other assets......................................      (156,966)       (89,689)             --
Investments in marketable securities........................   (16,491,513)   (12,816,079)   (252,350,710)
Proceeds from sales of marketable securities................    11,441,712     14,750,874     237,112,986
                                                              ------------   ------------   -------------
    Net cash used in investing activities...................    (9,289,929)    (8,235,112)    (22,121,029)
                                                              ------------   ------------   -------------
Cash Flows from Financing Activities:
Proceeds from bank borrowings...............................            --             --       3,120,736
Repayments of bank borrowings...............................            --     (2,962,466)       (219,765)
Distribution to shareholders................................            --             --      (1,933,239)
Proceeds from issuance of common stock......................     1,837,909      2,198,164       2,857,236
Proceeds from exercise of warrants..........................            --        420,000              --
                                                              ------------   ------------   -------------
    Net cash provided by (used in) financing activities.....     1,837,909       (344,302)      3,842,968
                                                              ------------   ------------   -------------
Net (decrease) increase in cash and cash equivalents........    (1,714,454)        95,737      (6,751,569)
Cash and Cash Equivalents, beginning of year................    10,725,265     10,629,528      17,381,097
                                                              ------------   ------------   -------------
Cash and Cash Equivalents, end of year......................  $  9,010,811   $ 10,725,265   $  10,629,528
                                                              ============   ============   =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest......................................  $         --   $     19,810   $      93,848
                                                              ============   ============   =============
Cash paid for taxes.........................................  $    281,123   $    819,295   $     341,837
                                                              ============   ============   =============
Supplemental Disclosure of Noncash Transactions:
Deferred compensation related to (forfeitures) grants of
  stock options.............................................  $   (948,499)  $ (1,235,581)  $   3,417,025
                                                              ============   ============   =============
Retirements of fully depreciated equipment and
  improvements..............................................  $    631,318   $         --   $          --
                                                              ============   ============   =============
Conversions of redeemable convertible preferred stock to
  common stock..............................................  $         --   $ 11,723,017   $          --
                                                              ============   ============   =============
Unrealized gain (loss) on available-for-sale securities.....  $  1,757,105   $  1,521,284   $  (1,535,731)
                                                              ============   ============   =============
</Table>

                                       F-6
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2001

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     Concord Communications, Inc. (the Company or Concord) is primarily engaged
in the development and sale of next-generation fault, availability and
performance information technology infrastructure management solutions to
companies principally located in the United States, Europe, Latin America and
Asia Pacific.

     The Company is subject to the risks associated with emerging,
technology-oriented companies. Primary among these risks are competition from
substitute products and the ability to successfully develop and market the
Company's current and future products.

  (a) PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.

  (b) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company follows the provisions of Statements of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified its marketable securities as
available-for-sale and recorded them at fair value, with the unrealized gains
and losses reported as a separate component of stockholders' equity. The Company
considers highly liquid investments, purchased with an original maturity of 90
days or less, to be cash equivalents. Cash and cash equivalents were $9,010,811
and $10,725,265, and consist of money market funds at December 31, 2001 and
2000, respectively.

  (c) REVENUE RECOGNITION

     The Company's revenues consist of software license revenues and service
revenues. Software license revenues are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position (SOP)
97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition with respect to Certain Transactions. Under
SOP 97-2, software license revenues are recognized upon execution of a contract
and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management.
Revenues under multiple-element arrangements, which typically include software
products, services and maintenance sold together, are allocated to each element
using the residual method in accordance with SOP 98-9. Under the residual
method, the fair value of the undelivered elements is deferred and subsequently
recognized. The Company has established sufficient vendor specific objective
evidence for professional services, training and maintenance and customer
support services based on the price charged when these elements are sold
separately. Accordingly, software license revenue is recognized under the
residual method in arrangements in which software is licensed with professional
services, training and maintenance and customer support services.

     Service revenues include professional services, training and maintenance
and customer support fees. Professional services are not essential to the
functionality of the other elements in an arrangement and are accounted for
separately. Service revenues are recognized as the services are performed.

     Maintenance revenues are derived from customer support agreements generally
entered into in connection with initial license sales and subsequent renewals.
Maintenance and customer support fees include the right to unspecified upgrades
on a when-and-if-available basis and ongoing technical support. Maintenance
revenues are recognized ratably over the term of the maintenance period.
Payments for maintenance fees are generally made in advance and are included in
deferred revenue. As of December 31, 2001 and 2000, deferred revenue includes
approximately $17,106,000 and $14,438,000 of deferred maintenance revenues.
                                       F-7
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (d) EQUIPMENT AND IMPROVEMENTS

     Equipment and improvements are recorded at cost. Depreciation is provided
for on a straight-line basis over the useful lives of the assets, which are
estimated to be three years for all assets other than leasehold improvements,
which are amortized over the shorter of the life of the asset or the life of the
lease.

  (e) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

  (f) LONG-LIVED ASSETS

     The Company applies the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS No. 121 requires that long-lived assets be reviewed periodically for
impairment. The Company evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Any write-downs are to be treated as permanent
reductions in the carrying amounts of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less the cost to
sell. The Company believes that there has been no significant impairment of its
long-lived assets as of each of the balance sheet dates presented.

  (g) FINANCIAL INSTRUMENTS, CONCENTRATION OF CREDIT RISK AND SIGNIFICANT
CUSTOMERS

     SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of the fair value of financial instruments. The Company has
estimated the fair value of financial instruments using available market
information and appropriate valuation methodologies. The carrying value of cash,
cash equivalents, marketable securities, accounts receivable, and accounts
payable approximate fair market value due to the short-term nature of these
financial instruments. Financial instruments that potentially subject the
Company to concentrations of credit risk are principally cash, cash equivalents,
marketable securities and accounts receivable. The Company has no significant
off-balance-sheet or concentration of credit risk exposure such as foreign
exchange contracts, option contracts or other foreign hedging arrangements. The
Company maintains its cash, cash equivalents and marketable securities with
established financial institutions. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales. To reduce its credit risk, the Company routinely assesses the
financial strength of its customers. The Company maintains an allowance for
potential credit losses but historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
industry or geographic area. No individual customer or reseller accounted for
more than 10% of revenue in 2001, 2000 or 1999. One customer accounted for 13.4%
of accounts receivable at December 31, 2001; a total of 7.2% of the receivables
from this customer was included in the Company's deferred revenue. No one
customer accounted for more than 10% of the Company's accounts receivable at
December 31, 2000.

  (h) RECLASSIFICATIONS

     Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
                                       F-8
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (i) SOFTWARE DEVELOPMENT COSTS

     SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed, requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. The Company believes that once technological feasibility of a
software product has been established, the additional development costs incurred
to bring the product to a commercially acceptable level are not significant.
There were no capitalized software development costs at December 31, 2001 or
2000.

  (j) NET (LOSS) INCOME PER SHARE

     The Company computes earnings per share following the provisions of SFAS
No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. Basic net (loss) income per share is
computed using the weighted-average number of common shares outstanding for the
period. Diluted net (loss) income per share is computed using the
weighted-average number of common and dilutive common-equivalent shares
outstanding for the period. Dilutive common-equivalent shares primarily consist
of employee stock options. For the year ended December 31, 2001, diluted net
loss per share is the same as basic net loss per share as the effects of
potential common stock are antidilutive as a result of the Company's reported
loss. For the years ended December 31, 2000 and 1999, dilutive common-equivalent
shares consisted of outstanding options, warrants and convertible preferred
stock. The dilutive effect of outstanding stock options and warrants is computed
using the treasury stock method. The dilutive effect of convertible preferred
stock is computed using the as-if-converted method. Pro forma diluted net income
per common and potential common share for 1999 assumes that the earnings from
Empire Technologies, Inc., an acquired Subchapter S-Corporation accounted for as
a pooling of interests (Note 3), were taxed at the Company's effective tax rate.

     Calculations of basic, diluted and pro forma diluted net (loss) income per
common share and potential common share are as follows:

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                               ----------------------------------------
                                                   2001          2000          1999
                                               ------------   -----------   -----------
<S>                                            <C>            <C>           <C>
Net (loss) income applicable to common
  stockholders...............................  $(11,153,563)  $ 1,126,296   $ 6,070,071
                                               ------------   -----------   -----------
Pro forma provision for income taxes on
  Subchapter S-Corporation income
  (unaudited)................................                                   146,325
                                                                            -----------
Pro forma net (loss) income (unaudited)......                               $ 5,923,746
                                                                            ===========
Weighted average common shares outstanding...    16,682,634    16,143,867    14,395,339
Potential common shares pursuant to stock
  options and warrants.......................            --       498,301     1,083,906
Potential common shares pursuant to
  conversion of redeemable convertible
  preferred stock............................            --       103,574     1,242,895
                                               ------------   -----------   -----------
Diluted and pro forma diluted weighted
  average shares.............................    16,682,634    16,745,742    16,722,140
                                               ============   ===========   ===========
Basic net (loss) income per common share.....  $      (0.67)  $      0.07   $      0.42
                                               ============   ===========   ===========
Diluted net (loss) income per common and
  potential common share.....................  $      (0.67)  $      0.07   $      0.36
                                               ============   ===========   ===========
Pro forma diluted net (loss) income per
  common and potential common share..........                               $      0.35
                                                                            ===========
</Table>

                                       F-9
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The extraordinary loss reported in 2000 (Note 4) and reflected in the above
net (loss) income applicable to common stockholders reduced basic, diluted and
pro forma income per share by $0.01.

     Diluted weighted average shares outstanding does not include 4,154,700,
1,880,310 and 738,801 common equivalent shares for the years ended December 31,
2001, 2000 and 1999, respectively, as their effect would have been antidilutive.

  (k) DERIVATIVE INSTRUMENTS

     The Company does not have any derivative financial instruments that require
accounting or disclosure under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.

  (l) COMPREHENSIVE INCOME (LOSS)

     Comprehensive income (loss) is defined as the change in net assets of the
Company during a period from transactions generated from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The only components of
comprehensive loss reported by the Company are net income (loss) and unrealized
gains (losses) on available-for-sale securities.

  (m) RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method of accounting. SFAS No.
142 discusses how intangible assets that are acquired should be accounted for in
financial statements upon their acquisition and also how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. Beginning on January 1, 2002, with the
adoption of SFAS No. 142, goodwill and certain purchased intangibles will no
longer be subject to amortization over their estimated useful life. Rather the
goodwill and certain purchased intangibles will be subject to an annual
assessment for impairment based on fair value. The provisions of SFAS No. 142
are required to be applied starting with fiscal years beginning after December
15, 2001. The Company does not expect the adoption of these statements to have a
material impact on its financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supercedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
SFAS No. 144 further refines the requirements of SFAS No. 121 which required
that companies (1) recognize an impairment loss only if the carrying amount of a
long-lived asset is not recoverable based on its undiscounted future cash flows
and (2) measure an impairment loss as the difference between the carrying amount
and fair value of the asset. In addition, SFAS No. 144 provides guidance on
accounting and disclosure issues surrounding long-lived assets to be disposed of
by sale. The Company will be required to adopt SFAS No. 144 beginning on January
1, 2002. The Company does not anticipate that the adoption of this statement
will have a material impact on its financial position or results of operations
or cash flows.

     In November 2001, the Emerging Issues Task Force issued Topic No. D-103
relating to the accounting for reimbursements received for out-of-pocket
expenses. In accordance with Topic No. D-103, reimbursements received for
out-of-pocket expenses incurred should be characterized as revenue in the
statement of operations. The Company has historically accounted for
reimbursements received for out-of-pocket expenses incurred as a reduction to
cost of service revenues in the statement of operations to offset the costs
incurred. The Company will adopt Topic No. D-103 in financial reporting periods
beginning after December 31, 2001 and comparative financial statements for prior
periods will be reclassified to comply with the guidance in Topic

                                       F-10
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

No. D-103. During the year ended December 31, 2001 reimbursed out-of-pocket
expenses totaled $90,979. The Company had no reimbursed out-of-pocket expenses
in 2000 or 1999. Accordingly, if the provisions of Topic No. D-103 had been
adopted during these years ended, service revenues and cost of service revenues
would have been higher by the amounts noted. However, the amount of gross profit
would not have changed, but the gross profit as a percentage of total revenues,
or gross margin, would have decreased.

  (n) CRITICAL ACCOUNTING POLICIES

     In December 2001, the SEC requested that all registrants list their three
to five most "critical accounting policies" in the Management Discussion and
Analysis section of their Annual Report on Form 10-K. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgements, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. The
Company believes that the following three accounting policies fit this
definition: Revenue Recognition, Accounts Receivable and Accounting for Income
Taxes.

  Revenue Recognition Policy

     The Company recognizes revenue from the sale of software licenses when
persuasive evidence of an arrangement exists, the product has been delivered,
the fee is fixed and determinable and collection of the resulting receivable is
reasonably assured. Delivery generally occurs when product is delivered to a
common carrier and the terms are FOB Concord. All revenues generated from the
Company's worldwide operations are approved at its corporate headquarters,
located in the United States.

     At the time of the transaction, the Company assesses whether the fee
associated with the revenue transaction is fixed and determinable and whether or
not collection is reasonably assured. The Company assesses whether the fee is
fixed and determinable based on the payment terms associated with the
transaction. If a significant portion of a fee is due after normal payment
terms, which are usually 30 to 60 days from invoice date, the Company accounts
for the fee as not being fixed and determinable. In these cases, the Company
usually recognizes revenue upon receipt of cash.

     The Company assesses collection based on a number of factors, including
past transaction history with the customer and the credit-worthiness of the
customer. The Company does not request collateral from its customers. If the
Company determines that collection of a fee is not reasonably assured, the
Company defers the fee and usually recognizes revenue upon receipt of cash.

     For all sales, the Company uses either a purchase order or signed license
agreement as evidence of an arrangement. Sales through resellers are usually
evidenced by a master agreement governing the relationship together with
purchase orders on a transaction-by-transaction basis.

     For arrangements with multiple obligations (for example, undelivered
maintenance and support), the Company allocates revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. This means that the Company defers revenue from the fee
arrangement equivalent to the fair value of the undelivered elements. The
Company determines fair values for ongoing maintenance and support obligations
using its internal pricing policies for maintenance and by referencing the
prices at which it has sold separate maintenance contract renewals to its other
customers. The Company determines fair values of services, such as training or
consulting, by referencing the prices at which it has separately sold comparable
services to its other customers.

     The Company's arrangements do not generally include clauses involving
acceptance of its products by its customers. However, if an arrangement includes
an acceptance provision, revenue recognition occurs upon the earlier of receipt
of a written customer acceptance or expiration of the acceptance period.

                                       F-11
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Accounts Receivable Policy

     The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's current
credit-worthiness, as determined by the Company's review of its current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based on a
percentage of its accounts receivable, its historical experience and any
specific customer collection issues that the Company has identified. While such
credit losses have historically been within expectations and appropriate
reserves have been established, the Company cannot guarantee that it will
continue to experience the same credit loss rates that it has experienced in the
past.

  Accounting for Income Taxes Policy

     As part of the process of preparing its consolidated financial statements,
the Company is required to estimate income taxes in each of the jurisdictions in
which it operates. To do this, the Company estimates its actual current tax
liabilities, while also assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included within the Company's consolidated balance sheet. The Company must then
assess the likelihood that its deferred tax assets will be recovered from future
taxable income. To the extent the Company believes that recovery is not likely,
it must establish a valuation allowance. To the extent the Company establishes a
valuation allowance or increases this allowance in a period, it must include an
expense within the tax provision in the statement of operations.

     Significant management judgement is required in determining the Company's
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recorded against net deferred tax assets. The Company has a
valuation allowance of $18.4 million as of December 31, 2001, due to
uncertainties related to its ability to utilize some of its deferred tax assets,
primarily consisting of the utilization of certain net operating loss
carryforwards from prior years. The Company is unsure whether it will have
sufficient future taxable income to allow it to use these net operating losses,
before they expire. The valuation allowance is based on the Company's estimates
of taxable income by jurisdiction in which it operates and the period over which
the Company's deferred tax assets will be recoverable. In the event that actual
results differ from these estimates or the Company adjusts these estimates in
future periods, it may need to establish an additional valuation. Establishing
new or additional valuation allowances could materially adversely impact the
Company's financial position and results of operations.

     The Company's net deferred tax assets as of December 31, 2001 were $3.5
million, net of a valuation allowance of $18.4 million.

     The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting principles
generally accepted in the United States, with no need for management's judgement
in their application. There are also areas in which the exercise of management's
judgement in selecting an available alternative would not produce a materially
different result.

(2) MARKETABLE SECURITIES

     It is the Company's intent to maintain a liquid investment portfolio to
support current operations and to take advantage of investment opportunities;
therefore, all marketable securities are considered to be available-for-sale and
are classified as current assets.

                                       F-12
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The amortized cost, unrealized gains and fair value of marketable
securities available-for-sale as of December 31, 2001 with maturity dates from
January 1, 2002 through August 1, 2006, are as follows:

<Table>
<Caption>
                                                  AMORTIZED    UNREALIZED
                                                    COST         GAINS      FAIR VALUE
                                                 -----------   ----------   -----------
<S>                                              <C>           <C>          <C>
US government and municipal obligations........  $29,067,343   $1,121,033   $30,188,376
Foreign government obligations.................    1,019,831       72,145     1,091,976
Corporate bonds and notes......................   31,674,341      699,086    32,373,427
                                                 -----------   ----------   -----------
                                                  61,761,515    1,892,264    63,653,779
Less: Cash equivalents.........................    4,320,711           --     4,320,711
                                                 -----------   ----------   -----------
Available-for-sale marketable securities.......  $57,440,804   $1,892,264   $59,333,068
                                                 ===========   ==========   ===========
</Table>

     The amortized cost, unrealized gains (losses) and fair value of marketable
securities available-for-sale as of December 31, 2000 with maturity dates from
January 1, 2001 through October 17, 2007, are as follows:

<Table>
<Caption>
                                                AMORTIZED      UNREALIZED
                                                  COST       GAINS (LOSSES)   FAIR VALUE
                                               -----------   --------------   -----------
<S>                                            <C>           <C>              <C>
US government and municipal obligations......  $29,700,805      $163,644      $29,864,449
Foreign government obligations...............    1,027,063        27,342        1,054,405
Corporate bonds and notes....................   24,186,700       (55,827)      24,130,873
                                               -----------      --------      -----------
                                                54,914,568       135,159       55,049,727
Less: Cash equivalents.......................    2,523,565            --        2,523,565
                                               -----------      --------      -----------
Available-for-sale marketable securities.....  $52,391,003      $135,159      $52,526,162
                                               ===========      ========      ===========
</Table>

(3) ACQUISITIONS

  (a) EMPIRE TECHNOLOGIES, INC.

     On October 29, 1999, the Company issued 815,248 shares of common stock for
all of the issued and outstanding shares of Empire Technologies, Inc. (Empire)
in a transaction accounted for as a pooling of interests. Accordingly, all
prior-period financial statements presented have been restated as required by
Accounting Principles Board (APB) Opinion No. 16, Accounting for Business
Combinations. All intercompany transactions have been eliminated as a part of
the restatement.

     As a part of the transaction, the Company incurred direct,
acquisition-related charges of approximately $551,000. All of such costs were
expensed upon the completion of the Empire acquisition. Also, as part of the
transaction, the Company assumed an obligation related to Empire's existing
stock appreciation rights plan. Pursuant to the terms of the only grant under
this plan, the Company settled this obligation in cash within 30 days of
closing. The expense relating to the grant was recognized from the date of grant
through the date of settlement. During the year ended December 31, 1999, the
Company incurred approximately $2,491,000 of stock-based compensation expense
related to this stock appreciation rights plan.

  (b) FIRSTSENSE SOFTWARE, INC.

     On February 4, 2000, the Company completed the acquisition of FirstSense
Software, Inc. (FirstSense). Under the terms of the agreement, the shareholders
and option holders received an aggregate of 1,940,000 Company shares to effect
the business combination. The transaction has been accounted for as a pooling of
interests. Accordingly, all prior-period financial statements presented have
been restated as required by APB Opinion No. 16. All inter-company transactions
have been eliminated as a result of the business combination.

                                       F-13
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As part of the transaction, Company incurred direct, acquisition-related
charges of approximately $4.3 million, primarily consisting of investment
banking fees of $3.6 million and legal and accounting fees of $700,000. All of
such costs were expensed in fiscal 2000 upon the completion of the FirstSense
acquisition.

     Separate and combined results of the Company, Empire and FirstSense during
the periods preceding the merger were as follows:

<Table>
<Caption>
                                                                      ELIMINATIONS AND
                               CONCORD       EMPIRE     FIRSTSENSE      ADJUSTMENTS       COMBINED
                             -----------   ----------   -----------   ----------------   -----------
<S>                          <C>           <C>          <C>           <C>                <C>
1999
Net revenues...............  $64,762,253   $2,713,962   $ 1,562,240     $  (218,009)     $68,820,446
Net incomes (loss)
  applicable to common
  stockholders.............   12,434,597      471,655    (8,101,318)      1,265,137        6,070,071
</Table>

     Intercompany eliminations represent transactions among the companies prior
to the combinations. As discussed in Note 7, the Company made an adjustment to
prior period results, in accordance with APB No. 16, to reflect changes to the
valuation reserve at FirstSense related to its deferred tax assets.

(4) LINE OF CREDIT, TERM LOAN AND SUBORDINATED DEBENTURE

     Prior to the Company's acquisition of FirstSense, FirstSense had a
subordinated debt agreement with another lender in July 1999. Under the terms of
this agreement, FirstSense borrowed $3,000,000 in 1999. FirstSense also granted
the lender a warrant to purchase its Series B Preferred Stock. FirstSense
allocated $357,486 to the value of the warrant, based on the relative fair value
of the subordinated note and warrant at the date of issuance. FirstSense was
amortizing the resulting original issuance discount over the life of the
subordinated note. As of December 31, 1999, the unamortized original issue
discount was $297,984. Immediately following the acquisition, the Company repaid
all amounts due under this agreement; upon the early extinguishment of this
debt, the Company recorded an extraordinary loss of approximately $216,000, net
of related tax benefit of approximately $72,000 in fiscal 2000.

     Pursuant to the terms of the related warrant agreement, certain of the
warrant's terms did not become fixed until the Company's acquisition of
FirstSense. The Company applied the applicable provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, and determined that no further value
should be attributed to the warrant. Concurrent with the closing of the
acquisition, the warrant holder exercised the warrant.

(5) STOCK OPTION PLANS

  (a) EMPLOYEE STOCK PURCHASE PLANS

     In July 1997, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan (the ESPP Plan). The Company has reserved 350,000 of its shares of
common stock for issuance under the ESPP Plan. Eligible employees may purchase
shares at 85% of the lower of average market price at the beginning or ending
date of each ESPP Plan payment period, as defined. During the years ended
December 31, 2001 and 2000, 232,441 and 80,788 shares were issued under the ESPP
Plan. As of December 31, 2001, 121 shares are available for future issuance
under the ESPP Plan.

     In October 2001, the Board of Directors adopted the 2001 Non-Executive
Employee Stock Purchase Plan (the NEESPP Plan). The Company has reserved 500,000
of its shares for issuance under the NEESPP Plan. Eligible employees may
purchase shares at 85% of the lower of average market price at the beginning or
ending date of each ESPP Plan payment period, as defined. Officers and directors
are not eligible employees under the NEESPP Plan. No shares have been issued
under this plan as of December 31, 2001 and 500,000 shares are available for
future issuance under the NEESPP Plan. At the next annual meeting of
stockholders

                                       F-14
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the Company, to be held on April 24, 2002, the Board of Directors is seeking
approval by the stockholders of the Company of its adoption of the NEESPP Plan.

  (b) STOCK OPTION PLANS

     The Company's 1995 Stock Option Plan (the 1995 Plan) has been terminated;
however, options issued under the 1995 Plan remain outstanding. The 1995 Plan
provided for the granting of both incentive stock options and nonqualified stock
options.

     In July 1997, the Board of Directors adopted the 1997 Stock Plan (the 1997
Plan), as amended, which permits granting of incentive and non-qualified stock
options as well as other stock rights to employees, officers, or consultants of
the Company and its subsidiaries at prices determined by the Board of Directors.
The 1997 Plan also permits direct purchases of stock by individuals also at
prices determined by the Board of Directors. Options become exercisable as
determined by the Board of Directors and expire up to 5 to 10 years from the
date of grant. The number of shares of common stock subject to issuance under
the 1997 Plan is 3,250,000. At December 31, 2001, 203,749 shares are available
for future grant under the 1997 Plan.

     In July 1997, the Board of Directors adopted the 1997 Non-employee Director
Stock Option Plan (the 1997 Director Plan), as amended. The 1997 Director Plan
provides for the granting of nonqualified stock options to members of the Board
of Directors who are not employees or officers of the Company. Options generally
vest over four years and expire up to 10 years from the date of grant. The
number of shares of common stock subject to issuance under the 1997 Director
Plan is 130,000. At December 31, 2001, 32,500 shares of common stock are
available for future grant under the 1997 Director Plan. In February 2002, the
Board of Directors adopted an amendment to the 1997 Director Plan increasing the
number of shares of common stock available for future grant thereunder by
200,000 to 330,000. At the next annual meeting of stockholders of the Company,
to be held on April 24, 2002, the Board of Directors is seeking approval by the
stockholders of the Company of its adoption of the amendment to the 1997
Director Plan.

     In March 2000, the Board of Directors adopted the 2000 Non-Executive
Employee Equity Incentive Plan (the 2000 Equity Incentive Plan). The 2000 Equity
Incentive Plan provides for the granting of nonqualified stock options, stock
bonuses, stock appreciation rights and other stock based awards to employees of
Concord who are not officers or directors of the Company. To date, only stock
options have been awarded under this plan. Options become exercisable as
determined by the Board of Directors and expire up to 10 years from the date of
grant. The number of shares of common stock reserved for issuance under the 2000
Equity Incentive Plan as of December 31, 2001 is 1,500,000. As of December 31,
2001, 457,020 shares are available for future grant under the 2000 Equity
Incentive Plan. In February 2002, the Board of Directors adopted an amendment to
the 2000 Equity Incentive Plan increasing the number of shares of common stock
reserved for issuance thereunder by 500,000 to 2,000,000 and the number of
shares of common stock available for future grant thereunder to 957,696.

     In accordance with SFAS No. 123, the Company accounts for stock-based
compensation for employees under APB Opinion No. 25, Accounting for Stock Issued
to Employees, using the intrinsic value method and has elected the
disclosure-only alternative under SFAS No. 123 for options granted using the
Black-Scholes option pricing model prescribed by SFAS No. 123.

                                       F-15
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The weighted average fair value per share of options granted during 2001,
2000 and 1999 was $7.64, $11.86 and $30.51, respectively. The weighted average
assumptions are as follows:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                            ---------------------------
                                                             2001      2000      1999
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
Risk-free interest rate...................................       6%        6%        6%
Expected dividend yield...................................       0%        0%        0%
Expected lives............................................  7 years   7 years   7 years
Expected volatility.......................................      89%      190%       82%
</Table>

     Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net (loss) income and basic, diluted and pro forma
diluted net (loss) income per common and potential common share would have been
as follows:

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                              -----------------------------------------
                                                  2001           2000          1999
                                              ------------   ------------   -----------
<S>                                           <C>            <C>            <C>
Net (loss) income applicable to common
  stockholders, as reported.................  $(11,153,563)  $  1,126,296   $ 6,070,071
                                              ============   ============   ===========
Pro forma net income (unaudited)............                                $ 5,923,746
                                                                            ===========
Net (loss) income applicable to common
  stockholders, pro forma...................  $(26,112,276)  $(14,655,373)  $(6,342,246)
                                              ============   ============   ===========
Pro forma net loss (unaudited), proforma....                                $(6,488,571)
                                                                            ===========
Net (loss) income per share available to
  common stockholders, as reported:
  Basic.....................................  $      (0.67)  $       0.07   $      0.42
                                              ============   ============   ===========
  Diluted...................................  $      (0.67)  $       0.07   $      0.36
                                              ============   ============   ===========
  Pro forma diluted (unaudited).............                                $      0.35
                                                                            ===========
Net (loss) income per share available to
  common stockholders, pro forma:
  Basic.....................................  $      (1.57)  $      (0.91)  $     (0.44)
                                              ============   ============   ===========
  Diluted...................................  $      (1.57)  $      (0.88)  $     (0.44)
                                              ============   ============   ===========
  Pro forma diluted (unaudited).............                                $     (0.45)
                                                                            ===========
</Table>

                                       F-16
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about options outstanding and
exercisable at December 31, 2001:

<Table>
<Caption>
                               OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                 -----------------------------------------------   ----------------------------
                                   WEIGHTED
                                   AVERAGE           WEIGHTED                       WEIGHTED
                  NUMBER OF       REMAINING          AVERAGE         NUMBER         AVERAGE
   RANGE OF        SHARES      CONTRACTUAL LIFE   EXERCISE PRICE    OF SHARES    EXERCISE PRICE
EXERCISE PRICE   OUTSTANDING      (IN YEARS)        PER SHARE      OUTSTANDING     PER SHARE
--------------   -----------   ----------------   --------------   -----------   --------------
<S>              <C>           <C>                <C>              <C>           <C>
$  0.10 - 4.10      124,430          3.75             $ 1.99          116,857        $ 1.99
   4.53 - 6.69      727,320          5.45               6.60          172,653          6.59
   6.81 - 9.34      412,375          6.69               8.65           10,629          7.75
  9.35 - 13.05      700,811          5.70              12.81               --            --
 13.19 - 21.56      488,465          5.37              18.58          243,049         19.24
 21.63 - 34.00      483,738          5.66              25.33          266,449         24.91
 34.13 - 52.63    1,192,561          5.49              43.27          711,316         44.04
 53.00 - 64.25       25,000          5.50              58.27           16,231         58.30
                  ---------                           ------        ---------        ------
                  4,154,700                           $22.15        1,537,184        $29.30
                  =========                           ======        =========        ======
</Table>

     The following table summarizes the activity under the stock options plans
for the three-year period ended December 31, 2001:

<Table>
<Caption>
                                                                               WEIGHTED
                                                                                AVERAGE
                                                     NUMBER OF    PRICE PER      PRICE
                                                      SHARES        SHARE      PER SHARE
                                                     ---------   -----------   ---------
<S>                                                  <C>         <C>           <C>
Outstanding at December 31, 1998...................  1,846,179   $0.10-56.75    $ 9.87
  Granted..........................................  1,907,624    1.66-64.25     41.37
  Exercised........................................   (538,648)   0.10-44.38      3.79
  Terminated.......................................   (112,971)   0.10-58.25     24.07
                                                     ---------   -----------    ------
Outstanding at December 31, 1999...................  3,102,184   $0.10-64.25    $29.78
  Granted..........................................  1,751,065    4.99-53.81     17.50
  Exercised........................................   (394,635)   0.10-36.38      3.53
  Terminated.......................................   (878,616)   0.10-62.81     33.07
                                                     ---------   -----------    ------
Outstanding at December 31, 2000...................  3,579,998   $0.10-64.25    $25.92
  Granted..........................................  1,263,761    5.38-18.49     11.37
  Exercised........................................   (113,808)   0.10-17.38      4.03
  Terminated.......................................   (575,251)   0.67-64.25     25.42
                                                     ---------   -----------    ------
Outstanding at December 31, 2001...................  4,154,700   $0.10-64.25    $22.15
                                                     =========   ===========    ======
Exercisable at December 31, 2001...................  1,537,184   $0.10-64.25    $29.30
                                                     =========   ===========    ======
Exercisable at December 31, 2000...................    970,982   $0.10-64.25    $30.51
                                                     =========   ===========    ======
Exercisable at December 31, 1999...................    455,364   $0.10-56.75    $10.74
                                                     =========   ===========    ======
</Table>

     Prior to the Company's acquisition of FirstSense, FirstSense recorded
deferred compensation of $150,274 and $3,417,025 in 2000 and 1999 respectively,
representing the difference between the exercise price of stock options granted
and the estimated fair market value of the underlying common stock at the date
of grant. The

                                       F-17
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

difference was recorded as deferred compensation and is being amortized over the
vesting period of applicable options, typically four years. Including amounts
applicable to prior Company grants, the Company amortized $319,834, $812,333 and
$547,170 of deferred compensation during the years ended December 31, 2001, 2000
and 1999, respectively.

     The amortization of deferred compensation is recorded as an operating
expense. Additionally, the Company reversed $948,499 and $1,235,581 of deferred
compensation in 2001 and 2000 due to the forfeiture of unvested stock options
upon the termination of certain employees.

     The exercise price of all other options outstanding represents the fair
market value per share of common stock as of the date of grant.

(6) REDEEMABLE CONVERTIBLE PREFERRED STOCK

     Prior to the combination with the Company, FirstSense had issued Series A
Redeemable Convertible Preferred Stock and Series B Redeemable Convertible
Preferred Stock. Concurrent with the acquisition of FirstSense by the Company
(Note 3), the Preferred Stockholders converted all of such shares into
FirstSense common stock; such common stock was then exchanged for 1,252,616
shares of the Company's common stock.

(7) INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This standard requires, among other things,
recognition of future tax effects, measured by enacted tax rates, attributable
to deductible temporary differences between the financial statement and income
tax bases of assets and liabilities.

     The approximate income tax effects of these temporary differences, net
operating loss and tax credit carryforwards are as follows:

<Table>
<Caption>
                                                           DECEMBER 31,   DECEMBER 31,
                                                               2001           2000
                                                           ------------   ------------
<S>                                                        <C>            <C>
Net operating loss and federal tax credit
  carryforwards..........................................  $ 14,108,000   $  9,111,000
Accruals not yet deductible for tax purposes.............     2,401,000      2,157,000
Depreciation.............................................       964,000        195,000
Deferred revenue.........................................     2,883,000      1,716,000
Capitalized research and development expenses............     1,499,000      1,696,000
Other....................................................        39,000         39,000
Valuation allowance......................................   (18,394,000)   (11,414,000)
                                                           ------------   ------------
                                                           $  3,500,000   $  3,500,000
                                                           ============   ============
</Table>

     The Company has available net operating loss carryforwards of approximately
$28,316,000 and federal research and development tax credit carryforwards of
approximately $2,782,000 as of December 31, 2001 to

                                       F-18
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reduce future income tax liabilities. These carryforwards are subject to review
and possible adjustment by the appropriate taxing authorities and expire from
2002 through 2021 as follows:

<Table>
<Caption>
                                                                              RESEARCH AND
                                                                               DEVELOPMENT
                                                         NET OPERATING LOSS    TAX CREDIT
FISCAL YEAR                                                CARRYFORWARDS      CARRYFORWARDS
-----------                                              ------------------   -------------
<S>                                                      <C>                  <C>
2002-2006..............................................     $   798,000        $  149,000
2007-2012..............................................       3,758,000           351,000
2013-2021..............................................      23,760,000         2,282,000
                                                            -----------        ----------
                                                            $28,316,000        $2,782,000
                                                            ===========        ==========
</Table>

     Pursuant to the Tax Reform Act of 1986, the utilization of net operating
loss (NOL) carryforwards for tax purposes may be subject to an annual limitation
if a cumulative change of ownership of more than 50% occurs over a three-year
period. At December 31, 2001, the utilization of approximately $2,309,000 of the
Company's NOL carryforwards are restricted to $330,000 per year as a result of
an ownership change that occurred in 1995. In addition, the utilization of
approximately $15,663,000 of NOL carryforwards that were acquired as a result of
the FirstSense acquisition is also restricted as a result of a prior ownership
change of FirstSense. Utilization of the FirstSense NOL carryforwards is limited
to $4.3 million per year.

     The Company has deferred tax assets of approximately $21,894,000, the
largest component of which represents NOL carryforwards and research and
development credits. The Company has partially reserved for these deferred tax
assets by recording a valuation allowance of $18,394,000. The resulting net
deferred tax asset is based on the Company's estimate of NOL carryforwards it
expects to use in the next two years; all other tax assets have been fully
reserved. Pursuant to paragraphs 20 to 25 of SFAS No. 109, the Company
considered both positive and negative evidence in assessing the need for a
valuation allowance at December 31, 2000 and 2001. The factors that weighed most
heavily on the Company's decision to record a valuation allowance were (i) the
substantial restrictions on the use of certain of its existing NOL and credit
carryforwards and (ii) the uncertainty of future profitability. In addition, the
Company is subject to rapid technological change, competition from substantially
larger competitors, a limited family of products and other related risks, as
more thoroughly described in the "Factors That Could Affect Future Results"
section of the Company's Form 10-K for the year ended December 31, 2001. As a
result, the Company found the evidence described above to be the most reliable
objective evidence available in determining that a valuation allowance against
its tax assets would be necessary.

     Pursuant to the provisions of SFAS No. 109, the Company used all of its
remaining unrestricted NOL and credit carryforwards in computing the 1998 tax
provision. As a part of the restatement of the Company's 1999 financial
statements to reflect the FirstSense acquisition, the Company determined that
approximately $3.0 million of valuation allowance previously recorded by
FirstSense prior to the acquisition was not necessary, given the Company's
estimates of future taxable income. Accordingly, pursuant to SFAS No. 109, the
Company recorded an asset and reduced its provision for income taxes in the
periods in which such NOL carryforwards were generated by FirstSense.

     As of December 31, 2001, the Company's NOL deferred tax asset includes
approximately $2,336,000 pertaining to the benefit associated with the exercise
and subsequent disqualifying disposition of incentive stock options by the
Company's employees. When and if the Company realizes this asset, the resulting
change in the valuation allowance will be credited directly to additional
paid-in capital, pursuant to the provisions of SFAS No. 109.

     During each of the years ended December 31, 2000 and 1999, the Company
received a tax benefit of approximately $469,000 and $4.9 million, respectively,
pursuant to the exercise of employee stock options. The Company recorded this
benefit as a component of additional paid-in capital. As a result of the loss
from

                                       F-19
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations, the Company did not record a tax benefit related to the exercise of
employee stock options during the year ended December 31, 2001.

     The components of the Company's tax provision (benefit) is as follows:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                    ----------------------------------
                                                      2001       2000         1999
                                                    --------   ---------   -----------
<S>                                                 <C>        <C>         <C>
Current
  Federal.........................................  $     --   $ 730,000   $ 4,194,500
  State...........................................    45,000     145,000     1,398,203
  Foreign.........................................   401,293          --            --
                                                    --------   ---------   -----------
     Total current................................   446,293     875,000     5,592,703
                                                    --------   ---------   -----------
Deferred
  Federal.........................................        --    (375,000)     (980,404)
  State...........................................        --    (125,000)     (326,790)
                                                    --------   ---------   -----------
     Total deferred...............................        --    (500,000)   (1,307,194)
                                                    --------   ---------   -----------
                                                    --------   ---------   -----------
Total income tax provision........................  $446,293   $ 375,000   $ 4,285,509
                                                    ========   =========   ===========
</Table>

     A reconciliation of the statutory federal tax rate to the Company's
effective rate is as follows:

<Table>
<Caption>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               2001      2000     1999
                                                              ------    ------    -----
<S>                                                           <C>       <C>       <C>
Statutory rate..............................................  (34.0)%    34.0%    34.0%
State tax rate, net of federal benefit......................   (6.1)      4.7      4.6
Foreign earnings taxed at different rates...................    3.1        --       --
Research and development tax credits........................     --     (76.3)    (6.3)
Benefit associated with the Extraterritorial Income
  Exclusion/foreign sales corporation.......................   (4.7)    (18.7)    (1.3)
Untaxed S-Corporation earnings..............................     --        --     (3.5)
Non-deductible meals and entertainment......................    2.1       8.7      2.3
Non-deductible transaction costs............................     --      81.1      5.2
Change in valuation allowance...............................   43.7     (15.7)    (5.1)
Other.......................................................     --       7.2     11.0
                                                              -----     -----     ----
                                                                4.1%     25.0%    40.9%
                                                              =====     =====     ====
</Table>

                                       F-20
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) COMMITMENTS AND CONTINGENCIES

  (a) LEASES

     The Company leases its facilities and certain equipment under lease
agreements expiring through June 2007. The Company's remaining lease commitments
for all leased facilities and equipment with an initial or remaining term of at
least one year as of December 31, 2001 are as follows:

<Table>
<Caption>
                                                                 AMOUNT
                                                               -----------
<S>                                                            <C>
2002........................................................   $ 3,722,658
2003........................................................     3,600,902
2004........................................................     3,372,370
2005........................................................     3,237,537
2006........................................................     2,040,301
2007........................................................       422,260
                                                               -----------
                                                               $16,396,028
                                                               ===========
</Table>

     Rent expense was approximately $4.4 million, $2.8 million and $2.6 million
for the years ended December 31, 2001, 2000 and 1999, respectively. Certain
operating leases are subject to cost escalations with the lease expense being
recorded on a straight-line basis and the difference being reflected as an
accrued liability. As of December 31, 2001 and 2000, this deferred rent
liability was $1,287,466 and $1,139,231, respectively.

  (b) ROYALTIES

     The Company has entered into several software license agreements that
provide the Company with exclusive worldwide licenses to distribute or utilize
certain patented computer software. The Company is required to pay royalties on
all related sales. Under one software license agreement, as amended, the Company
was obligated to make minimum quarterly royalty payments from 2000 through 2002.
The minimum payments are noncancelable and nonrefundable, but any minimum
payments in excess of amounts due for actual license sales in any quarter may be
used as a credit against future royalty fees in excess of the specified minimum
payments. Royalty expense under royalty agreements was approximately $440,000,
$300,000 and $1.0 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

  (c) LEGAL PROCEEDINGS

     From time to time, the Company may be exposed to litigation relating to its
products and operations. The Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's financial conditions or results of operations.

                                       F-21
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) ACCRUED EXPENSES

     Accrued expenses consist of the following:

<Table>
<Caption>
                                                             DECEMBER 31,   DECEMBER 31,
                                                                 2001           2000
                                                             ------------   ------------
<S>                                                          <C>            <C>
Payroll and payroll-related................................  $ 5,519,013    $ 4,430,328
Deferred rent..............................................    1,287,466      1,139,231
Sales and marketing related................................    2,078,957        644,611
Taxes payable..............................................      691,007        438,696
Travel expenses............................................      661,044        581,979
Other......................................................    3,041,338      3,694,076
                                                             -----------    -----------
                                                             $13,278,825    $10,928,921
                                                             ===========    ===========
</Table>

(10) EMPLOYEE BENEFIT PLAN

     The Company maintains an employee benefit plan under Section 401(k) of the
Internal Revenue Code covering all eligible employees, as defined. The Plan
allows for employees to defer a portion of their salary up to 15% of pretax
compensation. The Company made a discretionary matching contribution up to a
maximum of 2% of employee salaries for a total of $695,000 in 2001, which was
primarily contributed during 2001. The Company accrued a $200,000 discretionary
contribution to the plan in 2000, which was paid in 2001; no such contributions
were made in 1999.

(11) VALUATION AND QUALIFYING ACCOUNTS

     The following table sets forth activity in the Company's accounts
receivable reserve account:

<Table>
<Caption>
                                         BALANCE AT
                                         BEGINNING    CHARGES TO               BALANCE AT
                                          OF YEAR      EXPENSE     WRITEOFFS   END OF YEAR
                                         ----------   ----------   ---------   -----------
<S>                                      <C>          <C>          <C>         <C>
1999...................................  $  463,060    $508,430    $      --   $  971,490
2000...................................  $  971,490    $756,000    $(201,525)  $1,525,965
2001...................................  $1,525,965    $711,296    $(827,426)  $1,409,835
</Table>

(12) SEGMENT REPORTING AND INTERNATIONAL INFORMATION

     The Company follows the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for reporting information regarding operating segments in annual
financial statements and requires selected information for those segments to be
presented in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in
making decisions on how to allocate resources and assess performance. The
Company's chief decision-making group, as defined under SFAS No. 131, is the
Executive Management Committee, which is comprised of the President and Chief
Executive Officer, the Executive Vice President of Business Services and Chief
Financial Officer, the Executive Vice President of Business Development, the
Executive Vice President of Engineering and Chief Technology Officer, the
Executive Vice President of Worldwide Sales and Technical Services, and the
Executive Vice President of Marketing. The Company records revenue by geographic
segment based on the location of each of the Company's sales offices.

                                       F-22
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents the revenue by major geographical regions (in
thousands):

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
United States...........................................  $54,746   $62,015   $54,924
Europe..................................................   20,142    17,290     9,084
Rest of the world.......................................   13,090    12,179     4,812
                                                          -------   -------   -------
Total...................................................  $87,978   $91,484   $68,820
                                                          =======   =======   =======
</Table>

     No one country, except the United States, accounted for greater than 10% of
total revenues in the years ended December 31, 2001, 2000 or 1999. Substantially
all of the Company's assets are located in the United States.

     The Company's reportable segments are determined by customer type: managed
service providers/ telecommunication carriers (MSP/TC) and enterprise. The
accounting policies of the segments are the same as those described in Note 1.
The Executive Management Committee evaluates segment performance based on
revenue. Accordingly, all expenses are considered corporate level activities and
are not allocated to segments. Also, the Executive Management Committee does not
assign assets to these segments.

     The following table presents the revenue by reportable segment (in
thousands):

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
MSP/TC..................................................  $39,182   $40,219   $18,620
Enterprise..............................................   48,796    51,265    50,200
                                                          -------   -------   -------
Total...................................................  $87,978   $91,484   $68,820
                                                          =======   =======   =======
</Table>

(13) ASSET IMPAIRMENT CHARGE

     The Company acquired a $3 million equity interest in Broadband Investment
Group (Broadband) in September 2000 in exchange for the Company's products and
services. In November 2000, Broadband publicly announced that it was ceasing
operations and liquidating its remaining assets following its inability to raise
additional capital due to unfavorable market conditions. As a result, the
Company recorded a charge for approximately $2.3 million to write off its
investment in Broadband. The remainder of the carrying value of Broadband's
investments was reversed against related deferred revenue for services not yet
rendered.

(14) SUPPLEMENTAL FINANCIAL DISCLOSURE

<Table>
<Caption>
                                                  Q1-01      Q2-01      Q3-01      Q4-01
                                                 --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                (UNAUDITED)
<S>                                              <C>        <C>        <C>        <C>
Revenue........................................  $20,431    $21,614    $21,840    $24,093
Gross profit...................................   15,470     17,218     17,737     19,737
Net (loss) income..............................   (5,365)    (3,446)    (2,371)        28
Per common and potential common share:
  Basic net (loss) income......................  $ (0.32)   $ (0.21)   $ (0.14)   $    --
  Diluted net (loss) income....................  $ (0.32)   $ (0.21)   $ (0.14)   $    --
Shares used in computing basic net (loss)
  income per share.............................   16,561     16,672     16,700     16,798
Shares used in computing diluted net (loss)
  income per share.............................   16,561     16,672     16,700     17,579
</Table>

                                       F-23
<PAGE>
                          CONCORD COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                  Q1-00      Q2-00      Q3-00      Q4-00
                                                 --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                (UNAUDITED)
<S>                                              <C>        <C>        <C>        <C>
Revenue........................................  $19,268    $22,810    $23,389    $26,016
Gross profit...................................   16,842     20,165     19,506     21,800
(Loss) income before extraordinary items.......   (1,495)     2,450        909       (513)
Net (loss) income..............................   (1,711)     2,450        909       (513)

Per common and potential common share:
  Basic (loss) income before extraordinary
     items.....................................  $ (0.10)   $  0.15    $  0.06    $ (0.03)
  Diluted (loss) income before extraordinary
     items.....................................  $ (0.10)   $  0.15    $  0.05    $ (0.03)
  Basic net (loss) income......................  $ (0.11)   $  0.15    $  0.06    $ (0.03)
  Diluted net (loss) income....................  $ (0.11)   $  0.15    $  0.05    $ (0.03)
Shares used in computing basic net (loss)
  income per share.............................   15,437     16,286     16,358     16,494
Shares used in computing diluted net (loss)
  income per share.............................   15,437     16,741     16,781     16,494
</Table>

                                       F-24
<PAGE>

                          CONCORD COMMUNICATIONS, INC.

                          FORM 10-K, DECEMBER 31, 2001

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 8th day of March 2002.

                                          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)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                    SIGNATURE                                      TITLE                       DATE
                    ---------                                      -----                       ----
<S>     <C>                                          <C>                                  <C>

               /s/ JOHN A. BLAESER                   Chief Executive Officer, President    March 8, 2002
 ------------------------------------------------    and Director (Principal Executive
                 John A. Blaeser                                  Officer)


               /s/ MELISSA H. CRUZ                   Executive Vice President, Business    March 8, 2002
 ------------------------------------------------    Services, Chief Financial Officer
                 Melissa H. Cruz                         and Treasurer, (Principal
                                                     Financial and Accounting Officer)


           /s/ FREDERICK W.W. BOLANDER                            Director                 March 8, 2002
 ------------------------------------------------
             Frederick W.W. Bolander


            /s/ RICHARD M. BURNES, JR.                            Director                 March 8, 2002
 ------------------------------------------------
              Richard M. Burnes, Jr.


                 /s/ DEEPAK KAMRA                                 Director                 March 8, 2002
 ------------------------------------------------
                   Deepak Kamra


             /s/ ROBERT M. WADSWORTH                              Director                 March 8, 2002
 ------------------------------------------------
               Robert M. Wadsworth
</Table>
<PAGE>

                                 EXHIBIT INDEX

     The following designated exhibits are either filed herewith or, where
information is provided under the SEC Document Reference heading corresponding
to such exhibit, incorporated by reference to such filing

<Table>
<Caption>
EXHIBIT
  NO.                    DESCRIPTION                          SEC DOCUMENT REFERENCE
-------                  -----------                          ----------------------
<C>       <S>                                        <C>
  3.01    Restated Articles of Organization of the   Exhibit No. 3.01 on Form 10-K, for the
          Company                                    period ended December 31, 1997
  3.02    Restated By-laws of the Company            Exhibit No. 3.02 on Form 10-K, for the
                                                     period ended December 31, 1998
 10.01    Working Capital Loan Agreement between     Exhibit No. 10.01 to Registration
          the Company and Silicon Valley Bank dated  Statement on Form S-1 (No. 333-33227)
          April 3, 1997
 10.02    Revolving Promissory Note made by the      Exhibit No. 10.02 to Registration
          Company in favor of Silicon Valley Bank    Statement on Form S-1 (No. 333-33227)
 10.03    Equipment Line of Credit Letter Agreement  Exhibit No. 10.03 to Registration
          between the Company and Fleet Bank dated   Statement on Form S-1 (No. 333-33227)
          as of June 9, 1997
 10.04    1995 Stock Plan of the Company             Exhibit No. 10.04 to Registration
                                                     Statement on Form S-1 (No. 333-33227)
 10.05    1997 Stock Plan of the Company             Exhibit No. 10.01 on Form 10-Q, for the
                                                     period ended June 30, 1998
 10.06    1997 Stock Plan of the Company, as         Exhibit No. 10.06 on Form 10-K, for the
          amended on March 12, 1998, March 1, 1999,  period ended December 31, 2000
          May 15, 1999 and March 8, 2000
 10.07    1997 Employee Stock Purchase Plan of the   Exhibit No. 10.06 to Registration
          Company                                    Statement on Form S-1 (No. 333-33227)
*10.08    1997 Non-Employee Director Stock Option
          Plan as amended on March 8, 2000 and
          April 25, 2001
 10.09    The Profit Sharing/401(K) Plan of the      Exhibit No. 10.08 to Registration
          Company                                    Statement on Form S-1 (No. 333-33227)
 10.10    Lease Agreement between the Company and    Exhibit No. 10.09 to Registration
          John Hancock Mutual Life Insurance         Statement on Form S-1 (No. 333-33227)
          Company dated March 17, 1994, as amended
          on March 25, 1997
 10.11    First Amendment to Lease Agreement         Exhibit No. 10.10 to Registration
          between the Company and John Hancock       Statement on Form S-1 (No. 333-33227)
          Mutual Life Insurance Company dated March
          25, 1997
 10.12    Form of Indemnification Agreement for      Exhibit No. 10.11 to Registration
          directors and officers of the Company      Statement on Form S-1 (No. 333-33227)
 10.13    Restated Common Stock Registration Rights  Exhibit No. 10.12 to Registration
          Agreement between the Company and certain  Statement on Form S-1 (No. 333-33227)
          investors dated August 7, 1986
 10.14    Amended and Restated Registration Rights   Exhibit No. 10.13 to Registration
          Agreement between the Company and certain  Statement on Form S-1 (No. 333-33227)
          investors dated December 28, 1995
</Table>
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                    DESCRIPTION                          SEC DOCUMENT REFERENCE
-------                  -----------                          ----------------------
<C>       <S>                                        <C>
 10.15    Management Change in Control Agreement     Exhibit No. 10.14 to Registration
          between the Company and John A. Blaeser    Statement on Form S-1 (No. 333-33227)
          dated as of August 7, 1997
 10.16    Management Change in Control Agreement     Exhibit No. 10.15 to Registration
          between the Company and Kevin J. Conklin   Statement on Form S-1 (No. 333-33227)
          dated as of July 23, 1997
 10.17    Management Change in Control Agreement     Exhibit No. 10.16 to Registration
          between the Company and Ferdinand Engel    Statement on Form S-1 (No. 333-33227)
          dated as of July 23, 1997
 10.18    Management Change in Control Agreement     Exhibit No. 10.17 to Registration
          between the Company and Gary E. Haroian    Statement on Form S-1 (No. 333-33227)
          dated as of July 23, 1997
 10.19    Management Change in Control Agreement     Exhibit No. 10.18 on Form 10-Q filed on
          between the Company and Melissa H. Cruz    August 14, 2000
          dated as of June 12, 2000
 10.20    Management Change in Control Agreement     Exhibit No. 10.18 to Registration
          between the Company and Daniel D.          Statement on Form S-1 (No. 333-33227)
          Phillips, Jr. dated as of July 23, 1997
 10.21    Stock Option Agreement dated January 1,    Exhibit No. 10.19 to Registration
          1996 between the Company and John A.       Statement on Form S-1 (No. 333-33227)
          Blaeser
 10.22    Stock Option Agreement dated January 1,    Exhibit No. 10.20 to Registration
          1996 between the Company and John A.       Statement on Form S-1 (No. 333-33227)
          Blaeser
 10.23    Letter Agreement between the Company and   Exhibit No. 10.21 to Registration
          Silicon Valley Bank dated March 25, 1996   Statement on Form S-1 (No. 333-33227)
          together with the Loan Modification
          Agreement dated November 14, 1996
 10.24    Form of Shrink-Wrap License                Exhibit No. 10.22 to Registration
                                                     Statement on Form S-1 (No. 333-33227)
 10.25    Agreement and Plan of Reorganization       Exhibit No. 2.1 on Form 8-K filed on
          dated as of October 19, 1999 by and among  November 12, 1999
          Concord Communications, Inc., E
          Acquisition Corp., Empire Technologies,
          Inc. and the stockholders of Empire
          Technologies, Inc.
 10.26    Agreement and Plan of Reorganization       Exhibit No. 2.1 on Form 8-K filed on
          dated as of January 20, 2000 by and among  February 10, 2000
          Concord Communications, Inc., F
          Acquisition Corp., and FirstSense
          Software, Inc.
 10.27    Registration Rights Agreement dated as of  Exhibit No. 99.1 on Form 8-K filed on
          February 4, 2000 by and among Concord      February 10, 2000
          Communications, Inc. and Timothy Barrows,
          as Securityholder Agent
 10.28    2000 Non-Executive Employee Equity         Exhibit 10.28 on Form 10-K, for the
          Incentive Plan                             period ended December 31, 2000
 10.29    Management Change in Control Agreement     Exhibit No. 10.29 on Form 10-Q filed on
          between the Company and Ellen Kokos dated  May 9, 2001
          as of February 2, 2001
</Table>
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                    DESCRIPTION                          SEC DOCUMENT REFERENCE
-------                  -----------                          ----------------------
<C>       <S>                                        <C>
 10.30    Management Change in Control Agreement     Exhibit No. 10.30 on Form 10-Q filed July
          between the Company and John F. Hamilton   31, 2001
          dated as of April 16, 2001
 10.31    2001 Non-Executive Employee Stock          Exhibit No. 10.31 on Form 10-Q filed on
          Purchase Plan                              November 5, 2001
*21.01    Subsidiaries of the Company
*23.01    Consent of Arthur Andersen LLP
*23.02    Consent of KPMG LLP
</Table>

---------------

* filed herewith