CONCUR TECHNOLOGIES INC, 10-Q, 2000-08-14

CONCUR TECHNOLOGIES INC
10-Q, 2000-08-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2000 Commission file number: 0-25137

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CONCUR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)

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

6222 185th Avenue NE
Redmond, Washington 98052
(Address of principal executive offices)

(425) 702-8808
(Registrant's telephone number, including area code)

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

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 [_]

As of July 31, 2000, there were 24,988,118 shares of the Registrant's
Common Stock outstanding.

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<PAGE>

CONCUR TECHNOLOGIES, INC.

FORM 10-Q
JUNE 30, 2000

INDEX

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

. Consolidated Balance Sheets as of June 30, 2000 and September 30, 1999......................... 3

. Consolidated Statements of Operations for the three and nine months ended June 30,
2000 and 1999.................................................................................. 4

. Consolidated Statement of Stockholders' Equity for the nine months ended June 30,
2000........................................................................................... 5

. Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 and
1999........................................................................................... 6

. Notes to Consolidated Financial Statements..................................................... 7

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 12

ITEM 3. Qualitative and Quantitative Disclosures About Market Risk.......................................... 31

PART II. OTHER INFORMATION

ITEM 5. Other Information................................................................................... 34

ITEM 6. Exhibits and Reports on Form 8-K.................................................................... 34
</TABLE>

2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CONCUR TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------ -------------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................................... $ 38,475 $ 59,815
Marketable securities................................................................... 33,411 48,907
Accounts receivable, net of allowance for doubtful accounts of $1,103 and $870 at
June 30, 2000 and September 30, 1999, respectively.................................... 9,153 9,020
Prepaid expenses and other current assets............................................... 2,624 1,110
Notes receivable from stockholders...................................................... 167 333
-------- --------
Total current assets.................................................................. 83,830 119,185
Equipment and furniture, net............................................................. 11,660 7,087
Deposits and other assets................................................................ 1,328 1,829
Notes receivable from stockholders, net of current portion............................... - 167
Capitalized technology and other intangible assets, net.................................. - 560
-------- --------
Total assets............................................................................. $ 96,818 $128,828
======== ========

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable........................................................................ $ 2,393 $ 5,323
Accrued liabilities..................................................................... 9,526 11,809
Accrued commissions..................................................................... 862 1,452
Current portion of accrued payment to stockholders...................................... 167 333
Current portion of long-term debt....................................................... 3,329 3,762
Current portion of capital lease obligations............................................ 2,514 1,869
Deferred revenues....................................................................... 4,534 4,011
-------- --------
Total current liabilities............................................................. 23,325 28,559
-------- --------

Accrued payment to stockholders, net of current portion.................................. - 167
Long-term debt, net of current portion................................................... 1,480 3,890
Capital lease obligations, net of current portion........................................ 1,409 2,269
Deferred rental expense.................................................................. 159 169
Commitments.............................................................................. - -

Stockholders' equity:
Preferred stock, par value $0.001 per share, 5,000,000 shares authorized, no shares
issued or outstanding................................................................. - -
Common stock, par value $0.001 per share, 60,000,000 shares authorized; 24,973,005 and
22,693,022 shares issued and outstanding at June 30, 2000 and September 30,
1999, respectively.................................................................... 222,535 184,943
Deferred stock compensation............................................................. (223) (1,439)
Accumulated deficit..................................................................... (151,867) (89,730)
-------- --------
Total stockholders' equity............................................................ 70,445 93,774
-------- --------
Total liabilities and stockholders' equity............................................... $ 96,818 $128,828
======== ========
</TABLE>

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

3
<PAGE>

CONCUR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues, net:
Licenses....................................... $ 309 $ 7,611 $ 10,692 $ 18,778
Services....................................... 5,632 3,582 15,092 9,229
-------- -------- -------- --------
Total revenues............................... 5,941 11,193 25,784 28,007

Cost of revenues:
Licenses....................................... 592 174 1,109 747
Services....................................... 6,299 4,501 18,858 11,543
-------- -------- -------- --------
Total cost of revenues........................... 6,891 4,675 19,967 12,290
-------- -------- -------- --------
Gross profit (loss).............................. (950) 6,518 5,817 15,717

Operating expenses:
Sales and marketing............................ 10,767 7,938 30,465 21,297
Research and development....................... 7,658 5,208 26,010 13,264
General and administrative..................... 4,847 3,111 11,815 7,455
Merger and acquisition cost.................... (1,240) 8,859 (1,240) 8,859
Restructuring charges.......................... 3,407 - 3,407 -
-------- ------- -------- --------
Total operating expenses..................... 25,439 25,116 70,457 50,875
-------- -------- -------- --------

Loss from operations............................. (26,389) (18,598) (64,640) (35,158)
Interest income................................. 1,286 1,378 3,752 2,261
Interest expense................................ (358) (438) (1,098) (1,174)
Other expense, net.............................. (32) (80) (151) (192)
-------- -------- -------- --------
Net loss......................................... $(25,493) $(17,738) $(62,137) $(34,263)
======== ======== ======== ========

Basic and diluted net loss per share............. $ (1.03) $ (0.86) $ (2.63) $ (2.29)
======== ======== ======== ========

Weighted average shares used in calculation of
basic and diluted net loss per share........... 24,854 20,539 23,634 14,948
======== ======== ======== ========
</TABLE>

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

4
<PAGE>

CONCUR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)

<TABLE>
<CAPTION>
Common Stock
---------------------
Deferred Total
Stock Accumulated Stockholders'
Shares Amount Compensation Deficit Equity
----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1999............ 22,693,022 $184,943 $ (1,439) $ (89,730) $ 93,774

Issuance of common stock, net of
offering costs......................... 1,503,500 34,915 - - 34,915

Issuance of common stock in connection
with Employee Share Purchase Plan...... 384,658 2,826 - - 2,826

Issuance of common stock from net exercise
of common stock warrants............... 93,785 - - - -

Issuance of common stock from exercise of
stock options.......................... 298,040 350 - - 350

Amortization of deferred stock
compensation........................... - - 717 - 717

Adjustment to deferred stock compensation
for options cancelled upon employee
terminations........................... - (499) 499 - -

Net loss................................. - - - (62,137) (62,137)
---------- -------- -------- --------- ---------
Balance at June 30, 2000................ 24,973,005 $222,535 $ (223) $(151,867) $ 70,445
========== ======== ======== ========= =========
</TABLE>

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

5
<PAGE>

CONCUR TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
2000 1999
---------- ---------
<S> <C> <C>
Operating activities:
Net loss....................................................................... $(62,137) $(34,263)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of acquired in-process technology................................ 240 240
Amortization of deferred stock compensation................................... 717 1,200
Depreciation.................................................................. 4,190 1,308
Provision for bad debts....................................................... 1,604 360
Restructuring charge.......................................................... 1,054 -
Merger and acquisition costs.................................................. (1,240) -
Changes in operating assets and liabilities:
Accounts receivable........................................................... (1,737) (3,743)
Prepaid expenses and other current assets..................................... (1,514) (353)
Deposits and other assets..................................................... 501 (1,746)
Accounts payable.............................................................. (2,930) 3,474
Accrued liabilities and accrued commissions................................... (2,113) 12,040
Deferred revenues............................................................. 523 803
-------- -------
Net cash used in operating activities.......................................... (62,842) (20,680)
-------- -------

Investing activities:
Purchase of marketable securities.............................................. (38,504) (73,845)
Maturity of marketable securities.............................................. 54,000 9,000
Purchases of equipment and furniture........................................... (7,418) (1,559)
-------- -------
Net cash provided (used) in investing activities............................... 8,078 (66,404)
-------- -------

Financing activities:
Net proceeds from public stock offerings....................................... - 119,603
Net proceeds from private stock offering....................................... 34,915 -
Proceeds from issuance of common stock from exercise of stock options.......... 350 162
Proceeds from exercise of preferred stock warrants............................. - 2,616
Issuance of convertible preferred stock........................................ - 9,434
Issuance of common stock in connection with Employee Share Purchase Plan....... 2,826 566
Proceeds from borrowings....................................................... - 4,817
Payments on borrowings......................................................... (2,843) (2,677)
Payments on capital leases..................................................... (1,824) (839)
Loan repayment for stock purchases............................................. - 110
-------- -------
Net cash provided by financing activities...................................... 33,424 133,792
-------- -------

Net increase (decrease) in cash and cash equivalents........................... (21,340) 46,708
Cash and cash equivalents at beginning of period............................... 59,815 17,058
-------- -------
Cash and cash equivalents at end of period..................................... $ 38,475 $63,766
======== =======

Supplemental disclosure of cash flow information:
Cash paid for interest........................................................ $ 1,006 $ 847
Equipment and furniture obtained through capital leases....................... $ 1,609 $ 1,590
Adjustment to deferred stock compensation for options cancelled
on employee termination...................................................... $ 499 $ -
Conversion of preferred stock and preferred stock warrants into
common stock and common stock warrants...................................... $ - $53,595
Conversion of note payable to stockholders and related
accrued interest to redeemable convertible preferred stock.................. $ - $ 2,566
</TABLE>

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

6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2000
(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of the Company

Concur Technologies, Inc. ("Concur" or the "Company") is a leading provider
of Corporate Expense Management software and services that automates the entire
expense management process. The Company provides a suite of Corporate Expense
Management solutions, including the Company's flagship expense management
solution, Concur Expense(TM), and applications for travel booking and processing
employee requests for vendor payments. Concur's Corporate Expense Management
solutions are available as licensed applications or as application service
provider ("ASP") products and are available for businesses of all sizes. In
addition, the Company offers Concur Human Resources(TM), an Internet-based
employee and manager self-service application focused on human resources, which
is available as a licensed solution. The Company was originally incorporated in
the State of Washington on August 19, 1993 and reincorporated in the State of
Delaware on November 25, 1998. Operations commenced during 1994.

Unaudited Interim Financial Information

The financial information as of June 30, 2000, and for the three and nine
months ended June 30, 2000 and 1999, is unaudited, but includes all adjustments
(consisting of normal recurring adjustments) that the Company considers
necessary for a fair presentation of its financial position at such dates and
its operations and cash flows for the periods then ended. The financial
statements should be read in conjunction with the financial statements and notes
thereto for the fiscal year ended September 30, 1999, included in the Company's
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
("SEC"). Operating results for the three and nine months ended June 30, 2000,
are not necessarily indicative of results that may be expected for the entire
fiscal year.

The balance sheet at September 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.

Recently Issued Accounting Standards

In December 1999, the SEC released Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements", which summarizes the SEC's
views on applying generally accepted accounting principles to revenue
recognition and the related costs of those revenues. SAB 101 will not be
effective for the Company until the fiscal year beginning October 1, 2000. The
Company has reviewed the requirements of SAB 101 and believes its policies on
revenue recognition and related costs of those revenues are in compliance with
this new standard. Therefore, the Company does not believe that SAB 101 will
have a significant impact on its financial position or results or operations.
However, the Company will continue to review new interpretations of the standard
as they become available and will make adjustments in internal policy as they
become appropriate.

7
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements as of June 30, 2000 and for the
three and nine months ended June 30, 2000 and 1999, include the accounts of the
Company and its wholly owned subsidiaries, Concur Technologies (UK) Ltd., Concur
Technologies Pty. Limited, and Seeker Software, Inc. ("Seeker Software"). Seeker
Software was dissolved effective March 28, 2000. All significant intercompany
accounts and transactions are eliminated in consolidation.

NOTE 3. STRATEGIC RELATIONSHIPS AND STOCK PURCHASE AGREEMENT

On February 22, 2000, Concur entered into a Stock Purchase Agreement with
SAFECO Corporation and Nortel Networks, Inc. for the purchase of 1,073,929 and
429,571 shares, respectively, of Concur's common stock at a purchase price of
$23.28 per share. In connection with the Stock Purchase Agreement, Concur also
entered into strategic marketing and distribution agreements with SAFECO Life
Insurance Company ("SAFECO") and Nortel Networks Corporation ("Nortel") under
which SAFECO and Nortel will resell Concur's ASP products through their
respective distribution networks and will undertake joint marketing activities
with Concur to promote Concur's ASP products. Revenues generated from the joint
marketing activities will be shared between Concur and the respective reseller.
These strategic relationships also provide for the establishment and delivery of
products and services to meet the purchasing needs of the rapidly expanding
small and mid-size company market segment through Concur's ASP solution.

Under the terms of these agreements, Concur has granted SAFECO and Nortel
warrants to purchase up to 3,750,000 and 1,500,000 shares of common stock,
respectively. For each of these warrant holders, the warrants become exercisable
if such holder achieves certain annual milestones relating to revenue, derived
in connection with the partnering arrangements described above over the next
five years. The exercise price will be the greater of $30.26 or fifty percent of
the fair value of the common stock price on prescribed dates. In the event these
milestones are achieved or the achievement becomes probable, Concur may be
required to record a significant non-cash sales and marketing expense throughout
the remaining related service period to the extent that the fair value of the
common stock exceeds the exercise price of the warrants at that time. Concur has
not recorded an expense associated with these agreements to date and is
uncertain whether these milestones will be achieved in the future. In addition,
from time to time Concur may enter into similar arrangements with, and issue
additional warrants to, other third parties that could require the Company to
record significant non-cash expenses based upon the value of such warrants.
Effective upon the closing of the sale of the common shares, a representative of
SAFECO was elected to serve on the Company's Board of Directors.

NOTE 4. BUSINESS RESTRUCTURING AND SALES RETURNS ACCRUAL

On June 8, 2000, the Company announced a new operating plan to focus on
providing solutions to meet the needs of the Corporate Expense Management
market. The decision to implement the new operating plan was based on two
primary factors. First, as the business process automation market expanded and
became more competitive, the Company realized the need to reevaluate its
business in order to balance the needs and requests of its customers with its
available management and financial resources. As a result, the Company made a
strategic decision to focus its resources on Corporate Expense Management. The
second factor was the recent shift in the Company's revenue model, which
contributed to the Company's cost and expense structure to be out of alignment
with its revenue and cash stream. The Company's new operating plan is designed
to reduce costs and bring expenses in line with this change in the marketplace.

8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Under the new operating plan, as part of its efforts to narrow the scope of
its business to focus primarily on Corporate Expense Management, the Company
implemented several changes. First, the Company discontinued Concur
Procurement(TM), its corporate procurement application and terminated the Concur
Commerce Network. Second, the Company separated its Concur Human Resources
application suite into an independent unit with its own strategic and
operational focus. Third, in conjunction with the Company's distribution channel
partners, SAFECO and Nortel, the Company plans to establish and deliver products
and services to meet the purchasing needs of the rapidly expanding small and
mid-size company market segment through its ASP solution.

Based on the decision to discontinue Concur Procurement, the Company
recorded a charge of $2.2 million against revenues in the three months ended
June 30, 2000 for estimated returns of this product. This charge is reflected as
a reduction in current period revenues. Because the decision to discontinue
Concur Procurement and the related announcement were in the latter part of the
third quarter, there is a possibility that net revenue could be negatively
impacted in future quarters by returns in excess of the Company's current
estimates. At June 30, 2000, the effect of sales returns and allowances on gross
revenues was as follows:

<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
2000 1999 2000 1999
-------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
License revenues $ 2,509 $ 7,611 $ 12,892 $ 18,778
Service revenues 5,632 3,582 15,092 9,229
--------- --------- ---------- -----------
Gross revenues 8,141 11,193 27,984 28,007
Sales returns and allowances (2,200) - (2,200) -
--------- --------- ---------- -----------
Net revenues $ 5,941 $11,193 $ 25,784 $ 28,007
========= ========= ========== ===========
</TABLE>

Additionally, the Company recorded a $3.4 million restructuring charge in
the three months ended June 30, 2000 as a result of its decision to restructure
its business and implement its new operating plan. Of the $3.4 million
restructuring charge recorded in the current quarter, approximately $1.8 million
remained as an accrued liability at June 30, 2000.

The following is an analysis of the restructuring charge by category:

<TABLE>
<CAPTION>
Amounts Paid Accrued
Restructuring or Charged as Balance at
Description Charge of June 30 June 30
----------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Severance and termination benefits $ 1,661 $ 495 $ 1,166

Intangible asset write-offs 800 800 -
Abandoned facilities and
equipment costs 328 256 72
Discontinued product marketing
commitments 272 36 236

Other 346 10 336
--------------- --------------- ---------------
$ 3,407 $ 1,597 $ 1,810
=============== =============== ===============
</TABLE>

9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As part of the new operating plan, the Company announced a workforce
reduction of 68 employees, which represented approximately 13 percent of the
Company's employee base and included employees from all areas of the Company. In
addition to the reduction in employee headcount, the Company also reduced its
utilization of contract labor. Approximately 30 percent of the costs associated
with the workforce reduction were paid or charged against the liability in the
three months ended June 30, 2000. The remaining accrued balance for severance
and termination benefits at June 30, 2000, is expected to be paid over the next
12 months. Approximately 60 of the 68 employees had been terminated at June 30,
2000, and the remaining employees will be transitioning their responsibilities
over the next several months.

Other expenses associated with the Company's new operating plan consist of
the write-off of intangible assets relating to the Company's procurement
technology acquired in connection with its June 1998 acquisition of 7Software,
Inc. ("7 Software"), costs associated with the abandonment of facilities and
equipment due to its workforce reduction, and estimated costs to terminate
product marketing programs resulting from the Company's decision to discontinue
Concur Procurement. All remaining costs accrued at June 30, 2000, are expected
to be paid over the next 12 months.

NOTE 5. MERGER AND ACQUISITION COSTS

On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999, among
the Company and Seeker Software, the Company acquired all of the outstanding
capital of Seeker Software. In conjunction with the merger, the Company recorded
a charge to operating expenses of approximately $8.9 million for estimated
direct and other merger-related costs pertaining to the transaction in the three
months ended June 30, 1999. Acquisition costs consisted primarily of financial
advisor fees for both companies, attorneys, accountants, financial printing and
other related charges. The Company periodically reviews accounting estimates
such as these, and related accruals and, when appropriate, makes changes to
reflect new estimates. During the three months ended June 30, 2000, the Company
revised its estimate of these expenses resulting in a decrease in the net loss
of $1.2 million.

NOTE 6. RELATED PARTY TRANSACTION

During the three months ended March 31, 2000, the Company recorded $2.0
million in revenue from an agreement to license Concur Expense, Concur
Procurement, and Concur Human Resources to a stockholder of the Company. As a
result of the Company's decision to discontinue Concur Procurement, the
stockholder returned Concur Procurement and the Company refunded $1.1 million
for the return of this software. This refund was recorded as a reduction in
revenues for the three months ended June 30, 2000.

NOTE 7. NET LOSS PER SHARE, STOCK OPTIONS AND WARRANTS

Basic and diluted net loss per common share is calculated by dividing the
net loss by the weighted average number of shares outstanding.

10
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Following the Company's announcement of its operating plan, on June 9, 2000
the Company granted options to purchase 2,253,605 shares of common stock to
employees at an exercise price of $5.00 per share. These options vest over a
period of 2 1/2 years subject to acceleration based upon the Company achieving
certain financial targets in the future. For the nine months ended June 30,
2000, 4,710,080 options were granted, 298,040 options were exercised, and
1,066,037 options were cancelled. Options to purchase 6,915,140 shares of common
stock with a weighted average exercise price of $10.57 per share were
outstanding at June 30, 2000.

At June 30, 2000, there were warrants outstanding to purchase 6,650,000
shares of common stock. Of these warrants, 1,400,000 are exercisable at prices
ranging from $50.625 and $85.00 per share, with a weighted average exercise
price of $67.81 per share. Pursuant to existing agreements, the remaining
warrants for 5,250,000 shares will become exercisable based on achieving certain
annual milestones for revenue over the next five years at a price determined to
be the greater of $30.26 per share or fifty percent of the common stock price on
the prescribed dates. (See Note 3 above.)

All options and warrants were excluded from the computation of diluted
earnings per share because their effect was anti-dilutive on earnings per share.

11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward-looking Statements

Some of the information in this document contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by our use of the future tense, or by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate" and
"continue." You should read statements that contain these words carefully,
because they discuss our expectations about our future performance, contain
projections of our future operating results and our future financial condition,
or state other "forward-looking" information. There may be events in the future,
however, that we are not able to predict or over which we have no control.
Included in this document is cautionary language that provides examples of
risks, uncertainties and events that may cause actual results to differ from
what we describe in our forward-looking statements. You should be aware that the
occurrence of any of the risks described below or elsewhere in this document
could have a material and adverse effect on our business, results of operations
and financial condition.

Overview

We are a leading provider of Corporate Expense Management software and
services. Corporate Expense Management includes solutions to automate company-
wide expense management processes, such as travel and entertainment ("T&E")
expense reporting, employee requests for vendor payments, employee time tracking
and reporting, and travel booking. Our suite of Corporate Expense Management
solutions includes our flagship T&E solution, known as Concur Expense, as well
as travel booking, employee requests for vendor payments and time tracking and
reporting. Our solutions are designed to reduce our customers' operating
expenditures while allowing them to focus management and financial resources on
core business processes. Our customers include companies of all sizes, from
Fortune 500 enterprises to 50-person businesses. Customers may license our
products or may access them as application service provider services, depending
on their needs. At June 30, 2000, our customer base included more than 500
companies, representing over 2.7 million employees.

On June 8, 2000, we announced a new operating plan to focus the Company on
providing solutions to meet the needs of the Corporate Expense Management
market. The decision to implement the new operating plan was based on two
primary factors. The first primary factory was that, as the business process
automation market expanded and became more competitive, we realized the need to
reevaluate our business in order to balance the needs and requests of our
customers with our available management and financial resources. As a result, we
made a strategic decision to focus our resources on Corporate Expense
Management, the market segment in which we believe we have the deepest domain
expertise, an established market leadership position, and the greatest
opportunities for growth and success. Under the new operating plan, we
implemented several changes as part of our efforts to narrow the scope of our
business to focus primarily on Corporate Expense Management. First, we
discontinued sales of Concur Procurement, our corporate procurement application
and terminated the Concur Commerce Network. Second, we separated our Concur
Human Resources application suite into an independent unit with its own
strategic and operational focus. Third, in conjunction with our distribution
channel partners, SAFECO and Nortel Networks, we plan to deliver a solution to
meet the purchasing needs of the rapidly expanding small and mid-size company
market segment.

The second primary factor for implementing our new operating plan was the
recent shift in our revenue model, which contributed to our cost and expense
structure to be out of alignment with our revenue and cash stream. We have
experienced strong customer-driven demand for our ASP solutions since we
introduced them in October 1999. Through June 30, 2000, our base of ASP
customers has grown to more than 200 companies. Our ASP solutions are designed
to generate a multi-year recurring revenue and cash stream over the life of the
customer contract, but provide no up-front license fees. This model is very
different from the revenue and cash stream of our traditional

12
<PAGE>

license model, in which substantially all of the revenue and cash applicable to
the customer contract is received at the time of purchase. We expect this shift
in our revenue model to produce a growing, more stable and predictable revenue
and cash stream in the future, but in the near term, it will result in lower
revenues and cash flow. Accordingly, we made a strategic decision to reduce
costs and bring expenses in line with our revenue model. In conjunction with the
transition to the new operating plan, on June 8, 2000, we implemented a
workforce reduction of 68 employees, which represented approximately 13 percent
of the Concur employee base. In addition to our reduction in employee headcount,
we reduced our utilization of contract labor. This workforce reduction, related
impacts on excess facilities and equipment and the plan to curtail our
procurement product, resulted in a one-time restructuring charge against fiscal
third quarter financial results.

With the implementation of our new operating plan, we are focused on
building on our core competency of Corporate Expense Management. Our goal is to
reinforce and expand our leadership position in the Corporate Expense Management
market and to continue to meet the Corporate Expense Management needs of a
growing customer base.

Company Background

We were incorporated in 1993, and commenced operations in fiscal 1994,
initially developing QuickXpense, a retail, shrink-wrapped application that
automated T&E expense reporting for individuals. In July 1996, we released
Concur Expense, a client-server based enterprise T&E expense management
solution. Concur Expense was developed in response to inquiries from businesses
seeking to automate the entire T&E expense reporting process, including back-
office processing and integration to financial systems. In March 1998, we
shipped an intranet-based version of Concur Expense. Since its release, the
intranet-based version has accounted for a majority of our license revenues.

Over the past two years, we made two acquisitions. In June 1998, we
acquired 7Software, a privately held software company and the original developer
of Concur Procurement. In June 1999, we acquired Seeker Software, a privately
held software company and the original developer of Concur Human Resources. The
purpose of these acquisitions was to develop an integrated suite of products to
automate the preparation, approval, processing and data analysis of T&E expense
reports, business-to-business procurement requisitions and human resources
processes. In January 1999, we introduced Concur eWorkplace(TM), which provided
a common user interface to integrate Concur Expense and Concur Procurement.

In October 1999, we introduced Concur eWorkplace ASP, which provided
features and benefits similar to Concur eWorkplace but in an ASP delivery model.
In December 1999, we introduced the Concur Commerce Network, which enabled
customers to conduct business-to-business procurement transactions over the
Internet by bringing buyers and suppliers together through an Internet-based
electronic marketplace.

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999

Certain Financial Data

The following table sets forth certain financial data, derived from the
Company's unaudited statements of operations, as a percentage of gross revenues,
excluding sales returns and allowances, for the periods indicated. The operating
results for the three and nine months ended June 30, 2000 and 1999, are not
necessarily indicative of the results that may be expected for any future
period.

<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Licenses...................................... 30.8% 68.0% 46.1% 67.0%
Services...................................... 69.2 32.0 53.9 33.0
------------ ----------- ------------ -----------
Gross revenues............................ 100.0 100.0 100.0 100.0
Sales returns and allowances.................. (27.0) - (7.9) -
------------ ----------- ------------ -----------
Net revenues.............................. 73.0 100.0 92.1 100.0

Cost of revenues:
Licenses...................................... 7.3 1.6 4.0 2.7
Services...................................... 77.4 40.2 67.3 41.2
------------ ----------- ------------ -----------
Total cost of revenues.................... 84.7 41.8 71.3 43.9
------------ ----------- ------------ -----------
Gross profit (loss) ............................. (11.7) 58.2 20.8 56.1
------------ ----------- ------------ -----------
Operating expenses:
Sales and marketing........................... 132.3 70.9 108.9 76.0
Research and development...................... 94.1 46.5 92.9 47.4
General and administrative.................... 59.5 27.8 42.2 26.6
Merger and acquisition cost................... (15.2) 79.2 (4.4) 31.6
Restructuring charges... ..................... 41.8 - 12.2 -
------------ ----------- ------------ -----------
Total operating expenses.................. 312.5 224.4 251.8 181.6
------------ ----------- ------------ -----------
Loss from operations............................. (324.2) (166.2) (231.0) (125.5)
Interest income............................... 15.8 12.3 13.4 8.1
Interest expense.............................. (4.4) (3.9) (3.9) (4.2)
Other expense, net............................ (0.4) (0.7) (0.5) (0.7)
------------ ----------- ------------ -----------
Net loss......................................... (313.2)% (158.5)% (222.0)% (122.3)%
============ =========== ============= ===========
</TABLE>

Revenue Recognition

14
<PAGE>

the fair value of each element is based on the price charged when the element is
sold separately. The revenues allocated to software products, including
specified upgrades or enhancements, generally are recognized upon delivery of
the products. The revenues allocated to unspecified upgrades, updates and other
post-contract customer support generally are recognized ratably over the term of
the related maintenance contract. Revenues relating to consulting and training
services provided to customers are generally recognized as such services are
performed. SOP 97-2 has been subject to certain modifications and
interpretations since its release in October 1997. In December 1998, the
American Institute of Certified Public Accountants issued SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" which has been adopted by us without any significant effect on
revenue recognition. Most recently, in December 1999, the SEC released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", which summarizes the SEC's views on applying generally accepted
accounting principles to revenue recognition and the related costs of those
revenues. SAB 101 will not be effective for us until the fiscal year beginning
October 1, 2000. We have reviewed the requirements of SAB 101 as currently
proposed and believe our policies on revenue recognition and related costs of
those revenues are in compliance with this new standard. Therefore, we do not
believe that SAB 101 will have a significant effect on our financial position or
results or operations. However, we will continue to review new interpretations
of the standard as they become available and will make adjustments to our
internal policy as they become appropriate. Further implementation guidelines
relating to SOP 97-2 and related modifications or interpretive guidance from the
SEC regarding SAB 101 may result in unanticipated changes in our revenue
recognition practices and such changes could affect our future revenues and
earnings.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues

We derived substantially all of our revenues from the sale of licenses of
Concur Expense and related services, and to a lesser degree, licenses of Concur
Human Resources and related services. We expect to continue deriving the
majority of our revenues from these sources in the future. Gross revenues, which
consist of software license revenues and service revenues, totaled $8.1 million
and $11.2 million in the three months ended June 30, 2000 and 1999,
respectively, a decrease of $3.1 million, or 27%. Net of estimated sales returns
and allowances of $2.2 million, revenues for the three month periods ended June
30, 2000 and 1999 totaled $5.9 million and $11.2 million, respectively,
representing a decrease of $5.3 million, or 47%.

Revenues from licenses and services to customers outside the United States
were $796,000 and $194,000 in the three months ended June 30, 2000 and 1999,
respectively.

License Revenues. Our gross license revenues were $2.5 million and $7.6
million for the three months ended June 30, 2000 and 1999, respectively, a
decrease of $5.1 million, or 67%. Gross license revenues represented 30.8% and
68.0% of total gross revenues for the three months ended June 30, 2000 and 1999,
respectively. The decrease in license revenues primarily reflects three
significant changes in our business: the shift in demand from our licensed to
our ASP products, the results of our decision to discontinue Concur Procurement,
our corporate procurement application, and the effect of our lengthening sales
cycle. During the quarter, we continued to see a rapid shift in the market
demand for our products from our licensed to our ASP products, resulting in less
up-front license revenue. In our traditional license sales model, a license fee
is generally recognized upon delivery; in contrast, our ASP sales model requires
recognition of the contract revenue over the life of the ASP contracts. Second,
our decision to discontinue Concur Procurement negatively impacted quarterly
revenues as potential customers who were in the product selection stage
ultimately delayed or made alternative purchasing decisions based on our
strategic decision. We did not recognize any license revenue for sales of Concur
Procurement during the three months ended June 30, 2000. Third, as a result of
introducing our suite of products, which included three applications (Concur
Expense, Concur Procurement and Concur Human Resources), our sales cycle has
lengthened because it made our customers' acquisition decision more complex, and
license revenues declined as a result.

15
<PAGE>

Service Revenues. Our service revenues consist of revenue from consulting
and implementation services, maintenance and, to a lesser extent, training
services. Our gross service revenues were $5.6 million and $3.6 million for the
three months ended June 30, 2000 and 1999, respectively, an increase of $2.0
million, or 57%. Gross service revenues represented 69.2% and 32.0% of total
gross revenues for the three months ended June 30, 2000 and 1999, respectively.
This increase, as a percentage of gross revenues, is mainly due to lower license
revenues recorded during the period. The increase in service revenues, in
absolute dollars, reflects continuing growth in our service activity resulting
from our increasing customer base and an increase in our service capacity.
Requests by existing customers for our services continue to grow as they upgrade
our products to newer versions, expand the number of their current users or
decide to utilize additional functionality available as part of these products.
Future increases will be driven by the increasing demand from existing customers
for our consulting services and the use of third party consulting and
implementation service providers. These increases, however, may be impacted by
the market acceptance of our ASP products as the amount of consulting efforts
required for our ASP products is lower than for our licensed products.

Sales Returns and Allowances. In June 2000, we announced a new operating
plan that included, among other items, discontinuing Concur Procurement, our
corporate procurement application. Based on this decision, we recorded a charge
of $2.2 million against third-quarter revenues for estimated and actual returns
of this product. Because our decision to discontinue Concur Procurement and the
related announcement were in the latter part of the third quarter, there is
still a possibility that net revenue could be negatively impacted in future
quarters by returns in excess of our current estimates.

Cost of Revenues

Cost of License Revenues. Our cost of license revenues includes license
fees for sublicensing third party software, expenses to house our servers for
our ASP business, amortization of capitalized technology and other intangible
assets, and product media and duplication costs. Our cost of license revenues
was $592,000 and $174,000 for the three months ended June 30, 2000 and 1999,
respectively, an increase of $418,000, or 240%. Cost of license revenues
represented 23.6% and 2.3% of gross license revenue for the three months ended
June 30, 2000 and 1999. This increase was due to an increase in license fees for
sublicensing third party software to our customers. Specifically, the increase
resulted, in part, from a significant royalty payment for a large sale of third
party software to a customer. Further, we have ongoing obligations associated
with a licensing arrangement which requires us to make royalty payments for
third-party software sublicenses each time we sell products to a new customer.
Cost of license revenues may continue to fluctuate from period to period based
on the quantity and type of sublicensed third party software purchased with our
software and the respective royalty fees payable as a result of these sales.

Cost of Service Revenues. Our cost of service revenues includes personnel
and other costs related to consulting services, technical support and training.
Our cost of service revenues was $6.3 million and $4.5 million for the three
months ended June 30, 2000 and 1999, respectively, an increase of $1.8 million,
or 40%. This increase was due primarily to an increase in professional service
personnel to manage and support our growing customer base, including salaries
and benefits and travel and entertainment expenses. Cost of service revenues
represented 111.8% and 125.7% of gross service revenues for the three months
ended June 30, 2000 and 1999, respectively. This decrease was due primarily to
the increased efficiency of our professional services organization as we begin
to incorporate more effective and efficient methods for implementing and
supporting our products thereby expanding our service capacity and reducing our
costs, as well as changes in the mix of products and services provided by us and
our third party implementation service providers. We expect that the cost of
service revenues as a percentage of service revenues will decrease in future
periods and our gross margin for services will improve.

Operating Expenses

Sales and Marketing. Our sales and marketing expenses consist primarily of
salaries, benefits and commissions earned by sales and marketing personnel,
advertising expenses, travel and entertainment expenses, and to a lesser extent,
recruiting expenses. Our sales and marketing expenses were $10.8 million and
$7.9 million for the three months ended June 30, 2000 and 1999, respectively, an
increase of $2.9 million, or 36%. This increase reflects an increase in
salaries, benefits and travel and entertainment expenses due to an increase in
the number of sales and marketing employees and increased expenses due to our
increased investment in our international sales infrastructure. Sales and

16
<PAGE>

marketing expenses represented 132.3% and 70.9% of total gross revenues for the
three months ended June 30, 2000 and 1999, respectively. In connection with our
new operating plan and strategic repositioning, we expect that our sales and
marketing expenses will begin to decline both in absolute dollars as well as a
percentage of revenues in future periods.

Research and Development. Our research and development expenses consist
primarily of salaries and benefits for software developers, product managers and
quality assurance personnel and payments to outside contractors. Our research
and development expenses were $7.7 million and $5.2 million for the three months
ended June 30, 2000 and 1999, respectively, an increase of $2.5 million, or 47%.
This increase reflects an increase in salaries and benefits expense resulting
from an increase in the number of software engineers, program management and
quality assurance personnel, as well as our increased usage of outside
contractors. Research and development costs represented 94.1% and 46.5% of total
gross revenues for the three months ended June 30, 2000 and 1999, respectively.

Research and development expenses were higher in the three months ended
June 30, 2000 due to the development of our new ASP solutions, development of
other new products and solutions, as well as costs to support and continue the
development of new functionality for our existing products. Following the
implementation of our new operating plan in June 2000, we expect research and
development expenses to decrease in future quarters as we focus on our core
products and services and reduce operating expenses. In addition to our
reduction in employee headcount, we reduced our utilization of contract labor,
which will decrease research and development expenses in future quarters.
Historically, software development costs eligible for capitalization have been
insignificant, and all costs related to internal research and development have
been expensed as incurred. During the development of our new products and
enhancements of existing products, the technological feasibility of the software
is not established until substantially all product development is complete.

General and Administrative. Our general and administrative expenses include
salaries, benefits and related costs for our executive, finance, legal and
information technology personnel, as well as bad debt, contractor and recruiting
expenses. Our general and administrative expenses were $4.8 million and $3.1
million for the three months ended June 30, 2000 and 1999, respectively, an
increase of $1.7 million, or 56%. This increase was primarily the result of an
increase in bad debt expense over the prior period, an increase in contractor
and recruiting expenses to fulfill hiring needs and, to a lesser extent, an
increase in professional fees, such as legal expenses. General and
administrative costs represented 59.5% and 27.8% of total gross revenues for the
three months ended June 30, 2000 and 1999, respectively. A primary reason for
the overall increase in general and administrative expenses as a percentage of
total gross revenues was the overall decrease in revenues during the quarter.

Merger and Acquisition Cost. In connection with our merger with Seeker
Software in June 1999, we recorded a charge to operating expenses of
approximately $8.9 million during the three months ended June 30, 1999, which
represented our estimate of direct and other merger-related costs pertaining to
the transaction. Acquisition costs consisted of financial advisor fees for both
companies, attorneys, accountants, financial printing and other related charges.
We periodically review accounting estimates such as these, and their related
accruals and, when appropriate, make changes to reflect new estimates. During
the three months ended June 30, 2000, our revised estimates resulted in a
decrease in our net loss for the period of $1.2 million.

Restructuring Charges. On June 8, 2000, we announced a new operating plan
to focus the Company on providing solutions to meet the needs of the Corporate
Expense Management market. The decision to implement this new operating plan was
based on a desire to focus our resources on our Corporate Expense Management
products, to reduce operating expenses and to bring expenses in line with our
new operating plan. In connection with our announcement, during the three months
ended June 30, 2000, we recorded a one-time restructuring charge of $3.4 million
resulting primarily from severance and termination benefits and, to a lesser
extent, the write-off of intangible assets relating to our procurement
technology acquired in connection with our June 1998 acquisition of 7Software,
costs associated with the abandonment of facilities and equipment due to our
workforce reduction and estimated costs to terminate product marketing programs
resulting from our decision to discontinue Concur

17
<PAGE>

Procurement, our corporate procurement application. At June 30, 2000, the
accrued restructuring liability was $1.8 million, which we expect to pay over
the next 12 months.

Interest Income and Interest Expense. Our interest income was $1.3 million
and $1.4 million for the three months ended June 30, 2000 and 1999,
respectively, a decrease of $92,000, or 7%. This decrease reflects lower
interest income earned on a lower average cash, cash equivalents and marketable
securities balance during the periods. Interest expense was $358,000 and
$438,000 for the three months ended June 30, 2000 and 1999, respectively, a
decrease of $80,000. This decrease was a result of a reduction in the Company's
average outstanding debt balance during the periods.

Provision for Income Taxes. We recorded no provision for federal and state
income taxes because we have experienced net losses since inception that have
resulted in deferred tax assets. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset balance.

Net Loss and Net Loss Per Share, and Effect of Sales Returns and
Allowances, Merger and Acquisition Costs and Restructuring Charges on Net Loss
Per Share. For the three months ended June 30, 2000 and 1999, net loss was $25.5
million and $17.7 million and net loss per share was $1.03 per share and $0.86
per share, respectively. Included in these amounts is the effect of sales
returns and allowances relating to discontinued products, merger and acquisition
costs and restructuring charges, all of which totaled $4.4 million and $8.9
million for the three months ended June 30, 2000 and 1999, respectively. These
charges had the effect of increasing net loss in the three months ended June 30,
2000 and 1999 by $4.4 million and $8.9 million, respectively. The per share
impact of these charges was an increase in net loss per share of $0.18 and $0.43
in the three months ended June 30, 2000 and 1999, respectively.

18
<PAGE>

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues

Gross revenues, which consist of software license revenues and service
revenues, totaled $28.0 million in each of the nine-month periods ended June 30,
2000 and 1999, respectively. Net of sales returns and allowances of $2.2
million, revenues for the nine month periods ended June 30, 2000 and 1999
totaled $25.8 million and $28.0 million, respectively, representing a decrease
of $2.2 million, or 8%.

Revenues from licenses and services to customers outside the United States
were $2.4 million and $859,000 in the nine months ended June 30, 2000 and 1999,
respectively.

License Revenues. Our gross license revenues were $12.9 million and $18.8
million for the nine months ended June 30, 2000 and 1999, respectively, a
decrease of $5.9 million, or 31%. Gross license revenues represented 46.1% and
67.0% of total gross revenues for the nine months ended June 30, 2000 and 1999,
respectively. The decrease in license revenues reflects the shift in demand for
our products from our licensed to our ASP products, the effects of our
introduction of a suite of applications as well as the results of our decision
to discontinue Concur Procurement, our corporate procurement application. In our
traditional license sales model, a license fee is generally recognized upon
delivery; in contrast, our ASP sales model requires recognition of the contract
revenue over the life of the ASP contracts. Second, in fiscal 1999, we
introduced our suite, which increased the number of applications available for
license from one to three (Concur Expense, Concur Procurement and Concur Human
Resources). This had the effect of lengthening our sales cycle in fiscal 2000
because it made our customers' acquisition decision more complex, and license
revenues declined as a result. Third, our decision to discontinue Concur
Procurement negatively impacted third quarter revenues as potential customers
who were in the product selection stage ultimately delayed or made alternative
purchasing decisions based on our strategic decision.

Service Revenues. Our gross service revenues were $15.1 million and $9.2
million for the nine months ended June 30, 2000 and 1999, respectively, an
increase of $5.9 million, or 64%. Gross service revenues represented 53.9% and
33.0% of total gross revenues for the nine months ended June 30, 2000 and 1999,
respectively. This increase, as a percentage of gross revenues, is mainly due to
lower license revenues recorded during the period. The increase in service
revenues, in absolute dollars, reflects continuing growth in our service
revenues as a result of our increasing customer base and growing requests by
existing customers for our services as they upgrade their products to newer
versions, expand the number of their current users or decide to utilize
additional functionality available as part of these products. Future increases
will be driven by the increasing demand from existing customers for our
consulting services and our use of third party consulting and implementation
service providers. These increases, however, may be impacted by the market
acceptance of our ASP products as the amount of consulting efforts required for
our ASP products is lower than for our licensed products.

Cost of Revenues

Cost of License Revenues. Our cost of license revenues was $1.1 million and
$747,000 for the nine months ended June 30, 2000 and 1999, respectively, an
increase of $353,000, or 49%. Cost of license revenues represented 8.6% and 4.0%
of gross license revenue for the nine months ended June 30, 2000 and 1999,
respectively. This increase was due to an increase in license fees for
sublicensing third party software to our customers. Specifically, the increase
resulted, in part, from a significant royalty payment for a large sale of third
party software to a customer. Further, we have ongoing obligations associated
with a licensing arrangement which requires us to make royalty payments for
third party software sublicenses each time we sell products to a new customer.
Cost of license revenues may continue to fluctuate from period to period based
on the quantity and type of sublicensed third party software purchased with our
software and the respective royalty fees payable as a result of these sales.

19
<PAGE>

Cost of Service Revenues. Our cost of service revenues was $18.9 million
and $11.5 million for the nine months ended June 30, 2000 and 1999,
respectively, an increase of $7.4 million, or 63%. This increase was primarily
due to an increase in personnel costs to manage and support our new and
installed customer base, including salaries and benefits, travel, entertainment
and related expenses. Cost of service revenues represented 125% of gross service
revenues for each of the nine-month periods ended June 30, 2000 and 1999.

Operating Expenses

Sales and Marketing. Our sales and marketing expenses were $30.5 million
and $21.3 million for the nine months ended June 30, 2000 and 1999,
respectively, an increase of $9.2 million, or 43%. This increase primarily
reflects our investment in our sales and marketing infrastructure, both domestic
and international, including significant personnel-related expenses such as
salaries and benefits and travel and entertainment expenses, as well as a
significant increase in our advertising and marketing expenditures. Sales and
marketing expenses represented 108.9% and 76.0% of total gross revenues for the
nine months ended June 30, 2000 and 1999, respectively. In conjunction with our
new operating plan and strategic repositioning, we expect that our sales and
marketing expenses will begin to decline both in absolute dollars as well as a
percentage of revenues in future periods.

Research and Development. Our research and development expenses were $26.0
million and $13.3 million for the nine months ended June 30, 2000 and 1999,
respectively, an increase of $12.7 million, or 96%. This increase was primarily
related to costs associated with an increased usage of outside contractors as
well as an increase in the number of internal software engineers, program
management and quality assurance personnel to support the development of our ASP
solutions and the Concur Commerce Network, as well as continued support and
development for our existing suite of products. Research and development costs
represented 92.9% and 47.4% of total gross revenues for the nine months ended
June 30, 2000 and 1999, respectively. During the development of our new products
and enhancements of existing products, the technological feasibility of the
software is not established until substantially all product development is
complete. Historically, software development costs eligible for capitalization
have been insignificant, and all costs related to internal research and
development have been expensed as incurred.

General and Administrative. Our general and administrative expenses were
$11.8 million and $7.5 million for the nine months ended June 30, 2000 and 1999,
respectively, an increase of $4.3 million, or 59%. This increase was primarily
the result of an increase in bad debt expense, increased use of outside
contractors to fulfill hiring needs and an increase in professional fees, such
as accounting and legal. General and administrative costs represented 42.2% and
26.6% of our total gross revenues for the nine months ended June 30, 2000 and
1999, respectively.

Interest Income and Interest Expense. Our interest income was $3.8 million
and $2.3 million for the nine months ended June 30, 2000 and 1999, respectively,
an increase of $1.5 million, or 66%. This increase reflects interest income
earned on the higher cash, cash equivalents and marketable securities balances
as a result of proceeds received in March 2000 and April 1999 from private and
public sales of our common stock. Interest expense was $1.1 million and $1.2
million for the nine months ended June 30, 2000 and 1999, respectively, a
decrease of $0.1 million.

Net Loss and Net Loss Per Share, and Effect of Sales Returns and
Allowances, Merger and Acquisition Costs and Restructuring Charges on Net Loss
Per Share. For the nine months ended June 30, 2000 and 1999, net loss was $62.1
million and $34.3 million and net loss per share was $2.63 and $2.29,
respectively. Included in these amounts is the effect of sales returns and
allowances relating to discontinued products, merger and acquisition costs and
restructuring charges, all of which totaled $4.4 million and $8.9 million for
the nine months ended June 30, 2000 and 1999, respectively. These charges had
the effect of increasing net loss in the nine months ended June 30, 2000 and

20
<PAGE>

1999 by $4.4 million and $8.9 million, respectively. The per share impact of
these charges on net loss per share was an increase in net loss per share of
$0.19 and $0.59 in the nine months ended June 30, 2000 and 1999, respectively.

21
<PAGE>

Financial Condition

Our total assets were $96.8 million and $128.8 million at June 30, 2000 and
September 30, 1999, respectively, representing a decrease of $32.0 million, or
25%. This decrease was primarily the result of a decrease in cash, cash
equivalents and marketable securities of $36.8 million offset by an increase in
net equipment and furniture of $4.6 million. At June 30, 2000, we had $71.9
million of cash, cash equivalents and marketable securities compared to $108.7
million at September 30, 1999, a decrease of $36.8 million, or 34%.

Our accounts receivable balance, net of allowance for doubtful accounts,
was $9.2 million and $9.0 million at June 30, 2000 and September 30, 1999,
respectively, an increase of $0.2 million, or 2%. Days' sales outstanding
("DSO") in accounts receivable was 101 days and 90 days for the three months
ended June 30, 2000 and September 30, 1999, respectively. DSO was higher due to
the change in overall revenue mix in the quarter from license revenue to
consulting revenue as compared with the quarter ended September 30, 1999. The
average customer receivable balance relating to consulting and training
revenues, from which we derive an increasing portion of our revenue, are lower
than for license revenues, therefore requiring a higher level of collection
efforts. We expect that our DSO will fluctuate significantly in future quarters
and may increase.

Our total current liabilities were $23.3 million and $28.6 million at June
30, 2000 and September 30, 1999, respectively, representing a decrease of $5.3
million, or 18%. Offset by an increase in the accrual for our restructuring,
this overall decrease in accounts payable and accrued liabilities is primarily a
result of the timing of vendor and other related cash disbursements, bonus and
commission payments and the reduction in accrued merger and acquisition costs
resulting from our adjustment in the original estimate of these costs.

Liquidity and Capital Resources

Net cash used in operating activities was $62.8 million and $20.7 million
during the nine months ended June 30, 2000 and 1999, respectively, representing
an additional use of cash of $42.1 million, or 204% over the comparable period
in the prior year. Net cash used by operating activities was primarily a result
of funding losses from operations and a reduction in accounts payable and
accrued expenses during these periods.

Our investing activities have consisted of purchases of property and
equipment and the purchase and sale of marketable securities. In the nine months
ended June 30, 2000, net sales of marketable securities, which consist primarily
of corporate bonds and commercial paper, totaled approximately $15.5 million
compared with net purchases of $64.8 million in the prior year period. Property
and equipment acquisitions, including those acquired under capital leases,
totaled $9.0 million and $3.1 million in the nine months ended June 30, 2000 and
1999, representing an increase of $5.9 million. Through the first quarter of
fiscal 2000, we financed a significant portion of our acquisitions of property
and equipment through capital leases, which consist primarily of computer
hardware and software. Based on the reduction in our workforce resulting from
the implementation of our new operating plan, we anticipate that our capital
expenditures and lease commitments will slow dramatically and remain consistent
with changes in our operations, infrastructure and personnel.

Cash provided by financing activities was $33.4 million and $133.8 million
in the nine months ended June 30, 2000 and 1999, respectively. For the nine
months ended June 30, 2000, most cash from financing activities consisted of the
proceeds of a private placement of our common stock, which raised $34.9 million,
and proceeds of common stock sales pursuant to our Employee Share Purchase Plan,
which raised $2.8 million. These amounts were offset during this period by
payments on bank debt and capital lease obligations of $4.7 million. For the
nine month period ended June 30, 1999, most cash from financing activities
consisted of proceeds from our initial public offering ("IPO") and follow-on
offering, which raised a total of $119.6 million, and from a private equity
financing which raised $9.4 million, borrowings of approximately $4.8 million
and proceeds from warrant exercises at the time of the IPO of $2.6 million.

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We have a $4.0 million line of credit with a bank that expires in October
2000. The line of credit bears interest at the lending bank's prime rate plus
1.5%. Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $4.0 million and are secured by substantially all of our non-
leased assets. As of June 30, 2000, we had not borrowed under the line of
credit; however, there was a standby letter of credit outstanding for $450,000
relating to the line of credit. Approximately $3.6 million remained available
under this line at June 30, 2000.

In September 1997, we entered into a $1.0 million senior term loan facility
with a bank pursuant to the terms of a security and loan agreement. In April
1998, the senior term loan facility was amended to allow for additional
borrowings up to a total of $3.0 million. The facility, which bears interest at
the lending bank's prime rate less 1.0%, matures on February 15, 2001. Payments
were interest only through February 15, 1999, at which time we started to pay
off the facility in 24 equal monthly principal payments plus interest. The loan
agreement contains certain financial restrictions and covenants with which we
are currently in compliance. At June 30, 2000, the outstanding indebtedness
under the loan agreement was $1.0 million.

In July 1997, we entered into a subordinated loan and security agreement
with the company that leases us our capital equipment for a loan in the
principal amount of $1.5 million which bears interest at an annual rate of 8.5%.
In May 1998, this agreement was amended to allow for additional borrowings of
$3.5 million. The notes are due in varying monthly installments through April
2002. At June 30, 2000, the outstanding indebtedness under the subordinated loan
agreement was $2.6 million.

We also have two existing equipment lines of credit with a bank, which are
no longer available for additional borrowings. Combined principal payments of
approximately $15,000, plus interest, which accrue at the prime rate plus 1.5%,
are due monthly through April 2001 and October 2001. At June 30, 2000, the
outstanding indebtedness under the equipment lines of credit was $161,000.

In September 1998, we entered into a subordinated promissory note agreement
with the company that leases us our capital equipment for a loan in the
principal amount of $2.0 million which bears interest at 11%. Payments are due
in monthly installments of approximately $65,000 including interest, and the
note matures in November 2001. At June 30, 2000, the outstanding indebtedness
under the subordinated loan agreement was $1.0 million.

In August 1998, we issued a warrant to American Express Travel Related
Services Company, Inc. ("TRS") to purchase shares of our Series E Preferred
Stock. In connection with our IPO in December 1998, this warrant was converted
into a warrant to purchase 2,325,000 shares of our common stock. In December
1998, TRS exercised a portion of the warrant to purchase 225,000 shares at
$11.625 per share and, on October 15, 1999, a portion of the warrant to purchase
700,000 shares expired. TRS may acquire 700,000 additional shares at any time on
or before January 15, 2001 at a cash purchase price of $50.625 per share and
700,000 shares at any time on or before January 15, 2002 at a cash purchase
price of $85.00 per share.

In February 2000, we entered into a Stock Purchase Agreement with SAFECO
Corporation and Nortel Networks, Inc. for the purchase of 1,073,929 and 429,571
shares, respectively, of our common stock at a purchase price of $23.28 per
share. Net proceeds received from the Stock Purchase Agreement totaled $34.9
million. In connection with the Stock Purchase Agreement, Concur also entered
into strategic marketing and distribution agreements with SAFECO and Nortel
under which SAFECO and Nortel will resell Concur's ASP products through their
respective distribution networks and will undertake joint marketing activities
with Concur to promote Concur's ASP products. Under the terms of the marketing
and distribution agreements, we granted SAFECO and Nortel warrants to purchase
up to 3,750,000 and 1,500,000 shares of common stock, respectively. For each of
these warrant holders, the warrants become exercisable if such holder achieves
certain annual milestones relating to revenue derived in connection with the
arrangements over the next five years. The exercise price will be the greater of
$30.26 or fifty percent of the fair value of the common stock price on
prescribed dates. In the event these milestones are achieved or the achievement
becomes probable, we may be required to record a significant non-cash sales and
marketing expense to the extent that the fair value of the common stock exceeds
the exercise price of the warrants at that time. To date, we have not recorded
an expense associated with these agreements and it is uncertain whether these
milestones will be achieved in the future.

While we expect that our expenses will decrease in future periods based on
our new operating plan, we currently anticipate that for the foreseeable future
we will continue to incur significant operating losses as a result of costs we
will incur relating to research and development, sales and marketing and our
professional services organization. We also anticipate developing new
distribution channels, improving our operational and financial

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systems, entering new markets for our products and services and possibly
acquiring or investing in complementary businesses, products or technologies or
investing in joint ventures. Such expenditures will be a material use of our
cash resources. We believe that our existing cash and cash equivalents,
marketable securities and available bank borrowings will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. Thereafter, we may require additional funds to support
our working capital requirements or for other purposes and may seek to raise
such additional funds through private or public sales of securities, strategic
relationships, bank debt, financing under leasing arrangements, or otherwise. If
additional funds are raised through the issuance of equity securities,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences, or privileges senior to those of the holders of our
common stock. There can be no assurance that additional financing will be
available on acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, we may be unable to develop or enhance
our products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

Some of the statements under "Factors That May Affect Future Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Form 10-Q constitute forward-looking
statements. In some cases, you can identify forward-looking statements by terms
such as "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" or the negative of these terms or
other comparable terminology. The forward-looking statements contained in this
Form 10-Q involve known and unknown risks, uncertainties and other factors that
may cause industry trends or our actual results, level of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these statements.
These factors include those listed under "Factors That May Affect Future
Results" and elsewhere in this Form 10-Q.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this Form 10-Q to conform these
statements to actual results. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-Q.

The risks and uncertainties described below are not the only risks we face.
These risks are the ones we consider to be significant to your decision whether
to invest in our common stock at this time. We might be wrong. There may be
risks that you in particular view differently than we do, and there are other
risks and uncertainties that we do not presently know or that we currently deem
immaterial, but that may in fact harm our business in the future. If any of
these risks occur, our business, results of operations and financial condition
could be seriously harmed, the trading price of our common stock could decline
and you may lose all or part of your investment.

Our operating results fluctuate widely and are difficult to predict.

In the past our quarterly operating results have fluctuated significantly,
and we expect them to continue to fluctuate in the future. We find it difficult
to forecast quarterly license revenues because our sales cycle, from initial
evaluation to delivery of software, is lengthy and varies substantially from
customer to customer. Our licensed software products, from which we derive most
of our revenues, are typically shipped when orders are received, so our license
backlog at the beginning of any quarter in the past represented only a small
portion, if any, of that quarter's expected license revenues. This makes license
revenues in any quarter difficult to forecast because they depend on orders
booked and shipped in that quarter. We have historically recognized a
substantial percentage of revenues in the last month of the quarter, frequently
in the last week or even the last days of the quarter, and we expect this trend
to continue for as long as our licensed software products represent a
substantial part of our overall business.

Moreover, we have begun to see a shift in customer demand from our
traditional license products to our ASP solutions. Our ASP solutions generate a
very different revenue stream than our traditional license solution, in which
substantially all of the revenue applicable to the customer contract is
recognized at the time of purchase. Our ASP solutions are designed to generate a
multi-year recurring revenue stream over the life of the customer contract, but
provide no up-front license fees. We expect the shift in our revenue model from
traditional license model to our ASP business model will produce a more stable
and predictable revenue stream in the future, but it has resulted in lower
revenues so far and may continue to result in lower revenues in future quarters.
Any shortfall from anticipated revenues or any delay in the recognition of
revenues could result in significant variations in revenue and operating results
from quarter to quarter.

If revenues or operating results fall below our expectations in a
particular quarter, our stock price is likely to fall. In previous quarters, our
revenues and operating results have fallen below our own and the consensus of
securities analysts' estimates and, as a result, the price of our common stock
experienced a sharp decline. If our

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revenues or operating results fall below our own estimates or below the
consensus of analysts' estimates in an upcoming quarter, our common stock price
could experience an additional decline, harming our business significantly in
terms of, among other things, diminished employee morale and public image.
See "--We are at risk of securities class action litigation due to our stock
price volatility."

We have been public for only a short time and our common stock price has been
volatile.

We completed our initial public offering in December 1998. Since then, the
market price of our common stock has been highly volatile and is subject to wide
fluctuations. We expect our common stock price to continue to fluctuate:

. in response to quarterly variations in operating results;

. in reaction to announcements of technological innovations, new
products or significant agreements by us or our competitors;

. because of market conditions in the enterprise software and eCommerce
industries;

. in reaction to changes in financial estimates by securities analysts,
and our failure to meet or exceed the expectations of analysts or
investors; and

. as a result of the active trading of our stock by online day traders.

We are at risk of securities class action litigation due to our stock price
volatility.

In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may in the future be the target of similar litigation, due to
prior volatility associated with our failure to meet consensus analysts'
estimates in previous quarters or relating to ongoing or future volatility in
the market price of our securities. Securities litigation could result in
substantial costs and divert management's attention and resources.

We rely heavily on sales of one product.

Since 1997, we have generated substantially all of our revenues from
licenses and services related to our Concur Expense product. We believe that
Concur Expense revenues will continue to account for a large portion of our
revenues for the foreseeable future. Our future financial performance and
revenue growth will depend upon the successful implementation of our new
operating plan and the development, introduction and customer acceptance of our
existing and future products, particularly our ASP solutions, and our business
could be harmed if we fail to deliver the enhancements to our current and future
products that customers want.

We face significant competition.

The market for our products is intensely competitive and rapidly changing.
Direct competition comes from independent software vendors of travel and
entertainment expense management and human resources self-service applications,
from providers of enterprise resource planning ("ERP") software applications
that have or may be developing travel and entertainment expense management and,
to a lesser extent, human resources self-service applications. Many of our
competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition
and a larger installed base of customers than we do. These competitors may also
be able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater financial, marketing and engineering
resources to the development,

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<PAGE>

promotion and sale of their products, than we can. We also face indirect
competition from potential customers' internal development efforts and have to
overcome their reluctance to move away from existing paper-based systems.

Our expansion into the human resources self-service application market is risky.

In 1999, we added Concur Human Resources to our product line. To date,
substantially all of our revenues have come from Concur Expense. Our future
revenue growth depends, in part, on our ability to license Concur Human
Resources to new customers and to our existing base of Concur Expense customers.
Potential and existing customers may not purchase Concur Human Resources for
many reasons, including an absence of desired functionality; the costs of and
time required for implementation; incompatibility of these applications with
customers' preferred technology platforms; possible software defects; and
customers lacking the necessary hardware, software or intranet infrastructure.

Further, we must overcome some significant obstacles to expand into the
market for human resources self-service applications, including competitors that
have more experience and better name recognition; the limited experience of our
sales and consulting personnel in these markets; and our limited reference
accounts in these markets.

Furthermore, our business could be harmed if we fail to deliver
enhancements to Concur Human Resources that customers want. In addition, our
business could also be harmed if our expansion into this newer market and
resulting broadening of our focus causes Concur Expense, upon which we continue
to rely for most of our revenues, to lose market share to our competitors that
are solely or primarily focused on travel and entertainment expense management
software applications. This broadening of focus could also harm us by causing us
to spread our limited resources across several initiatives and diverting
management time and attention required to execute any given initiative properly.

Our effort to sell products as an Internet-based application service provider is
new and untested.

We offer certain of our software applications in an ASP version on a
subscription basis to companies seeking to outsource their corporate expense
management business applications. This business model is unproven; it represents
a significant departure from our traditional strategies. We have limited
experience selling products or services in this manner, and our efforts to
develop this business model have diverted, and are expected to continue to
divert, our financial resources and management time and attention. If customers
determine that our products are not scalable, do not provide adequate security
for the dissemination of information over the Internet, or are otherwise
inadequate for Internet-based use, or if for any other reason customers fail to
accept our products for use on the Internet or on a subscription basis, our
business will be harmed. Further, in connection with this version of our
software applications, we have engaged third party service providers to perform
many of the necessary services as independent contractors, and we are and will
be responsible for monitoring their performance. We have limited experience
outsourcing services or other important business functions, and independent
contractors may not perform those services adequately. If any service provider
delivers inadequate support or service to our customers, our reputation could be
harmed.

The shift in our revenue mix from our traditional license model to our ASP model
tends to cause a greater proportion of revenue deferral to future quarters and
makes it difficult to predict revenues over the near-term.

Even if our strategy of offering products to customers over the Internet
proves successful, some of those Internet customers may be ones that otherwise
might have bought our software and services through our traditional licensing
arrangements. Any such shift in potential license revenues to the ASP version,
which is unproven and potentially less profitable, could harm our business. In
addition, in recent quarters, the pace of sales growth in our

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ASP model has outstripped the sales growth of our traditional licensing
business, and as an increasing proportion of our business moves to this business
model, our revenues may be inconsistent and hard to predict, given that revenues
under these new business models are recognized ratably over the contract term
whereas most of our revenues under the traditional licensing arrangements are
recognized in the same quarter that the contract is signed.

We face security risks with respect to the information we keep for customers as
an ASP provider.

In connection with the ASP version of our software applications, we
receive confidential information, including credit card, travel booking,
employee, purchasing, supplier and other financial and accounting data through
the Internet or extranets. We incur significant costs to protect against
security breaches. However, there can be no assurance that such security
measures will successfully prevent computer break-ins, theft and other improper
activity that could jeopardize the security of information for which we are
responsible. Any person who is able to circumvent our security measures could
misappropriate proprietary or confidential customer information or cause
interruptions in our operations. Any such lapse in security could expose us to
litigation, loss of customers or other harm to our business. Further, a well-
publicized compromise of security could deter people from using the Internet to
conduct transactions that involve transmitting confidential information, which
would discourage people from utilizing our ASP products thereby harming our
business.

We have limited experience with and do not have assurance that our ASP solutions
will be able to support a high volume of users or transactions, which is
important to our future success.

To date, only a limited number of customers have fully deployed our ASP
version of Concur Expense. We think that the ability of our ASP customers to
successfully roll out our products to their users is critical to our success
and, because only a limited number of customers are currently using our ASP
solutions, we do not have assurance that our ASP solutions would be able to
support a large volume of users or transactions. If our customers cannot
successfully implement our ASP solutions, or they determine that our products
cannot accommodate large-scale deployments, our business will be harmed.

Our short operating history and significant losses make our business difficult
to evaluate.

We are still in the early stages of our development, so evaluating our
business operations and our prospects is difficult. We incorporated in 1993 and
have incurred net losses in each quarter since then. Since inception, we have
derived substantially all of our revenues from licenses of our Concur Expense
product and related services, and to a lesser degree, the sale of licenses and
services relating to Concur Human Resources. With the implementation of our new
operating plan and strategic decision to focus on our Corporate Expenses
Management solutions, we expect revenue growth may slow as our business
continues to shift from our traditional license business to our ASP business. In
the long term, we expect this shift to produce a growing , more stable and
predictable revenue stream in the future, but in the near term it has resulted
in, and is expected to continue to result in, lower revenues. To compete
effectively, we expect to devote substantial financial and other resources to
our sales and marketing, research and development and professional services
organizations. Although our new operating plan is designed to reduce costs and
bring expenses in line with the shift in our revenue model, we expect to
continue to incur net losses for the foreseeable future and there is no
assurance that we may achieve or maintain profitability in the future. We
incurred net losses totaling $62.1 million in the nine months ended June 30,
2000, and incurred net losses of $46.5 million, $26.2 million and $7.6 million
in fiscal 1999, 1998 and 1997, respectively. As of June 30, 2000, we had an
accumulated deficit of $151.9 million and we expect to continue to incur net
losses for the foreseeable future. Despite substantial net operating loss carry-
forwards as of June 30, 2000, tax laws will likely limit their use in the future
upon the occurrence of certain events, including a significant change in
ownership interests.

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Our lengthy sales cycle could adversely affect our revenue growth.

Because of the high costs involved, customers for enterprise software
products typically commit significant resources to an evaluation of available
software applications and require us to expend substantial time, effort and
money educating them about the value of our products and services. The time
between initial contact with a potential customer and the ultimate sale, our
sales cycle, typically ranges from six to fifteen months. As a result of our
lengthy sales cycle, we have only a limited ability to forecast the timing and
size of specific sales. In addition, customers may delay their purchases from a
given quarter to another as they elect to wait for new product enhancements. Any
delay in completing, or failure to complete, sales in a particular quarter or
fiscal year could harm our business and could cause our operating results to
vary significantly. See "--Our operating results fluctuate widely and are
difficult to predict."

We rely on third party software that is difficult to replace.

Some of the software we license from third parties would be difficult to
replace. In particular, in order to offer our customers our suite of Corporate
Expense Management software applications, we license technology from third
parties. This software may not continue to be available on commercially
reasonable terms, if at all. The loss or inability to maintain any of these
technology licenses could result in delays in the sale of our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could harm our business.

We depend on our direct sales model.

Today, we sell our products primarily through our direct sales force. We
believe that there is significant competition for direct sales personnel with
the advanced sales skills and technical knowledge we need. Our inability to hire
competent sales personnel, or our failure to retain them, would harm our
business. In addition, by relying primarily on a direct sales model, we may miss
sales opportunities that might be available through other sales channels, such
as domestic and international resellers.

It is important for us to establish and maintain strategic relationships.

We have developed, and continue to develop, strategic relationships with
third parties, such as sales referral relationships and domestic and
international reseller relationships, in order to offer products and services to
a larger customer base than we can reach through direct sales, telesales, and
our internal marketing efforts. We expect our dependence on these relationships
to increase in the future. If we were unable to maintain our existing strategic
relationships or enter into additional strategic relationships, we would have to
devote more resources to the distribution, sale and marketing of our products
and services. Our success depends in part on the ultimate success of our
strategic referral and reseller partners and their ability to market our
products and services successfully. For instance, we have recently entered into
reseller arrangements with Nortel and SAFECO for the distribution of our
Corporate Expense Management applications as an ASP solution. There is no
assurance that these arrangements will produce anticipated or hoped-for results
in terms of sales volume. Many of our strategic partners have multiple strategic
relationships, and they may not regard us as significant for their business. In
addition, our strategic partners may terminate their respective relationships
with us, pursue other partnerships or relationships, or attempt to develop or
acquire products or services that compete with our products or services.
Further, our existing strategic relationships may interfere with our ability to
enter into other desirable strategic relationships. The failure to maintain our
existing strategic relationships or develop additional strategic relationships
may place us at a significant competitive disadvantage.

We may experience difficulties in introducing new products and upgrades.

We expect to add additional applications to our product suite by
acquisition, internal development, or through OEM arrangements, and to develop
enhancements to our existing applications. We have experienced delays in the
planned release dates of our software products and upgrades, and we have
discovered software defects in new products after their introduction. New
products or upgrades may not be released according to schedule, or may contain
defects when released. Either situation could result in adverse publicity, loss
of sales, delay in market acceptance of our products or customer claims against
us, any of which could harm our business. If we do not develop, license or
acquire new software products, or deliver enhancements to existing products on a
timely and cost-effective basis, our business will be harmed.

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<PAGE>

Our products might not be compatible with all major platforms, which could
inhibit sales.

We must continually modify and enhance our products to keep pace with
changes in hardware and software platforms, database technology and electronic
commerce technical standards. As a result, uncertainties related to the timing
and nature of new product announcements, introductions or modifications by
vendors of operating systems, back-office applications, and browsers and other
Internet-related applications could harm our business. In addition, some of our
products are not currently based upon the Java programming language, an
increasingly widely used language for developing Internet applications.
Accordingly, some features available to products written in Java may not be
available in our products, and this could result in reduced customer demand.

Our ability to protect our intellectual property is limited and our products may
be subject to infringement claims by third parties.

Our business depends upon our proprietary technology. We presently have no
patents or patent applications pending. We rely on a combination of copyright
and trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary information. In some cases, we are using
unregistered marks, and some of the marks that we have filed for federal
registration may not ultimately be registrable. As a result, we may have
incomplete rights to use some of our marks. We have also taken steps to avoid
disclosure of our proprietary technology by generally restricting customer
access to our products' source code and requiring all employees and contractors
to enter into confidentiality and invention assignment agreements. However, some
of our customers and partners have received access to source code versions of
our products in order to facilitate more extensive testing of our products and
certain of our former technical personnel and contractors did not execute such
confidentiality and invention assignment agreements. Further, we only recently
began requiring contractors and temporary employees to execute our
confidentiality agreement rather than executing the confidentiality agreements
maintained by temporary agencies or not executing any such agreements.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. In addition, the laws of some foreign countries
do not protect our proprietary rights to as great an extent as do the laws of
the United States, and we expect that it will become more difficult to monitor
use of our products as we increase our international presence. There can be no
assurance that our means of protecting these proprietary rights will be
adequate, or that our competitors will not independently develop similar
technology. In addition, there can be no assurance that third parties will not
claim infringement by us with respect to current or future products or other
intellectual property rights. Any such claims could have a material adverse
effect on our business, results of operations and financial condition.

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<PAGE>

We depend on service revenues to increase our overall revenues; services may not
achieve profitability.

Our service revenues have increased each year as a percentage of total
gross revenues. Service revenues represented 53.9% of total gross revenues for
the nine months ended June 30, 2000, and 35.2%, 34.5%, and 27.8% of total gross
revenues for fiscal 1999, 1998 and 1997, respectively. We anticipate that
service revenues will continue to represent a significant percentage of total
revenues in future periods. Our service revenues depend, in part, upon the
ongoing renewals of customer support contracts by our installed customer base.
Customer support contracts might not be renewed and, if third party
organizations such as systems integrators become proficient in installing or
servicing our products, consulting revenues could decline. Our ability to
increase service revenues will depend in large part on our ability to increase
the scale of our services organization, including our ability to recruit and
train a sufficient number of qualified services personnel.

We formed our professional services organization in 1996. Since that time,
we have not achieved profitability with respect to these services. Due to the
increasing costs of operating a professional services organization, we may not
be able to achieve profitability in this part of our business in the near
future, or ever.

We depend on our key employees.

Our success depends on the performance of our senior management,
particularly S. Steven Singh, our Chief Executive Officer and Chairman of the
Board, who is not bound by an employment agreement. Although we maintain key
person life insurance on Mr. Singh in the amount of $1.0 million, the loss of
his services would harm our business. If one or more members of our senior
management or any of our key employees were to resign, particularly to join or
form a competitor, the loss of that personnel and any resulting loss of existing
or potential customers to that competitor could harm our business. In 2000, we
have had to recruit and integrate successors for our former Chief Financial
Officer and Vice President of Finance. We cannot assure you that we will not
lose and have to replace other members of our management team, particularly, for
example, if our new business strategy fails. If any more members of our senior
management or key employees were to resign, particularly to join or form a
competitor, the loss of that personnel, the resulting loss of existing or
potential customers to a competitor, and the diversion of resources to recruit
and integrate new key employees could harm our business.

We rely on third party implementation service providers.

Beginning with fiscal 1999, a significant portion of the consulting
services associated with the implementation of our software at our customers'
facilities has been performed by third party implementation service providers.
If we are unable to establish and maintain effective, long-term relationships
with our implementation providers, or if these providers do not meet the needs
or expectations of our customers, our business would be seriously harmed. This
strategy will also require that we develop new relationships with additional
third party implementation providers to provide these services if the number of
our customer implementations continues to increase. Our current implementation
partners are not contractually required to continue to help implement our
solutions. As a result of the limited resources and capacities of many third
party implementation providers, we may be unable to establish or maintain
relationships with third parties having sufficient resources to provide the
necessary implementation services to support our needs. If these resources are
unavailable, we will be required to provide these services internally, which
would significantly limit our ability to meet our customers' implementation
needs. In addition, we cannot control the level and quality of service provided
by our current and future implementation partners.

There are risks associated with international operations.

Our international operations are subject to a number of risks, including
costs of customizing products for foreign countries; laws and business practices
favoring local competition; dependence on local vendors; uncertain regulation of
electronic commerce; compliance with multiple, conflicting and changing
governmental laws and

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regulations; longer sales cycles; greater difficulty in collecting accounts
receivable; import and export restrictions and tariffs; difficulties staffing
and managing foreign operations; multiple conflicting tax laws and regulations;
and political and economic instability.

Our international operations also face foreign currency-related risks. To
date, most of our revenues have been denominated in U.S. Dollars, but we believe
that an increasing portion of our revenues will be denominated in foreign
currencies. In particular, we expect that an increasing portion of our
international sales may be Euro-denominated. The Euro is still a relatively new
currency and may be subject to economic risks that are not currently
contemplated. We currently do not engage in foreign exchange hedging activities,
and therefore our international revenues and expenses are currently subject to
the risks of foreign currency fluctuations.

We are in the early stages of developing our indirect distribution channels
in markets outside the United States. We may not be able to attract remarketers
that will be able to market our products effectively. We must also customize our
products for local markets. For example, our ability to expand into the European
market will depend on our ability to develop a travel and entertainment expense
management solution that incorporates the tax laws and accounting practices
followed in Germany and other European countries, and to develop applications
that support the Euro. Further, if we establish significant operations overseas,
we may incur costs that would be difficult to reduce quickly because of employee
practices in those countries.

Our revenue recognition policy may change when definitive guidance is available.

We recognize revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position ("SOP") 97-2, "Software
Revenue Recognition." These standards generally require revenues earned on
software arrangements involving multiple elements, such as software products,
upgrades, enhancements, post-contract customer support, installation and
training, to be allocated to each element based on the relative fair values of
the elements. The fair value of an element must be based on evidence that is
specific to the vendor. Evidence of the fair value of each element is based on
the price charged when the element is sold separately. The revenues allocated to
software products, including specified upgrades or enhancements, generally are
recognized upon delivery of the products. The revenues allocated to unspecified
upgrades, updates and other post-contract customer support generally are
recognized ratably over the term of the related maintenance contract. Revenues
relating to consulting and training services provided to customers are generally
recognized as such services are performed. SOP 97-2 has been subject to certain
modifications and interpretations since its release in October 1997. In December
1998, the American Institute of Certified Public Accountants issued SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" which has been adopted by us without any significant effect on
revenue recognition. Most recently, in December 1999, the SEC released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarizes the SECs views on applying generally accepted
accounting principles to revenue recognition and the related costs of those
revenues. SAB 101 will not be effective for us until the fiscal year beginning
October 1, 2000. We have reviewed the requirements of SAB 101 as currently
proposed and believe our policies on revenue recognition and related costs of
those revenues are in compliance with this new standard. Therefore, we do not
believe that SAB 101 will have a significant effect on our financial position or
results or operations. However, we will continue to review new interpretations
of the standard as they become available and will make adjustments to our
internal policy as they become appropriate. Further implementation guidelines
relating to SOP 97-2 and related modifications or interpretive guidance from the
SEC regarding SAB 101 may result in unanticipated changes in our revenue
recognition practices and such changes could affect our future revenues and
earnings.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Our operating results are sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our cash equivalents are
invested in short-term debt instruments while certain portions of our
outstanding long-term debt bear interest at variable rates. Based on our
marketable securities portfolio and interest

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rates at June 30, 2000, a one percent increase or decrease in interest rates
would result in a decrease or increase of approximately $141,000, respectively,
in the fair value of the marketable securities portfolio. Changes in interest
rates may affect the fair value of the marketable securities portfolio; however,
such gains or losses would not be realized unless the investments are sold.

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PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On June 9, 2000, we granted options to purchase 2,253,605 shares of common
stock to employees at an exercise price of $5.00 per share. These options
vest over a period of 2 1/2 years subject to acceleration based upon
achieving certain financial targets in the future.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit No. Description of Exhibit
---------- ----------------------
27.01 Financial Data Schedule.

Reports on Form 8-K

On May 5, 2000, we filed a current report on Form 8-K dated April 26, 2000
under Item 5 announcing that our Chief Financial Officer would resign
effective June 1, 2000.

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 to sign on behalf of the registrant and as
the principal financial officer thereof.

Dated: August 14, 2000 CONCUR TECHNOLOGIES, INC.

By /s/ STEPHEN A. YOUNT
---------------------------------
Stephen A. Yount
Chief Financial Officer and
Executive Vice President of
Operations

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EXHIBIT INDEX

Exhibit No. Description of Exhibit
---------- ----------------------
27.01 Financial Data Schedule.