UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________

COMMISSION FILE NUMBER 000-24677

BINDVIEW DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

TEXAS		76-0306721
TEXAS (State or other jurisdiction of incorporation or organization)		76-0306721 (I.R.S. Employer Identification No.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5151 SAN FELIPE, 25th FLOOR, HOUSTON, TX (Address of principal executive offices)		77056 (Zip code)
5151 SAN FELIPE, 25th FLOOR, HOUSTON, TX		77056
(Address of principal executive offices)		(Zip code)

(713) 561-4000
(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 o þ No þo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o þ No þo

As of ~~December~~August 154, ~~2004~~2005, the Company had 4748,~~807~~337,~~758~~930 shares of Common Stock, no par value, outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS
SIGNATURE
SIGNATURES
EXHIBIT INDEX
Exhibit Index
Sublease Agreement
Certification of CEO pursuant to Section 302
Certification of CEO Pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certifications of CEO and CFO pursuant to Section 906
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BINDVIEW DEVELOPMENT CORPORATION CONSOLIDATED BALANCE SHEETS (~~Unaudited~~unaudited) (in thousands)

	SEPTEMBER 30,			DECEMBER 31,
	JUNE 30,			DECEMBER 31,
	2004			2003
	2005			2004
				(As Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	2228,~~250~~751		$	3525,~~449~~666
Cash – restricted		2,250			2,250
Cash — restricted		2,250			2,250
Short-term investments		82,~~541~~983			—6,974
Accounts receivable, net of allowance of $673 and $1,040		8,604			14,066
Accounts receivable, net of allowance of $639 and $671		6,153			14,657
Other		21,~~270~~452			21,~~180~~634
Total current assets		4341,~~915~~589			5351,~~945~~181
Property and equipment, net		65,~~567~~987			6,~~564~~664
Investments and other		2,907			2,498
Other		579			709
Total assets	$	5348,~~389~~155		$	6358,~~007~~554
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,~~680~~903		$	23,~~066~~023
Accrued liabilities		4,~~818~~149			45,~~879~~307
Accrued compensation		32,~~542~~949			53,~~275~~603
Deferred revenues		1114,~~949~~571			1311,~~253~~963
Total current liabilities		2123,~~989~~572			2523,~~473~~896
Deferred revenues		21,~~683~~947			12,~~477~~707
Other		1,~~664~~024			21,~~087~~824
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 20,000 shares authorized, none issued		—			—
Common stock, no par value, 100,000 shares authorized, 47,388 and 47,034 shares issued and outstanding		1			1
Common stock, no par value, 100,000 shares authorized, 48,136 and 47,849 shares issued and outstanding		1			1
Additional paid-in capital		105,~~125~~904			~~105~~106,~~176~~244
Accumulated deficit		(79,052	)		(72,207	)
Deferred stock compensation and other		(2,672	)		(920	)
Deferred stock compensation		(145	)		—
Accumulated deficit		(82,859	)		(77,316	)
Note receivable from shareholder		(196	)		(392	)
Accumulated other comprehensive income		1,238			2,118
Accumulated other comprehensive income		1,320			1,392
Total shareholders’ equity		21,612			30,127
Total shareholders’ equity		27,053			33,970
Total liabilities and shareholders’ equity	$	48,155		$	58,554
Total liabilities and shareholders’ equity	$	53,389		$	63,007

See notes to unaudited consolidated financial statements.

BINDVIEW DEVELOPMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)

	THREE MONTHS						NINE MONTHS
	ENDED						ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2004			2003			2004			2003
Revenues:
Licenses	$	7,849		$	7,352		$	22,409		$	19,942
Services		9,377			8,199			27,529			23,971
		17,226			15,551			49,938			43,913
Cost of revenues:
Licenses		393			138			723			349
Services		2,251			1,955			5,992			5,092
		2,644			2,093			6,715			5,441
Gross profit		14,582			13,458			43,223			38,472
Operating costs and expenses:
Sales and marketing		9,621			8,269			28,540			25,296
Research and development		5,647			4,563			15,619			13,365
General and administrative		1,922			1,867			5,844			5,600
Restructuring		—			—			149			549
Operating loss		(2,608	)		(1,241	)		(6,929	)		(6,338	)
Other income		151			95			357			348
Loss before income taxes		(2,457	)		(1,146	)		(6,572	)		(5,990	)
Provision for income taxes		129			—			273			—
Net loss	$	(2,586	)	$	(1,146	)	$	(6,845	)	$	(5,990	)
Loss per common share – basic and diluted	$	(0.05	)	$	(0.02	)	$	(0.14	)	$	(0.13	)
Number of shares used to calculate per share amounts, basic and diluted		47,274			46,816			47,345			46,623
Reconciliation of net loss to comprehensive loss:
Net loss	$	(2,586	)	$	(1,146	)	$	(6,845	)	$	(5,990	)
Unrealized gain (loss) from currency translation		58			(29	)		(72	)		436
Comprehensive loss	$	(2,528	)	$	(1,175	)	$	(6,917	)	$	(5,554	)

See notes to unaudited consolidated financial statements.

BINDVIEW DEVELOPMENT CORPORATION CONSOLIDATED STATEMENTS OF ~~CASH~~OPERATIONS ~~FLOWS~~AND COMPREHENSIVE LOSS (~~Unaudited~~unaudited) (in thousands, except per share amounts)

	NINE MONTHS ENDED
	THREE MONTHS						SIX MONTHS
	SEPTEMBER 30,
	ENDED JUNE 30,						ENDED JUNE 30,
	2004			2003
	2005			2004			2005			2004
Cash flows from operating activities:
Revenues:
Net loss	$	(6,845	)	$	(5,990	)
Licenses	$	7,884		$	8,648		$	13,472		$	14,560
Adjustments to reconcile net loss to net cash used in operating activities:
Services		9,315			9,231			18,686			18,152
Depreciation and amortization		2,146			2,759
		17,199			17,879			32,158			32,712
Accrued stock compensation		189			79
Cost of revenues:
Changes in operating assets and liabilities:
Licenses		176			190			354			330
Accounts receivable		5,435			3,498
Services		2,069			1,910			4,118			3,741
Other assets		(321	)		(201	)
		2,245			2,100			4,472			4,071
Accounts payable		(382	)		(821	)
Gross profit		14,954			15,779			27,686			28,641
Accrued liabilities		(2,160	)		(1,163	)
Operating costs and expenses:
Deferred revenues		(96	)		(277	)
Sales and marketing		9,404			9,739			18,988			18,919
Net cash used in operating activities		(2,034	)		(2,116	)
Research and development		4,601			5,396			9,194			9,972
Cash flows from investing activities:
General and administrative		2,054			2,024			4,334			3,922
Capital expenditures		(2,429	)		(1,506	)
Restructuring		1,142			149			1,142			149
Reimbursement of tenant improvements		284			—
		17,201			17,308			33,658			32,962
Purchases of short term investments		(9,166	)		—
Operating loss		(2,247	)		(1,529	)		(5,972	)		(4,321	)
Proceeds from maturity of investments		625			—
Other income, net		281			112			522			206
Restrictions on cash		(194	)		—
Loss before income taxes		(1,966	)		(1,417	)		(5,450	)		(4,115	)
Net cash used in investing activities		(10,880	)		(1,506	)
Provision for income taxes		67			74			93			144
Cash flows from financing activities:
Net loss	$	(2,033	)	$	(1,491	)	$	(5,543	)	$	(4,259	)
Repurchase of common stock		(2,313	)		—
Loss per common share — basic and diluted	$	(0.04	)	$	(0.03	)	$	(0.12	)	$	(0.09	)
Net proceeds from sale of common stock		2,060			681
Number of shares used to calculate per share amounts, basic and diluted		47,595			47,432			47,745			47,380
Net cash (used in) provided by financing activities		(253	)		681
Reconciliation of net loss to comprehensive loss:
Effect of exchange rate changes on cash		(32	)		375
Net loss	$	(2,033	)	$	(1,491	)	$	(5,543	)	$	(4,259	)
Net decrease in cash and cash equivalents		(13,199	)		(2,566	)
Unrealized loss from currency translation		(536	)		(168	)		(880	)		(131	)
Cash and cash equivalents at beginning of year		35,449			37,760
Comprehensive loss	$	(2,569	)	$	(1,659	)	$	(6,423	)	$	(4,390	)
Cash and cash equivalents at end of period	$	22,250		$	35,194
Non-cash financing and investing activities:
Reduction of shareholder note in lieu of guaranteed bonus	$	196		$	292

See notes to unaudited consolidated financial statements.

BINDVIEW DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)


	SIX MONTHS ENDED
	JUNE 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(5,543	)	$	(4,259	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		1,399			1,446
Stock compensation expense (benefit)		(236	)		181
Changes in operating assets and liabilities:
Accounts receivable		8,408			3,435
Other assets		300			(429	)
Accounts payable		(1,091	)		(595	)
Accrued liabilities		(2,003	)		(2,384	)
Deferred revenues		1,854			2,844

Net cash provided by operating activities		3,088			239


Cash flows from investing activities:
Capital expenditures		(1,419	)		(603	)
Reimbursement of tenant improvements		705			284
Purchases of short-term investments		(2,049	)		(3,912	)
Proceeds from maturity of investments		6,040			—
Restrictions on cash		—			(194	)

Net cash provided by (used in) investing activities		3,277			(4,425	)


Cash flows from financing activities:
Repurchase of common stock		(4,068	)		(1,236	)
Net proceeds from sale of common stock		1,619			1,170

Net cash used in financing activities		(2,449	)		(66	)

Effect of exchange rate changes on cash		(831	)		(78	)

Net increase (decrease) in cash and cash equivalents		3,085			(4,330	)
Cash and cash equivalents at beginning of year		25,666			35,449

Cash and cash equivalents at end of period	$	28,751		$	31,119

See notes to unaudited consolidated financial statements.

BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying consolidated financial statements of BindView Development Corporation, a Texas corporation (the “Company” or “BindView”), included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The ~~Company believes that the presentations and disclosures herein are adequate to make the information not misleading. The~~ consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform with the current year presentation.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K~~/A,~~ ~~Amendment No. 1~~ for the year ended December 31, ~~2003~~2004.

Recent Pronouncement

In March 2004, the FASB issued EITF Issue No. 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its application to Certain Investments” which provides new guidance for assessing impairment losses on investments. Additionally, EITF 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF 03-1; however, the disclosure requirements remain effective for annual periods ending after June 15, 2004. We will evaluate the impact of EITF 03-1 once final guidance is issued.

In December 2004, the FASB issued Statement No. 123R (revised 2004), “Share-Based Payment,” (FAS 123R) that addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that the Company currently uses and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the consolidated statement of operations. The effective date of FAS 123R is for interim and annual periods beginning after June 15, 2005. The Company is currently assessing the provisions of FAS 123R; however, the standard will have a significant impact on the consolidated statement of operations as the Company will be required to expense the fair value of stock option grants and stock purchases under its employee stock purchase plan.

2. LOSS PER SHARE

Options to purchase 109.57 million shares of common stock for the three and ~~nine~~ six months ended ~~September~~ June 30, ~~2004~~2005 and 911.70 million shares of common stock for the three and ~~nine~~ six months ended ~~September~~June 30, ~~2003~~ 2004 were outstanding, but were not included in the computation of diluted loss per share as their inclusion would have been anti-dilutive.

3. STOCK -BASED COMPENSATION

The Company accounts for all stock-based employee compensation plans under the recognition and measurement provisions of APB Opinion 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s common shares at the date of the grant over the amount an employee must pay to acquire the common shares. The Company generally grants options at prices equal to the market price of common shares on the date of the grant. However, if options are granted at a price below fair market value, compensation expense is recorded in accordance with the provisions of APB 25. Compensation expense may also be recognized for certain options which are considered variable option grants. ~~Statement of Financial Accounting Standards~~ (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – an Amendment to FAS 123,” requires companies that continue to account for stock-based compensation in accordance with APB 25 to disclose the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation (in thousands, except per share amounts):

	THREE MONTHS						NINE MONTHS
	ENDED SEPTEMBER 30,						ENDED SEPTEMBER 30,
	2004			2003			2004			2003
Net loss as reported	$	(2,586	)	$	(1,146	)	$	(6,845	)	$	(5,990	)
Add: Stock-based employee compensation expense included in reported net loss		7			79			189			79
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards		(1,549	)		(1,674	)		(4,291	)		(4,669	)
Pro forma net loss	$	(4,128	)	$	(2,741	)	$	(10,947	)	$	(10,580	)
Loss per common share (basic and diluted):
– As reported	$	(0.05	)	$	(0.02	)	$	(0.14	)	$	(0.13	)
– Pro forma	$	(0.09	)	$	(0.06	)	$	(0.23	)	$	(0.23	)

Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation — an Amendment to FAS 123,” requires companies that continue to account for stock-based compensation in accordance with APB 25 to disclose certain information using tabular presentation as presented below. This table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation (in thousands, except per share amounts):


	THREE MONTHS						SIX MONTHS
	ENDED JUNE 30,						ENDED JUNE 30,
	2005			2004			2005			2004
Net loss as reported	$	(2,033	)	$	(1,491	)	$	(5,543	)	$	(4,259	)
Add: Stock-based employee compensation expense (benefit) included in reported net loss		(44	)		125			(236	)		181
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards		(1,118	)		(1,510	)		(2,102	)		(2,742	)

Pro forma net loss	$	(3,195	)	$	(2,876	)	$	(7,881	)	$	(6,820	)

4. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS

The Company recorded restructuring charges totaling $0.1 million and $0.5 million in the first nine months of 2004 and 2003, respectively. The 2004 charge was primarily attributable to reserves established against rent payments due from the Company’s sublease tenant which occupied its excess office space in Arlington, VA. The $0.5 million charge in 2003 was for the Company’s sales and marketing reorganization plan.

In January 2003, the Company approved a sales and marketing reorganization plan (the “2003 Restructuring Plan”). The cost of this plan totaled approximately $0.5 million and consisted primarily of (i) involuntary employee separation for approximately 20 employees (a reduction in workforce of approximately 4 percent), (ii) closing the Company’s Netherlands sales office, and (iii) reserves for leasehold abandonment. All actions under the 2003 Restructuring Plan were completed by December 31, 2003.

In July 2002, the Company approved a restructuring plan to improve operating efficiency and improve sales and marketing productivity (the “2002 Restructuring Plan”). The cost of this plan totaled approximately $1.9 million and consisted primarily of (i) involuntary employee separation for approximately 30 employees (a reduction in workforce of approximately 5 percent), (ii) closing the Company’s Boston development center and certain European sales offices, (iii) reserves for leasehold abandonment, and (iv) various non-personnel related cuts.

The remaining accrual for the 2002 Restructuring Plan at December 31, 2003 was comprised of the estimated carrying costs for the Company’s remaining excess space in Houston, Texas. During the second quarter of 2004, the Company received letters of intent to sublease the remaining excess space. The Company recorded a $0.1 million adjustment to its restructuring accrual as a result of receiving these letters of intent. The remaining accrual at September 30, 2004 is comprised of the Company’s carrying costs for the remaining space in Houston that are in excess of anticipated sublease payments. Adjustments could be required in future periods if there are significant changes to the terms and conditions of the sublease arrangements.

The 2002 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as follows (in thousands):

	REMAINING		RESTRUCTURING					REMAINING
	ACCRUAL		CHARGE		CASH			ACCRUAL
	12/31/2003		ADJUSTMENTS		EXPENDITURES			9/30/2004
Lease commitments	$	1,538	$	33	$	(384	)	$	1,187

In 2001, the Company completed a corporate reorganization and implemented a number of cost-cutting measures to improve operating efficiency and to accelerate our return to profitability (the “2001 Restructuring Plan”). The cost of this plan totaled approximately $6.6 million and consisted primarily of: (i) involuntary employee separation expenses for approximately 160 employees (a reduction in workforce of approximately 21 percent), (ii) downsizing or closing of the Company’s Boston and Arlington development centers and certain European sales offices, (iii) reserves for leasehold abandonment, and (iv) various non-personnel related costs. The restructuring costs included a $1.2 million charge related to asset impairments of leasehold improvements, equipment and other assets of the closed or downsized offices.

The 2001 Restructuring Plan activity from December 31, 2003 to September 30, 2004 was as follows (in thousands):

	REMAINING		RESTRUCTURING					REMAINING
	ACCRUAL		CHARGE		CASH			ACCRUAL
	12/31/2003		ADJUSTMENTS		EXPENDITURES			9/30/2004
Lease commitments	$	453	$	13	$	(445	)	$	21

The remaining accrual for the 2001 Restructuring Plan consists of excess carrying costs for the Company’s Boston facility lease which expires in December 2004.


	THREE MONTHS						SIX MONTHS
	ENDED JUNE 30,						ENDED JUNE 30,
	2005			2004			2005			2004
Loss per common share (basic and diluted):
- As reported	$	(0.04	)	$	(0.03	)	$	(0.12	)	$	(0.09	)
- Pro forma	$	(0.07	)	$	(0.06	)	$	(0.17	)	$	(0.14	)

54. ~~INVESTMENTS~~RESTRUCTURING EXPENSES

~~The~~In May of 2005, the Company’s ~~short-term~~approved ~~investments~~a ~~include~~plan ~~commercial~~to ~~paper,~~make ~~corporate~~organizational ~~bonds~~changes ~~and~~primarily in R&D ~~certificates~~and ofmarketing ~~deposits~~operations ~~that~~to ~~have~~reduce ~~original~~expenses ~~maturities~~and ofimprove operational efficiency by shifting more development ~~than~~to ~~three~~the ~~months~~Company’s ~~and~~India ~~less~~facility, ~~than~~flattening ~~one~~the management structure and aligning ~~year.~~marketing ~~These~~initiatives ~~investments~~with ~~are~~IT ~~intended~~security tocompliance beopportunities ~~held~~(the to“2005 ~~maturity~~Restructuring Plan”). The cost of this plan totaled approximately $1.1 million and consisted of involuntary employee separation costs.

6. The ~~INCOME~~2005 ~~TAXES~~Restructuring Plan activity for the three and six months ended June 30, 2005 was as follows (in thousands):

The Company continues to provide a full valuation allowance against its deferred tax assets in accordance with Financial Accounting Standard No. 109, “Accounting for Income Taxes”. As in its prior assessments, the Company considered current and previous performance and other relevant factors in determining the sufficiency of its valuation allowance. Objective factors, such as current and previous operating losses, were given substantially more weight than management’s outlook for future profitability. Until such time as a consistent pattern of sufficient profitability is established, no tax benefit will be recognized associated with the Company’s pre-tax accounting losses and a full income tax provision will not be provided on any future pre-tax accounting income.


						Remaining
	Restructuring		Cash			Accrual
	Charges		Expenditures			6/30/2005
Employee severance	$	1,142	$	(588	)	$	554

7. The ~~SHAREHOLDERS’~~Company ~~EQUITY~~expects all actions under the 2005 Restructuring Plan will be completed by October 2005 with severance payments completed by the end of September 2006.

~~Under~~In ~~terms~~December of ~~share repurchase programs approved by the Board of Directors for the second and third quarter of~~ 2004, the Company ~~has~~approved ~~expended~~a ~~$2.3 million~~plan to ~~purchase~~eliminate ~~0.8 million~~certain ~~shares~~positions ofprimarily in ~~common~~Latin ~~stock~~America ~~during~~ (the ~~nine months ended September 30,~~ “2004, atRestructuring ~~an average price per share of $2~~Plan”).~~87.~~ The ~~Company~~cost ~~retired~~of ~~all~~this ofplan ~~the~~totaled approximately $0.8 5 million ~~shares~~and ofconsisted ~~common~~primarily ~~stock~~of ~~held~~involuntary inemployee ~~treasury~~separation ~~as of September 30, 2004~~costs.

The 2004 Restructuring Plan activity from December 31, 2004 to June 30, 2005 was as follows (in thousands):


	Remaining					Remaining
	Accrual		Cash			Accrual
	12/31/2004		Expenditures			6/30/2005
Employee severance	$	306	$	(254	)	$	52
Other		20		(8	)		12

	$	326	$	(262	)	$	64

The Company expects all payments under the 2004 Restructuring Plan will be completed by September 2005.

The Company approved restructuring plans during 2002 and 2001 designed to improve operating efficiency (the “Reorganization Plans”). The costs of these plans, and subsequent modifications to their original estimates, totaled approximately $11.5 million. The Reorganization Plans were comprised of (i) involuntary separation costs, (ii) closing its Boston development center and certain European sales offices, (iii) reserves for leasehold abandonment, and (iv) various non-personnel related cuts. The remaining accrual for the Reorganization Plans at June 30, 2005 is comprised of the lease costs for the remaining excess space in Houston, Texas. The Reorganization Plans’ activity for the six months ended June 30, 2005 was as follows (in thousands):


	Remaining					Remaining
	Accrual		Cash			Accrual
	12/31/2004		Expenditures			6/30/2005
Lease commitments	$	1,117	$	(239	)	$	878

~~ITEM 2~~5. ~~MANAGEMENT’S~~INCOME ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~TAXES

~~Management’s~~The ~~Discussion~~Company ~~and~~continues ~~Analysis~~to ofprovide ~~Financial~~a ~~Condition~~full ~~and~~valuation ~~Results~~allowance ofagainst ~~Operations~~its ~~contain forward-looking~~deferred ~~statements~~tax ~~which~~assets ~~involve~~in accordance ~~risks~~with ~~and~~Financial ~~uncertainties.~~Accounting ~~The~~Standard ~~Company’s~~No. 109, ~~actual~~“Accounting ~~results~~for ~~may differ~~Income ~~significantly~~Taxes”. ~~from~~As ~~the~~in ~~results~~its prior ~~discussed~~assessments, in the ~~forward-looking~~Company ~~statements.~~considered ~~Factors~~current ~~that might~~and ~~cause~~previous ~~such~~performance aand ~~difference~~other ~~include~~relevant factors ~~those discussed~~ in ~~the~~determining ~~“Cautionary Statements” set forth in~~ the ~~Company’s~~sufficiency ~~Annual~~of ~~Report~~its onvaluation ~~Form 10-K/A, Amendment No~~allowance. 1 ~~for~~Objective ~~the year ended December 31~~factors, ~~2003.~~such ~~The~~as ~~following~~current ~~discussion~~and ~~should~~previous beoperating ~~read~~losses, inwere ~~conjunction~~given ~~with~~substantially ~~the~~more ~~Company’s~~weight ~~consolidated~~than ~~financial~~management’s ~~statements~~outlook ~~included~~for ~~with~~future ~~this~~profitability. ~~report~~Until ~~and~~such ~~our~~time ~~consolidated~~as ~~financial~~a ~~statements~~consistent ~~and~~pattern ~~related~~of sufficient ~~Management’s~~profitability ~~Discussion~~is ~~and~~established, ~~Analysis~~no oftax ~~Financial~~benefit ~~Condition~~will ~~and~~be ~~Results~~recognized ofassociated ~~Operations~~with ~~for~~ the ~~year~~Company’s ~~ended December 31, 2003 included in our Annual Report on Form 10~~pre-~~K/A,~~tax ~~Amendment~~accounting Nolosses. 1.

~~Overview~~6. RECENT ACCOUNTING PRONOUNCEMENTS

~~See discussion~~In ~~under~~May 2005, ~~Item~~the Financial Accounting Standards Board (FASB) 1issued SFAS No. 154, “~~General~~Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement requires retrospective application of changes in ~~our~~accounting ~~Annual~~principle to prior periods’ ~~Report~~financial onstatements, ~~Form~~rather ~~10-K/A~~than the use of the cumulative effect of a change in accounting principle, ~~Amendment~~unless Noimpracticable. 1 ~~for~~If impracticable to determine the impact on prior periods, then ~~year~~the ~~ended~~new ~~December 31~~accounting principle should be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable, ~~2003~~with a corresponding adjustment to equity, unless impracticable for anall ~~overview~~periods presented, in which case prospective treatment should be applied. This statement applies to all voluntary changes in accounting principle, as well as those required by the issuance of ~~our~~new ~~business~~accounting pronouncements if no specific transition guidance is provided. This statement does not change the previously-issued guidance for reporting a change in accounting estimate or correction of an error. SFAS No. 154 becomes effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect this pronouncement to have a material impact on its financial position and results of operations.

~~Critical~~ In ~~Accounting~~December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS ~~Policies~~123R”). This standard requires expensing of stock options and ~~Estimates~~other share-based payments and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options or showing pro forma disclosure only. SFAS No. 123R is effective for registrants as of the beginning of the first fiscal year beginning after June 15, 2005. The Company is evaluating the two methods of adoption allowed by SFAS No. 123R; the modified-prospective transition method and the modified-retrospective transition method. Adoption of SFAS No. 123R will significantly increase compensation expense. Refer to Note 3 for the pro forma impact of stock based compensation on the current period results of operations. The actual impact on future years will be dependent on a number of factors, including the Company’s stock price and the level of future grants and awards from its stock plans.

~~There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2004 compared with those disclosed in Item~~ 7~~, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K/A, Amendment No~~. 1 ~~for~~SHAREHOLDERS’ ~~the year ended~~EQUITY ~~December 31, 2003.~~

~~Results~~ In April 2005, the Company’s Board of ~~Operations~~Directors approved a stock repurchase program whereby the Company may, at its discretion, spend up to $10.0 million for the repurchase of the Company’s common stock in the open market, subject to SEC guidelines and restrictions set forth in Rule 10b-18. The Company expended $4.1 million to purchase approximately 1.3 million shares of common stock during the quarter ended June 30, 2005, at an average price per share of $3.04. The Company retired these repurchased shares in June 2005.

~~Three~~8. ~~Months~~ASSET ~~Ended September 30, 2004 Compared with the Three Months Ended September 30, 2003~~ACQUISITION

~~Revenues.~~In ~~Revenues~~April 2005, ~~for~~ the ~~current~~Company ~~quarter~~entered ~~were~~into ~~$17.2 million~~an ~~compared~~Asset ~~with~~Purchase ~~$15.6 million~~Agreement ~~for~~ (the ~~third~~“Purchase ~~quarter~~Agreement”) with ofBrightfly ~~2003~~Development Inc. ~~The~~(“BDI”) ~~year-over-year~~for ~~improvement~~the inpurchase ~~revenues~~of ~~resulted~~certain ~~from~~assets aand ~~stronger~~intellectual ~~working~~property ~~sales~~of ~~pipeline~~BDI ~~entering~~for ~~the~~use ~~quarter,~~in ~~improved~~the ~~sales~~Company’s ~~execution~~development ~~and~~operations. ~~strong~~The ~~demand~~principals ~~for~~of ~~our~~BDI were ~~products.~~employed ~~License~~by ~~revenues~~the ~~for~~Company ~~the~~contemporaneously ~~third~~with ~~quarter~~the execution of ~~2004~~the ~~were~~Purchase $7Agreement.~~8 million,~~ orThe Purchase ~~45.6 percent~~Agreement ~~of total~~required ~~revenues,~~an upinitial ~~from~~payment of $70.43 million, orto ~~47.2 percent~~BDI ofupon ~~total~~execution ~~revenues,~~which inis ~~the~~included ~~third~~within ~~quarter~~research ~~of 2003.~~and ~~Services~~development ~~revenues~~expenses ~~for~~in the ~~third~~Company’s ~~quarter~~consolidated results of ~~2004~~operations ~~were~~for ~~$9.4 million,~~the orthree ~~54.4 percent~~and ofsix ~~total revenues,~~months upended ~~from $8.2~~June ~~million~~30, ~~or 52~~2005.~~8 percent~~ ofAn ~~total~~additional ~~revenues, in the third quarter of 2003~~$0.4 million ~~Services~~is ~~revenues~~due ~~for~~once the ~~third~~developed ~~quarter~~product ofis ~~2004~~available ~~were~~for ~~comprised~~general oflicensing ~~maintenance~~(but ~~revenues~~not oflater ~~$7.7~~than April 30, ~~million~~2007) and ~~professional~~a ~~services~~final ~~revenues~~payment of $10.74 million, upis ~~from~~due ~~$7.0 million~~on inor ~~maintenance revenues~~before ~~and~~April 30, $12007.~~2 million~~ inThese ~~professional~~additional payments ~~services~~are ~~revenues~~contingent inupon the ~~third~~BDI ~~quarter~~principals ofbeing ~~2003.~~employed ~~The increase~~by inthe ~~services~~Company ~~revenues~~at ~~was~~the ~~primarily~~time ~~due to an increase in our installed customer base and~~payment anis ~~increased focus on selling value-added consulting services~~due.

The average sales price for transactions in the third quarter of 2004 was $29 thousand, compared with $27 thousand in the third quarter of 2003 and $28 and $33 thousand in the first and second quarters of 2004, respectively. With respect to large transactions (sales greater than $130 thousand) we closed 25 during the current quarter having an average sales price of approximately $255 thousand, compared with 19 in the third quarter of 2003 having an average sales price of $284 thousand.

During the third quarter of 2004, revenues from our products for Microsoft-based platforms totaled $11.1 million, an increase of 11 percent over the third quarter of 2003. Revenues from these products accounted for approximately 65 percent of total revenues in the current quarter, up slightly from 64 percent of total revenues for the same quarter in the prior year. License revenues for our Microsoft-related products for the third quarter of 2004 were $5.8 million compared with $5.6 million in the third quarter of 2003. Maintenance revenues for our Microsoft-related products in the third quarter of 2004 were $5.3 million compared with $4.4 million in the third quarter of 2003. We expect revenues from our products and maintenance for Microsoft-based platforms will continue to grow as a percentage of total revenues.

Revenues from our products for Novell-based platforms for the current quarter were $2.6 million, or 15 percent of total revenues, compared with $3.0 million in the third quarter of 2003, or 20 percent of total revenues.

~~Consistent~~ITEM with the trend seen in past quarters, total revenues from these products were down year-over-year, reflecting both the maturity and our penetration of the Novell market. License revenues for Novell-based platforms were $0.8 million in the third quarter of 2004 compared with $1.0 million in the third quarter of 2003. Maintenance revenues for Novell-based platforms in the third quarter of 2004 were $1.7 million compared with $2.~~0 million~~ inMANAGEMENT’S ~~the~~DISCUSSION ~~third~~AND ~~quarter~~ANALYSIS ofOF ~~2003. While~~FINANCIAL weCONDITION ~~expect~~AND ~~our~~RESULTS ~~Novell~~OF ~~revenues will continue to decline in the future, we expect the revenue~~OPERATIONS ~~decline will be modest relative to the declines over the past two years and expect the decline will be offset by higher revenues from our products and maintenance for other platforms.~~

~~Sales~~Management’s ofDiscussion ~~our~~and ~~security~~Analysis ~~focused~~of ~~bv-Control~~Financial ~~product~~Condition ~~line~~and ~~accounted~~Results ~~for~~of ~~approximately~~Operations ~~83 percent~~contain offorward-looking ~~our~~statements ~~license~~which ~~revenue~~involve inrisks ~~the~~and ~~current~~uncertainties. ~~quarter,~~The ~~down~~Company’s ~~slightly~~actual results may differ significantly from ~~84 percent~~the results discussed in the ~~third~~forward-looking ~~quarter~~statements. Factors that ofmight ~~2003.~~cause ~~Sales~~such ofa ~~our~~difference ~~system~~include ~~administration~~those ~~focused~~discussed ~~bv-Admin~~in ~~product~~the ~~line~~“Cautionary ~~accounted~~Statements” ~~for~~set forth in ~~approximately~~the ~~13 percent~~Company’s ofAnnual ~~our~~Report ~~license~~on ~~revenue~~Form in10-K for the ~~third~~year ~~quarter~~ended ofDecember 31, 2004. ~~compared~~The ~~with 16~~following ~~percent~~discussion should be read in conjunction with the ~~third~~Company’s ~~quarter~~consolidated offinancial ~~2003.~~statements included ~~The~~with ~~increase~~this inreport and our ~~bv-Control~~consolidated ~~product~~financial ~~line~~statements ~~revenues~~and asrelated aManagement’s ~~percentage~~Discussion ofand ~~total~~Analysis ~~revenue~~of ~~has~~Financial ~~increased~~Condition ~~year-over-year~~and ~~primarily~~Results ~~due~~of toOperations for the ~~increased~~year ~~demand in~~ended ~~the~~December 31, ~~market~~2004 ~~for~~included ~~software~~in toour ~~assist~~Annual ~~customers~~Report ~~with~~on ~~policy~~Form ~~compliance and vulnerability management requirements~~10-K.

~~No customer accounted for more than 10 percent of our revenues in the third quarter of 2004 or~~Overview 2003. Revenues recognized from sales to customers outside North America, primarily in Europe, accounted for approximately 10 percent of total revenues in the current quarter, up from 8 percent in the third quarter of 2003.

~~Gross~~See ~~Profit.~~discussion ~~Gross~~under ~~profit for the current quarter totaled $14.6~~Item ~~million~~1, ~~which~~“General” ~~was up from $13.5 million~~ in ~~the~~our ~~third~~Annual ~~quarter~~Report ofon ~~2003~~Form ~~due~~10-K ~~to the increase in revenues. Gross margin~~ for the ~~current~~ ~~quarter~~year ~~was 84.7~~ended December ~~percent~~31, ~~down~~2004 ~~from~~for ~~86.5 percent in the third quarter of 2003. This decline primarily related to a shift in business mix toward services revenues, which have a lower gross margin than license revenues, and~~ an ~~increase~~overview ~~in technical support staff to improve the level~~ of ~~support provided to~~ our ~~customer base~~business.

~~Gross~~Critical ~~profit~~Accounting ~~generated from license revenues for the third quarter of 2004 was $7.5 million,~~Policies compared with $7.2 million for the third quarter of 2003. The gross margin from license revenues for the third quarter of 2004 was 95.0 percent, compared with 98.1 percent for the third quarter of 2003. The decline in gross margin was primarily due to an increase in royalty expenses of $0.3 million over the third quarter of 2003 for royalties on sales of our patch deployment offering under terms of a licensing agreement with the owner of the technology. Excluding these royalty payments and associated license revenues, gross margin from license revenues were 98.6 percent, which is comparable with the third quarter of 2003.

~~Gross~~There ~~profit~~have ~~from~~been ~~services~~no ~~revenues~~significant ~~for~~changes ~~the~~to ~~third~~our ~~quarter~~critical ofaccounting ~~2004~~policies ~~was~~and ~~$7.1 million, compared~~estimates ~~with~~during ~~$6.2 million for~~ the ~~third~~six ~~quarter~~months ofended ~~2003.~~June 30, ~~Gross~~2005 ~~margin~~compared ~~from~~with ~~services~~those ~~revenues~~disclosed ~~for~~in ~~the~~Item 7, ~~third~~Management’s ~~quarter~~Discussion ofand ~~2004~~Analysis ~~was 76.0 percent compared with 76.2 percent for the third quarter~~ of ~~2003.~~Financial ~~While we~~Condition ~~do not track~~ and ~~measure~~Results ~~costs~~ of ~~performing~~Operations ~~services~~included ~~(i.e.,~~in ~~technical~~our ~~support, professional~~Annual ~~services)~~Report byon ~~product~~Form ~~platform~~10-K ~~(i.e.,~~for ~~Microsoft, Novell, etc.), we do not believe there is a material difference in~~ the ~~gross~~year ~~margin~~ended byDecember 31, ~~product line~~2004.

~~Operating~~Results ~~Costs and Expenses. Operating costs and expenses for the current quarter totaled $17.2 million, up from $14.7 million for the third quarter~~ of ~~2003. The increase in operating costs and~~Operations expenses is primarily due to (i) costs for the production of video-based training materials necessary to augment our existing capabilities and to fulfill the requirements of a multi-million dollar sales opportunity in the fourth quarter of 2004, (ii) severance costs for the elimination of positions in our R&D group, (iii) significant investments in sales and marketing since the third quarter of 2003, (iv) costs related to our planned expansion of our R&D operations in India and (v) and expenses associated with Sarbanes-Oxley compliance.

~~Sales~~Three ~~and~~Months ~~marketing~~Ended ~~expenses for the current quarter were $9.6~~June ~~million (55.9 percent of revenues)~~30, up2005 ~~from~~Compared ~~$8.3 million~~with ~~(53.2 percent of revenues) for~~ the ~~third~~Three ~~quarter~~Months ofEnded 2003. The increase in sales and marketing expenses primarily related to investments in areas where we see long-term growth opportunities, specifically our Federal and European operations. We also added personnel to our inside sales force and increased spending on marketing programs to grow our working sales pipeline. As a result of these investments, our personnel related costs increased approximately $0.8June ~~million over the third quarter of 2003. In addition~~30, ~~variable sales compensation expense increased $0.2 million as a result of the increase in revenues in the third quarter of~~ 2004 ~~as compared to the third quarter of 2003. We expect sales and marketing expenses as a percentage of revenues to be lower in the fourth quarter of 2004 as a result of anticipated revenue growth.~~

Revenues. Revenues for the current quarter were $17.2 million compared with $17.9 million for the second quarter of 2004. License revenues for the second quarter of 2005 were $7.9 million, or 45.8 percent of total revenues, down from $8.6 million, or 48.4 percent of total revenues, in the second quarter of 2004. The $0.7 million decline in license revenues was primarily due to the absence of license transactions greater than $0.5 million during the current quarter. During the second quarter of 2004, we closed three transactions over $0.5 million totaling $1.7 million in license revenues. Service revenues for the second quarter of 2005 were $9.3 million, or 54.2 percent of total revenues, up from $9.2 million, or 51.6 percent of total revenues, in the second quarter of 2004. Service revenues for the second quarter of 2005 were comprised of maintenance revenues of $8.1 million and professional service revenues of $1.2 million, compared with $7.8 million in maintenance revenues and $1.4 million in professional service revenues in the second quarter of 2004. The increase in service revenues was primarily due to high customer maintenance renewal rates on our growing install base. Our professional service revenues decline was due to fewer customers undertaking migration related projects. The average sales price for transactions in the second quarter of 2005 was $29 thousand, compared with $33 thousand in the second quarter of 2004 and $29 thousand in the first quarter of 2005.

During the second quarter of 2005, revenues from our products for Microsoft-based platforms totaled $11.7 million, a decrease of 5.6 percent over the second quarter of 2004. Revenues from these products accounted for approximately 68 percent of total revenues in the second quarter of 2005, down from 69 percent of total revenues for the second quarter of 2004. License revenues for our Microsoft-related products for the second quarter of 2005 were $5.9 million compared with $7.1 million in the second quarter of 2004. Maintenance revenues for our Microsoft-related products in the second quarter of 2005 were $5.8 million compared with $5.2 million in the second quarter of 2004.

Revenues from our products for Novell-based platforms for the second quarter of 2005 were $2.2 million, or 13 percent of total revenues, compared with $2.7 million, or 15 percent of total revenues, in second quarter of 2004. Consistent with the trend seen in past quarters, total revenues from these products were down year-over-year, reflecting both the maturity and our penetration of the Novell market. License revenues for Novell-based platforms

~~Research and development expenses~~ for the ~~current~~second quarter of 2005 were $50.6 million ~~(32.8 percent~~compared ~~of revenues),~~with ~~up from~~ $40.68 million ~~(29.3 percent of revenues)~~ for the ~~third~~second quarter of ~~2003~~2004. ~~This increase~~Maintenance ~~related~~revenues ~~to (i) $0.9 million~~ for ~~the production of video~~Novell-based ~~training~~platforms ~~material necessary to augment our existing capabilities and to fulfill the requirements of a multi-million dollar sales opportunity~~ in the ~~fourth~~second quarter of ~~2004;~~2005 ~~(ii)~~were $01.2 6 million ofcompared ~~severance~~with costs for the elimination of positions in our R&D group; and (iii) our actions taken to affect the planned expansion of our R&D operations in India to better execute on our product strategy. The remaining costs of the video-based training materials is approximately $01.89 million, ~~which will be incurred~~ in the ~~fourth~~second quarter of 2004. ~~These production costs~~ ~~are expensed as incurred. We estimate an annualized benefit on R&D expenses of approximately $0.8 million as a result of the elimination of R&D positions.~~

~~General~~Sales ~~and~~of ~~administrative~~our ~~expenses~~security ~~for~~focused ~~the~~bv-Control ~~current~~product ~~quarter~~line ~~were~~accounted ~~$1.9~~for approximately 89 ~~million~~percent of inour ~~both~~license revenue in the ~~third~~ second quarter of ~~2004~~2005 ~~(11.2~~compared with 86 percent ofin ~~revenues)~~the ~~and~~second ~~2003~~quarter ~~(12.0 percent~~ of ~~revenues)~~2004. WeSales ~~incurred~~of ~~approximately~~our ~~$0.4 million~~system inadministration ~~external~~focused ~~costs~~bv-Admin inproduct ~~connection~~line ~~with~~accounted ~~our~~for approximately ~~efforts~~6 percent toof ~~comply~~our ~~with~~license ~~Sarbanes-Oxley section~~revenue ~~404~~in ~~during~~ the ~~third~~second quarter of ~~2004.~~2005 Wecompared ~~anticipate~~with ~~approximately~~14 percent ~~$0.3 million~~ in ~~additional~~ ~~external costs associated with our 404 efforts to be incurred during~~ the ~~fourth~~second quarter of 2004. The increase in ~~general~~our ~~and~~bv-Control ~~administrative~~product ~~expenses~~line revenues as a percentage ~~result~~ of ~~Sarbanes-Oxley~~total ~~compliance costs~~revenue ~~were~~year-over-year ~~partially~~was ~~offset~~primarily bydue ato ~~$0.3 million~~the ~~reduction~~increased demand in ~~our~~the ~~sales tax reserves initially~~market ~~established~~for insoftware ~~2001.~~to Weassist ~~estimate~~customers ~~professional service fees associated~~ with ~~our~~policy ~~Latin America~~compliance ~~investigation (See Item 4-Controls~~ and ~~Procedures)~~vulnerability ~~will~~management ~~total $1~~requirements.~~0 million during the~~ ~~fourth quarter of 2004, up from our initial estimate of $0.5 million.~~

WeNo ~~recorded~~customer ~~restructuring~~accounted ~~charges~~for ~~totaling~~more ~~$0.1~~than 10 ~~million~~percent inof our revenues during the second quarter of 2005 or 2004 ~~primarily~~. toRevenues ~~establish~~recognized afrom ~~reserve~~sales into ~~connection~~customers ~~with~~outside ~~our~~North ~~sublease~~America, primarily in Europe, accounted for ~~excess~~approximately ~~office~~13 percent ~~space~~of total revenues in the second quarter of 2005 ~~Arlington,~~compared VAwith 11 percent in the second quarter of 2004.

InGross ~~January 2003,~~Profit. we Gross ~~approved~~profit afor ~~sales~~the ~~and~~current ~~marketing~~quarter ~~reorganization~~totaled ~~plan~~$15.0 million, ~~(the~~down ~~“2003~~5 percent from ~~Restructuring~~the ~~Plan”).~~second ~~The~~quarter ~~cost~~ of ~~this~~2004, ~~plan~~which ~~totaled~~was ~~approximately~~commensurate ~~$0.5 million~~with ~~and~~the ~~consisted primarily~~year-over-year ofdecline ~~(i) involuntary~~in ~~employee~~license revenues. ~~separation~~Gross margin for ~~approximately~~the 20current ~~employees~~quarter (awas ~~reduction~~86.9 percent, down from 88.3 percent in the ~~workforce~~second quarter of ~~approximately~~2004. ~~4 percent),~~The ~~(ii) closing~~decline ~~the~~in ~~Company’s~~gross ~~Netherlands~~margin ~~sales~~reflected ~~office,~~a ~~and (iii) reserves~~shift ~~for~~in ~~leasehold~~business ~~abandonment.~~mix ~~All~~toward service ~~actions~~revenues, ~~under~~which ~~the~~have ~~2003~~a ~~Restructuring~~lower ~~Plan~~gross ~~were completed~~margin bythan ~~December 31,~~license ~~2003~~revenues.

InGross ~~July 2002,~~profit wegenerated ~~approved~~from alicense ~~restructuring~~revenues ~~plan~~for ~~to improve operating efficiency and improve sales and marketing productivity (~~the ~~“2002~~second ~~Restructuring~~quarter ~~Plan”). The cost~~ of ~~this~~2005 ~~plan~~was ~~totaled approximately~~ $17.97 million, compared ~~and~~with ~~consisted primarily of (i)~~$8.5 ~~involuntary~~million ~~employee separation~~ for ~~approximately~~ 30the ~~employees~~second (aquarter ~~reduction~~of in2004. ~~workforce~~The ofgross ~~approximately~~margin ~~5 percent),~~from ~~(ii) closing~~license ~~the~~revenues ~~Company’s~~for ~~Boston~~the ~~development~~second ~~center~~quarter ~~and~~of ~~certain~~2005 ~~European sales offices, (iii) reserves for leasehold abandonment,~~ and ~~(iv) various~~2004 ~~non-personnel~~was ~~related cuts~~97.8 percent.

~~The~~Gross ~~remaining~~profit ~~accrual~~from service revenues for the ~~2002~~second ~~Restructuring~~quarter ~~Plan~~of at2005 ~~December~~was $7.2 31million, ~~2003~~compared with ~~was~~$7.3 million ~~comprised~~for of the ~~estimated~~second ~~carrying~~quarter ~~costs~~of ~~for~~2004. ~~our~~Gross ~~remaining~~margin ~~excess~~from ~~space~~service inrevenues ~~Houston,~~for ~~Texas. During~~ the ~~second~~ second quarter of ~~2004,~~2005 wewas ~~received~~77.8 percent ~~letters~~compared ofwith ~~intent~~79.3 percent tofor ~~sublease~~ the ~~remaining~~second ~~excess~~quarter ~~space.~~of ~~We recorded~~2004. aThe ~~$0.1 million~~decline ~~adjustment~~in togross ~~our~~margin ~~restructuring~~reflected ~~accrual~~higher aspersonnel acosts ~~result~~associated ofwith ~~receiving~~our ~~these letters of~~professional ~~intent~~services unit. ~~The~~While ~~remaining~~we ~~accrual~~do atnot ~~September 30,~~track ~~2004~~and ismeasure ~~comprised~~costs of ~~our~~performing ~~carrying~~services ~~costs~~(i.e., ~~for the~~technical ~~remaining~~support, ~~space~~professional inservices) ~~Houston~~by ~~that~~product ~~are~~platform in(i.e., ~~excess~~Microsoft, ofNovell, ~~anticipated sublease payments~~etc.), ~~Adjustments~~we ~~could~~do not bebelieve ~~required in future periods if~~ there ~~are~~is ~~significant~~a ~~changes~~material todifference in the ~~terms~~gross ~~and~~margin ~~conditions~~by ofproduct ~~the sublease arrangements~~line.

~~The~~Operating ~~2002~~Costs ~~Restructuring~~and ~~Plan~~Expenses. ~~activity~~Operating ~~from~~costs ~~December~~and expenses for the second quarter of 2005 totaled $17.2 31million, ~~2003~~compared towith ~~September~~$17.3 ~~30,~~million for the second quarter of 2004. ~~was~~Operating ascosts ~~follows~~for (the second quarter of 2005 included a restructuring charge of approximately $1.1 million and a $0.3 million charge included in ~~thousands~~research and development costs related to our acquisition of certain assets of Brightfly Development, Inc (“BDI”):. Operating costs for the second quarter of 2004 included a restructuring charge of $0.1 million and severance charges of approximately $0.3 million. Excluding these charges, operating costs and expenses were approximately $1.1 million, or 6.4 percent, lower in the second quarter of 2005 primarily due to improvement in operating efficiency since the second quarter of last year.

	REMAINING		RESTRUCTURING					REMAINING
	ACCRUAL		CHARGE		CASH			ACCRUAL
	12/31/2003		ADJUSTMENTS		EXPENDITURES			9/30/2004
Lease commitments	$	1,538	$	33	$	(384	)	$	1,187

Sales and marketing expenses for the second quarter of 2005 were $9.4 million (54.7 percent of revenues), down from $9.7 million (54.5 percent of revenues) for the second quarter of 2004. The decline in sales and marketing expenses was primarily attributable to lower incentive-based compensation due to the decline in revenues quarter over quarter. We expect sales and marketing expenses as a percentage of revenues to be lower in the second half of 2005 as a result of anticipated revenue growth.

InResearch ~~2001,~~and wedevelopment ~~completed~~expenses afor ~~corporate~~the ~~reorganization~~second ~~and~~quarter ~~implemented~~of a2005 ~~number~~were $4.6 million (26.8 percent of ~~cost-cutting~~revenues), down from $5.4 million (30.2 percent of revenues) for the second quarter of ~~measures~~2004. toThe ~~improve~~decline ~~operating~~in ~~efficiency~~research and todevelopment ~~accelerate~~expenses ~~our~~was ~~return~~primarily due to ~~profitability~~a ~~(the~~reduction ~~“2001~~in ~~Restructuring~~personnel ~~Plan”).~~costs ~~The~~as ~~cost~~a result of ~~this~~our ~~plan~~transition ~~totaled~~of ~~approximately~~headcount from our domestic operations in Houston, Texas to our subsidiary in Pune, India. Second quarter 2005 results include a $60.63 million ~~and consisted~~charge ~~primarily~~related to our acquisition of: ~~(i) involuntary~~certain ~~employee~~assets ~~separation~~of ~~expenses~~BDI. ~~for~~In ~~approximately~~addition, ~~160~~second ~~employees~~quarter (aof 2004 results ~~reduction~~included inseverance ~~workforce~~costs of approximately 21$0.3 ~~percent),~~million ~~(ii) downsizing~~related to management changes within R&D.

or In ~~closing~~May of ~~the~~2005, ~~Company’s~~we ~~Boston~~approved a plan to make organizational changes primarily in R&D and marketing ~~Arlington~~operations ~~development~~to ~~centers~~reduce expenses and ~~certain~~improve ~~European~~operational efficiency by shifting more ~~sales~~development ~~offices,~~to ~~(iii) reserves~~the ~~for~~our ~~leasehold~~India ~~abandonment~~facility, ~~and~~flattening ~~(iv) various~~our ~~non-personnel~~management ~~related~~structure and aligning marketing ~~costs.~~initiatives ~~The~~with ~~restructuring~~IT ~~costs~~security ~~included~~compliance aopportunities ~~$1.2 million~~(the ~~charge~~“2005 ~~related~~Restructuring toPlan”). ~~asset~~The ~~impairments~~cost of ~~leasehold~~this ~~improvements,~~plan ~~equipment~~totaled ~~and~~approximately ~~other~~$1.1 million ~~assets~~and consisted of ~~the~~involuntary ~~closed~~employee ~~or downsized offices~~separation costs.

The ~~2001~~2005 Restructuring Plan activity ~~from~~for ~~December 31,~~the ~~2003~~three toand ~~September~~six months ended June 30, ~~2004~~2005 was as follows (in thousands):

	REMAINING		RESTRUCTURING						REMAINING
						Remaining
	ACCRUAL		CHARGE			CASH			ACCRUAL
	Restructuring		Cash			Accrual
	12/31/2003		ADJUSTMENTS			EXPENDITURES			9/30/2004
	Charges		Expenditures			6/30/2005
Lease commitments	$	453	$	13		$	(445	)	$	21
Employee severance	$	1,142	$	(588	)	$	554

~~The~~We ~~remaining~~expect ~~accrual~~all ~~for~~actions under the ~~2001~~2005 Restructuring Plan ~~consists~~will ofbe ~~excess~~completed ~~carrying~~by ~~costs~~October 2005 with ~~for~~severance ~~the~~payments ~~Company’s~~completed ~~Boston~~by ~~facility~~September 2006. ~~lease~~The ~~which~~2005 ~~expires~~Restructuring Plan will result in ~~December~~an estimated reduction in annual operating expenses of approximately $3.7 ~~2004~~million.

~~Provision~~In ~~for~~December ~~Income Taxes. We did not record an income tax provision or benefit for our domestic operations in either the third quarter~~ of 2004 ~~or 2003~~, as we ~~continue~~approved ~~to provide~~ a ~~full valuation~~plan ~~allowance~~to ~~against~~eliminate ~~our~~certain ~~deferred~~positions ~~tax~~primarily ~~assets~~ in ~~accordance with Financial Accounting~~Latin ~~Standards~~America ~~No. 109,~~(the “~~Accounting~~2004 ~~for~~Restructuring ~~Income Taxes~~Plan”). AsThe incost ~~our~~of ~~prior~~this ~~assessments,~~plan wetotaled ~~considered current~~approximately $0.5 million and ~~previous~~consisted ~~performance~~primarily ~~and other relevant factors in determining the sufficiency~~ of ~~our valuation~~involuntary ~~allowance.~~employee ~~Objective~~separation ~~factors, such as current and previous operating losses, were given substantially more weight than our outlook for future profitability~~costs. ~~Until~~The ~~such~~2004 ~~time~~Restructuring asPlan ~~a consistent pattern of sufficient profitability is established, no tax benefit~~ will ~~be recognized~~ ~~associated~~result ~~with~~in ~~the~~an ~~Company’s~~estimated ~~pre-tax~~reduction ~~accounting~~in ~~losses~~annual ~~and~~operating aexpenses ~~full income tax provision will not be provided on any future pre-tax accounting income. A provision~~ of approximately $0.1.2 million ~~was recorded for taxes related to our foreign operations during the third quarter of 2004~~.

~~Net~~The ~~Loss.~~2004 ~~Due~~Restructuring toPlan ~~the~~activity ~~factors~~from ~~described above~~December 31, ~~net~~2004 ~~loss~~to ~~for the quarter ended September~~June 30, ~~2004~~ 2005 was ~~$2.6 million~~as ~~compared~~follows (in ~~with $1.1 million for the quarter ended September 30, 2003.~~thousands):

Nine Months Ended September 30, 2004 Compared with the Nine Months Ended September 30, 2003


	Remaining					Remaining
	Accrual		Cash			Accrual
	12/31/2004		Expenditures			6/30/2005
Employee severance	$	306	$	(254	)	$	52
Other		20		(8	)		12

	$	326	$	(262	)	$	64

~~Revenues.~~We ~~Revenues~~expect ~~for~~all ~~the~~payments ~~first~~under ~~nine months of 2004 were $49.9 million compared with $43.9 million for~~ the first nine months of 2003. The year-over-year improvement in revenues resulted from a stronger working sales pipeline entering the year, improved sales execution and strong demand for our products. License revenues for the first nine months of 2004 ~~were~~Restructuring ~~$22.4 million, or~~Plan ~~44.9 percent~~will ofbe ~~total~~completed ~~revenues,~~by ~~up from $19.9~~September ~~million, or 45~~2005.~~4 percent of total revenues, in the~~ first nine months of 2003. Service revenues for the first nine months of 2004 were $27.5 million, or 55.1 percent of total revenues, up from $24.0 million, or 54.6 percent of total revenues, for the first nine months of 2003. Services revenues for the first nine months of 2004 were comprised of maintenance revenues of $23.0 million and professional services revenues of $4.5 million, up from $20.9 million in maintenance revenues and $3.1 million in professional services revenues in the first nine months of 2003. The increase in services revenues was primarily due to maintenance renewals on an increasing base of licensed customers and an increase in professional services revenues.

~~With~~We ~~respect~~approved restructuring plans during 2002 and 2001 designed to ~~large~~improve ~~transactions~~operating efficiency (~~sales~~the ~~greater~~“Reorganization ~~than~~Plans”). The costs of these plans, and subsequent modifications to their original estimates, totaled approximately $~~130~~11.5 million. ~~thousand~~The Reorganization Plans were comprised of (i) involuntary weseparation ~~closed~~costs, 65(ii) closing ~~during~~our ~~the~~Boston development center and certain ~~first~~European ~~nine~~sales ~~months~~offices, of(iii) reserves ~~2004~~for ~~having~~leasehold abandonment, and (iv) various non-personnel related cuts. The Reorganization Plans resulted in an ~~average~~estimated ~~sales~~reduction ~~price~~in annual operating expenses of approximately $~~300~~14.7 million. ~~thousand,~~The ~~compared with~~remaining 49accrual infor the ~~first~~Reorganization ~~nine~~Plans ~~months~~at June 30, 2005 is comprised of ~~2003~~the ~~having~~lease ancosts ~~average~~for ~~sales~~the ~~price~~remaining ofexcess ~~$280~~space ~~thousand~~in Houston, Texas. The Reorganization Plans’ activity for the six months ended June 30, 2005 was as follows (in thousands):

During the first nine months of 2004, revenues from our products for Microsoft-based platforms totaled $33.6 million, an increase of 15 percent over the first nine months of 2003. Revenues from these products accounted for approximately 67 percent of total revenues in the first nine months of 2004, up from 66 percent of total revenues for the first nine months of the prior year. License revenues for our Microsoft-related products for the first nine months of 2004 were $18.0 million compared with $16.2 million in the first nine months of 2003. Maintenance revenues for our Microsoft-related products in the first nine months of 2004 were $15.5 million compared with $12.9 million in the first nine months of 2003. We expect revenues from our products and maintenance for Microsoft-based platforms will continue to grow as a percentage of total revenues.


	Remaining					Remaining
	Accrual		Cash			Accrual
	12/31/2004		Expenditures			6/30/2005
Lease commitments	$	1,117	$	(239	)	$	878

Provision for Income Taxes. We did not record an income tax provision or benefit for our domestic operations in either the second quarter of 2005 or 2004, as we continue to provide a full valuation allowance against our deferred tax assets in accordance with Financial Accounting Standards No. 109, “Accounting for Income Taxes”. As in our prior assessments, we considered current and previous performance and other relevant factors in determining the sufficiency of our valuation allowance. Objective factors, such as current and previous operating losses, were given substantially more weight than our outlook for future profitability. Until such time as a consistent

~~Revenues~~pattern ~~from our products for Novell-based platforms for the first nine months~~ of ~~2004~~sufficient ~~were $7.7 million,~~profitability oris ~~15 percent of total revenues~~established, ~~compared~~we ~~with~~will ~~$8.6 million,~~not orrecognize ~~20 percent~~any oftax ~~total~~benefit ~~revenues,~~associated ~~in the first nine months of 2003. Consistent~~ with ~~the trend seen in past quarters, total revenues from these products were down year-over-year, reflecting both the maturity and~~ our ~~penetration~~ ofdomestic ~~the Novell market. License revenues for Novell~~pre-~~based~~tax ~~platforms~~accounting ~~were $2~~losses.~~3 million~~ ~~in both~~A ~~the~~provision ~~first nine months~~ of ~~2004 and 2003. Maintenance revenues for Novell-based platforms in the first nine months of 2004 were~~ $50.41 million ~~compared~~was ~~with $6.3 million in the first nine months~~recorded offor ~~2003.~~taxes ~~While~~related weto ~~expect~~ our ~~Novell~~foreign ~~revenues~~operations ~~will continue to decline~~ in ~~the~~both ~~future, we expect~~ the ~~revenue~~ ~~decline~~second ~~will~~quarter beof ~~modest~~2005 ~~relative to the declines over the past two years~~ and ~~expect the decline will be offset by higher revenues from our products and maintenance for other platforms~~2004.

~~Sales~~Net ofLoss. ~~our~~Due ~~security~~to ~~focused~~the ~~bv-Control~~factors ~~product~~described ~~line~~above, ~~accounted~~net loss for ~~approximately 85 percent of our license revenue in~~ the ~~first~~quarter ~~nine~~ended ~~months of 2004 compared with 80~~June ~~percent~~30, ~~in the first nine~~2005 ~~months~~was ~~of 2003~~$2. ~~Sales of our system administration focused bv-Admin product line accounted for approximately 14~~0 ~~percent~~million ~~of our license revenue in the first nine months of 2004~~ compared with ~~20 percent~~$1.5 million infor the ~~first~~quarter ~~nine~~ended ~~months~~June 30, of 2004. ~~The increase in our bv-Control product line revenues as~~ a percentage of total revenue has increased year-over-year primarily due to the increased demand in the market for software to assist customers with policy compliance and vulnerability management requirements.

NoSix ~~customer~~Months ~~accounted~~Ended ~~for more than 10~~June ~~percent~~30, of2005 ~~our~~Compared ~~revenues~~with in the ~~first~~Six ~~nine~~Months ~~months~~Ended ~~of 2004 or 2003. Revenues recognized from sales to customers outside North America~~June 30, ~~primarily in Europe, accounted for approximately 11 percent of total revenues in the first nine months of~~ 2004 ~~up from 10 percent in the first nine months of 2003.~~

~~Gross Profit~~Revenues. ~~Gross~~Revenues ~~profit~~ for the first ~~nine~~six months of ~~2004~~2005 ~~totaled~~were $4332.2 million, ~~which~~compared ~~was up~~with ~~from~~ $3832.5 7 million infor the first ~~nine~~six months of ~~2003~~2004. ~~Gross~~License ~~margin~~revenues for the first ~~nine~~half ~~months~~ of 2005 were $13.5 ~~2004~~million, ~~was~~or 8641.69 percent of total revenues, down from 87$14.6 million, or 44.5 percent of total revenues, in the first ~~nine~~half ~~months~~ of ~~2003~~2004. ~~This~~The $1.1 million decline ~~primarily~~ ~~related~~in license revenues was primarily due to a ~~shift~~reduction in ~~business~~license ~~mix~~transactions ~~toward~~greater ~~services~~than ~~revenues~~$0.5 million during the six month period ended June 30, ~~which~~2005 ~~have~~compared awith ~~lower~~the ~~gross~~same period of 2004. During the six months ended June 30, ~~margin~~2004, we closed four transactions greater than $0.5 million totaling $2.3 million in license revenues. During the six months ended June 30, 2005, we closed one license transaction greater than $0.5 million, which accounted for $0.8 million in license revenue. Service revenues ~~and~~for anthe first ~~increase~~half of 2005 were $18.7 million, or 58.1 percent of total revenues, up from $18.2 million, or 55.5 percent of total revenues, in ~~technical~~the ~~support~~first ~~staff~~half toof ~~improve~~2004. Service revenues for the ~~level~~first half of ~~support~~2005 ~~provided~~were comprised of maintenance revenues of $16.1 million and professional service revenues of $2.6 million, compared with $15.3 million in maintenance revenues and $2.9 million in professional service revenues in the first half of 2004. The increase in service revenues was primarily due to high customer maintenance renewal rates on our ~~customer~~growing install base. Our professional service revenues decline was due to fewer customers undertaking migration related projects.

~~Operating~~During ~~Costs~~the ~~and~~first ~~Expenses.~~half ~~Operating~~of ~~costs~~2005, ~~and~~revenues ~~expenses~~from ~~for~~our ~~the~~products ~~first~~for ~~nine~~Microsoft-based ~~months of 2004~~platforms totaled $5021.25 million, upa ~~from~~decrease ~~$44.8~~of 4 ~~million~~percent ~~for~~over the first ~~nine~~half ~~months~~ of ~~2003~~2004. ~~Operating~~Revenues ~~costs~~from these ~~included~~products ~~restructuring~~accounted ~~and~~for ~~severance~~approximately ~~charges~~67 percent of ~~approximately~~total ~~$0.8 million~~revenues in the first ~~nine~~half ~~months~~ of ~~2004~~2005, ~~and~~down from ~~$0.5~~69 ~~million~~percent inof total revenues for the first ~~nine~~half ~~months~~ of ~~2003~~2004. ~~Excluding~~License ~~these~~revenues ~~charges,~~for ~~operating~~our ~~costs~~Microsoft-related ~~and~~products ~~expenses~~for ~~were~~the ~~approximately~~first half of 2005 were $410.81 million, orcompared 10with $12.~~9 percent,~~2 million ~~higher~~ in the first ~~nine months~~half of 2004. ~~due~~Maintenance torevenues ~~significant~~for ~~investments~~our inMicrosoft-related ~~sales~~products ~~and~~in ~~marketing since~~ the first ~~nine~~half ~~months~~ of ~~2003,~~ ~~costs~~2005 ~~related~~were to$11.4 million ~~our~~compared ~~planned~~with ~~expansion~~$10.2 million ofin ~~our~~the ~~R&D~~first ~~operations~~half inof ~~India,~~2004. ~~production of~~We ~~video-based~~expect ~~training~~revenues ~~material,~~from ~~higher~~our ~~wage~~products and ~~health~~maintenance ~~care~~for ~~costs~~Microsoft-based ~~and~~platforms ~~expenses~~will ~~associated~~continue ~~with~~to ~~Sarbanes-Oxley~~grow ~~compliance~~as a percentage of total revenues.

~~Sales~~Revenues ~~and~~from ~~marketing~~our ~~expenses~~products for ~~the~~Novell-based ~~nine~~platforms ~~months~~for ~~ended~~the ~~September 30,~~first ~~2004~~half of 2005 were $284.~~5 million~~0 ~~(57.2~~million, or 12 percent of total revenues), upcompared ~~from~~with $255.32 million, ~~(57.6~~or 16 percent of total revenues), ~~for~~in the ~~nine~~first ~~months ended~~half ~~September 30,~~of ~~2003~~2004. ~~The~~Consistent ~~increase~~with inthe ~~sales~~trend ~~and~~seen ~~marketing~~in ~~expenses~~past ~~primarily~~quarters, ~~related to~~total ~~investments~~revenues infrom ~~areas~~these ~~where~~products wewere ~~see~~down ~~long~~year-~~term growth opportunities~~over-year, ~~specifically~~reflecting ~~our~~both ~~Federal~~the ~~and European~~maturity ~~operations. We also added personnel to our inside sales force~~ and ~~increased spending on~~our ~~marketing~~penetration ~~programs~~of tothe ~~grow~~Novell ~~our working sales pipeline~~market. AsLicense arevenues ~~result~~for ofNovell-based ~~these~~platforms ~~investments,~~were ~~our personnel related costs increased approximately~~ $20.18 million in ~~over~~ the first ~~nine~~half ~~months~~ of ~~2003. In~~2005 ~~addition,~~and ~~variable sales compensation expense increased~~ $01.75 million ~~as a result of the increase~~ in ~~revenues~~ ~~for~~ the first ~~nine~~half ~~months~~ of 2004. asMaintenance ~~compared~~revenues tofor Novell-based platforms in the first ~~nine~~half ~~months~~ of ~~2003.~~2005 Wewere ~~expect sales~~$3.2 million ~~and~~compared ~~marketing~~with ~~expenses~~$3.7 million ~~as a percentage of revenues to be lower~~ in the ~~last~~first ~~quarter~~half of 2004 ~~as a result of anticipated revenue growth~~.

~~Research~~Sales ~~and~~of ~~development~~our ~~expenses~~security ~~for~~focused ~~the~~bv-Control ~~nine~~product ~~months~~line ~~ended~~accounted ~~September 30,~~for ~~2004~~approximately ~~were $15.6 million (31.3~~84 percent of ~~revenues),~~our uplicense ~~from~~revenue ~~$13.4 million~~in ~~(30.4 percent~~the offirst ~~revenues)~~half ~~for~~of ~~the~~2005 ~~nine months~~compared ~~ended~~with ~~September~~85 ~~30,~~percent ~~2003.~~in ~~This~~the ~~increase~~first ~~related~~half ~~to (i) our actions taken to affect the planned~~of ~~expansion~~2004. Sales of our ~~R&D~~system ~~operations~~administration infocused ~~India~~bv-Admin ~~to better execute on our~~ product ~~strategy;~~line ~~(ii)~~accounted ~~$0.9 million in expense~~ for ~~the~~approximately ~~production~~8 percent of ~~video-based training materials necessary to augment~~ our ~~existing~~license ~~capabilities~~revenue ~~and to fulfill the requirements of a multi-million dollar sales opportunity~~ in the ~~fourth~~first ~~quarter~~half of ~~2004;~~2005 ~~and~~compared ~~(iii) $0.2~~with ~~million in severance costs related to management changes within R&D. We have incurred $0.7~~15 ~~million~~percent in ~~expenses~~ ~~related to our planned expansion of our R&D operations in India for~~ the first half ~~nine~~of ~~months~~2004. of

No customer accounted for more than 10 percent of our revenues during the first half of 2005 or 2004. Revenues recognized from sales to customers outside North America, primarily in Europe, accounted for approximately 16 percent of total revenues in the first half of 2005 compared with 11 percent of total revenues in the first half of 2004.

Gross Profit. Gross profit for the first half of 2005 totaled $27.7 million, down 3 percent from the first half of 2004, which was commensurate with the year-over-year decline in license revenues. Gross margin for the first half of 2005 was 86.1 percent, down from 87.6 percent in the first half of 2004. The decline in gross margin reflected a shift in business mix toward service revenues, which have a lower gross margin than license revenues.

~~2004. The remaining~~Gross ~~costs~~profit ofgenerated ~~the~~from ~~video-based~~license ~~training~~revenues ~~materials~~for ~~is approximately $0.8 million, which will be incurred in~~ the ~~fourth~~first ~~quarter~~half of ~~2004.~~2005 ~~These~~was ~~production costs are expensed as incurred~~$13.1 million, compared Wewith ~~incurred~~ $014.52 million infor ~~severance costs during~~ the first ~~nine~~half ~~months~~ of 2004. ~~in connection~~The ~~with~~gross ~~the~~margin ~~elimination~~from oflicense ~~positions~~revenues for inthe ~~our~~first ~~R&D~~half ~~group.~~of We2005 ~~estimate~~was an97.4 percent, ~~annualized~~compared ~~benefit on~~with ~~R&D expenses of approximately $1~~97.17 ~~million~~percent asfor ~~a result of~~ the ~~elimination~~first half of ~~these positions~~2004.

~~General~~Gross ~~and~~profit ~~administrative~~from ~~expenses~~service revenues for the ~~nine~~first ~~months~~half ~~ended~~of ~~September 30,~~2005 ~~2004~~was ~~were~~ $514.~~8 million (11.7~~6 ~~percent of revenues)~~million, upcompared ~~from~~ with $514.64 million ~~(12.8 percent of revenues)~~ for the ~~nine months~~first ~~ended~~half ~~September 30,~~of ~~2003~~2004. ~~The~~Gross ~~increase~~margin isfrom ~~primarily~~service ~~related~~revenues tofor athe ~~$0.5 million~~first ~~increase~~half inof ~~external~~2005 ~~costs~~was ~~incurred in connection with our efforts to comply with Sarbanes-Oxley section 404~~78. ~~We anticipate approximately $~~0.3 ~~million~~percent incompared ~~additional external costs associated~~ with ~~our~~79.4 percent ~~404~~for ~~efforts to be incurred during~~ the ~~fourth~~first ~~quarter~~half of 2004. The ~~increase~~decline in ~~general and administrative expenses~~gross ~~incurred~~margin ~~during~~reflected ~~the~~higher ~~first~~personnel ~~nine~~costs ~~months~~associated ofwith ~~2004 for~~ our ~~Sarbanes-Oxley~~professional ~~compliance~~services ~~was partially~~unit. ~~offset~~While bywe ado ~~$0.3 million~~not ~~reduction~~track inand ~~our~~measure ~~sales~~costs ~~tax~~of ~~reserves~~performing ~~initially~~services ~~established~~(technical insupport, ~~2001. We estimate~~ professional services) ~~fees~~by ~~associated~~product ~~with~~platform ~~our Latin America investigation~~ (~~See~~i.e., ~~Item 4-Controls~~Microsoft, ~~and~~Novell, ~~Procedures~~etc.), ~~will~~we ~~total~~do ~~$1.0 million~~not ~~during~~believe ~~the~~there ~~fourth~~is ~~quarter of~~a ~~2004,~~material updifference ~~from~~in ~~our~~the ~~initial~~gross ~~estimate~~margin ofby $0product line.~~5 million.~~

~~Provision~~Operating ~~for~~Costs ~~Income~~and ~~Taxes~~Expenses. WeOperating ~~did~~costs ~~not~~and ~~record~~expenses anfor ~~income~~the ~~tax~~first ~~provision~~half ~~for~~of ~~our~~2005 ~~domestic~~totaled ~~operations~~$33.7 million, inup ~~either~~from $33.0 million for the first ~~nine~~half ~~months~~ of 2004. orOperating ~~2003,~~costs asfor wefirst ~~continue~~half toof 2005 ~~provide~~included (i) a ~~full valuation~~restructuring ~~allowance~~charge ~~against~~of ~~our~~approximately ~~deferred tax assets in accordance with Financial Accounting Standards No~~$1.1 ~~109~~million, ~~“Accounting~~(ii) ~~for~~$0.6 million ~~Income~~of severance ~~Taxes”.~~expenses Asrelated into our ~~prior~~sales ~~assessments,~~reorganization ~~we considered current~~ and ~~previous~~recruiting ~~performance~~fees ~~and~~incurred ~~other relevant factors~~ in ~~determining~~connection with ~~the sufficiency of~~ our ~~valuation~~ ~~allowance.~~searches ~~Objective~~for ~~factors,~~leadership ~~such~~to ashead ~~current~~worldwide sales and ~~previous~~our ~~operating~~alliances ~~losses~~program, ~~were~~and ~~given~~(iii) a ~~substantially~~$0.3 million ~~more~~charge ~~weight~~included ~~than~~in ~~our~~research ~~outlook~~and ~~for~~development ~~future~~costs ~~profitability.~~related ~~Until~~to ~~such~~our ~~time~~acquisition ~~as a~~of ~~consistent~~certain ~~pattern~~assets of ~~sufficient~~BDI. ~~profitability~~Operating iscosts ~~established,~~for nothe ~~tax~~first ~~benefit~~half ~~will~~of be2004 ~~recognized associated~~included ~~with~~a ~~the~~restructuring ~~Company’s~~charge of ~~pre-tax~~$0.1 million ~~accounting losses~~ and aseverance ~~full~~charges ~~income~~of ~~tax~~approximately ~~provision~~$0.3 million. ~~will~~Excluding ~~not~~these becharges, ~~provided~~operating oncosts ~~any~~and ~~future~~expenses ~~pre-tax~~were ~~accounting~~approximately ~~income. A provision of~~ $0.39 million, ~~was~~or ~~recorded~~2.7 percent, ~~for~~lower in the first ~~taxes~~half ~~related~~of 2005 primarily due to ~~our~~improvement ~~foreign~~in ~~operations~~operating ~~during~~efficiency since the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2004~~last year.

~~Net~~Sales ~~Loss.~~and ~~Due~~marketing toexpenses for the ~~factors~~first ~~described~~half ~~above~~of 2005 were $19.0 million (59.0 percent of revenues), ~~net~~up ~~loss~~from $18.9 million (57.8 percent of revenues) for the ~~nine~~first ~~months~~half ~~ended~~of ~~September~~2004. The ~~30,~~increase ~~2004~~in sales and marketing expenses as a percentage of revenues was primarily attributable to the $60.86 million ~~compared~~in costs incurred related to our sales reorganization and recruiting fees incurred in connection with $6two open executive sales positions.~~0 million~~ We expect sales and marketing expenses as a percentage of revenues to be lower for the ~~nine~~remainder ~~months~~of ~~ended~~2005 ~~September 30,~~as ~~2003~~a result of anticipated revenue growth.

~~Liquidity~~ Research and ~~Capital~~development ~~Resources~~expenses for the first half of 2005 were $9.2 million (28.6 percent of revenues), down from $10.0 million (30.5 percent of revenues) for the first half of 2004. The decline in research and development expenses was primarily due to a reduction in personnel costs as a result of our transition of headcount from our domestic operations in Houston, Texas to our subsidiary in Pune, India. First half 2005 results include a $0.3 million charge related to our acquisition of certain assets of BDI. In addition, first half 2004 results included severance costs of approximately $0.3 million related to management changes within R&D.

~~Our~~General ~~capital~~and ~~requirements~~administrative ~~have~~expenses ~~principally~~were ~~related~~$4.3 million toin ~~working~~the ~~capital~~first ~~needs~~half ~~and~~of ~~capital expenditures~~2005 (13.5 percent of ~~These~~revenues), ~~requirements~~up ~~have~~from ~~been~~$3.9 million ~~met~~(12.0 percent ~~through~~of arevenues) ~~combination~~for ofthe ~~issuances~~first half of ~~securities~~2004. The increase in general and ~~internally~~administrative ~~generated~~expenses ~~funds~~is primarily attributable to an increase in personnel and outside professional services fees related to our Sarbanes-Oxley compliance efforts. We expect future general and administrative expenses to decrease as a percentage of revenues as a result of our restructuring initiatives to date to improve operating efficiencies, as well as anticipated revenue growth.

WeRestructuring ~~had~~costs ~~cash,~~were ~~cash~~$1.1 million ~~equivalents~~for ~~and~~the ~~short-term~~first ~~investments~~half of 2005 and $300.81 million atfor ~~September 30,~~the first half of 2004 ~~compared~~(See ~~with~~detailed ~~$35.4 million~~discussion atof ~~December 31,~~these ~~2003~~costs above).

~~Cash~~Provision ~~flows~~for ~~used~~Income inTaxes. ~~operating~~We ~~activities~~did ~~were~~not ~~$2.0 million~~record an income tax provision for our domestic operations in either the first ~~nine~~half ~~months~~ of 2005 or 2004, as we continue to provide a full valuation ~~compared~~allowance against our deferred tax assets in accordance with $2Financial Accounting Standards No.~~1 million~~ 109, “Accounting for Income Taxes”. As in ~~the~~our ~~first~~prior ~~nine~~assessments, ~~months~~we ofconsidered ~~2003.~~current ~~The~~and previous ~~use~~performance ofand ~~cash~~other inrelevant ~~operating~~factors ~~activities~~in ~~during~~determining the ~~first~~sufficiency ~~nine~~of ~~months~~our ofvaluation allowance. ~~2004~~Objective ~~primarily~~factors, ~~related~~such toas $0current and previous operating losses, were given substantially more weight than our outlook for future profitability.~~8 million~~ inUntil ~~severance~~such ~~costs~~time ~~paid~~as a consistent pattern of insufficient ~~connection~~profitability is established, we will not recognize any tax benefit associated with ~~the~~our domestic ~~elimination~~pre-tax ofaccounting ~~certain~~losses. ~~positions~~A ~~and~~provision of $0.71 million ~~paid~~ was recorded for ~~video-based~~taxes ~~training~~related ~~materials~~to our foreign operations during the first half of both 2005 and 2004.

Cash flows used in investing activities were $10.9 million in the first nine months of 2004 compared with $1.5 million in the first nine months of 2003. The increase in cash used in investing activities was primarily due to net purchases of $8.5 million in short-term investments during the first nine months of 2004. Capital expenditures for the first nine months of 2004 were $2.4 million compared with $1.5 million for the first nine months of 2003. The increase in capital expenditures primarily relates to approximately $0.8 million in capital expenditures related to our planned expansion of our R&D operations in India.

Cash flows (used in) provided by financing activities were $(0.2) million in the first nine months of 2004 compared with $0.7 million in the first nine months of 2003. During the first nine months of 2004, we generated proceeds of approximately $2.1 million from the issuance of common stock through our Employee Stock Purchase Plan and employee stock option exercises. We also used $2.3 million in cash to repurchase 0.8 million shares of our common stock at an average price of $2.98 per share. The $0.7 million in cash provided by financing activities during the first nine months of 2003 was primarily from issuances of common stock under our Employee Stock Purchase Plan.

WeNet ~~conduct~~Loss. ~~operations~~Due into ~~leased~~the ~~facilities~~factors ~~under~~described ~~operating~~above, ~~leases~~net ~~expiring~~loss atfor ~~various~~the ~~dates through~~first ~~2011.~~half ~~The~~of ~~contractual~~2005 ~~obligations~~was ~~under~~$5.5 million ~~these~~compared ~~lease~~with ~~commitments~~$4.3 million ~~were~~for ~~comprised of~~ the ~~following~~ asfirst half of ~~September 30,~~ 2004:.

CONTRACTUAL				REMAINDER
OBLIGATION	TOTAL			OF 2004			2005 –- 2007			2008 – 2009			2010 – 2011
Operating leases	$	22,048		$	1,161		$	11,388		$	7,100		$	2,399
Sub-leasing arrangements*		(851	)		(55	)		(357	)		(251	)		(188	)
	$	21,197		$	1,106		$	11,031		$	6,849		$	2,211

LIQUIDITY AND CAPITAL RESOURCES

* Our Wecapital requirements have ~~sub-leased~~principally ~~portions~~related ofto ~~these~~working ~~facilities~~capital ~~under~~needs, ~~operating~~capital expenditures ~~leases.~~and ~~Anticipated~~common ~~cash~~stock ~~receipts~~repurchases. ~~from~~These ~~these~~requirements ~~sub-lease arrangements~~ have been ~~taken~~met ~~into~~through ~~account~~a ~~when~~combination of ~~deriving~~issuances ~~expected~~of ~~cash~~securities ~~outflow~~and oninternally ~~operating~~generated ~~lease commitments in the preceding table~~funds.

~~Our~~We ~~expected~~had ~~principal~~cash, ~~uses of~~ cash ~~for~~equivalents ~~the~~and ~~remainder~~short-term investments of ~~2004~~$31.7 million ~~are:~~at ~~(i)~~June ~~capital~~30, ~~expenditures~~2005 ~~between~~compared with $032.26 million ~~and~~at ~~$0.4~~December ~~million~~31, ~~primarily~~2004. ~~for~~Our ~~computer~~working ~~and~~capital ~~software~~has ~~equipment~~decreased approximately $9.3 million since December 31, ~~(ii)~~2004 to $18.0 ~~working capital~~million ~~requirements~~at June 30, 2005 primarily due to (~~iii~~i) ~~net~~our first ~~payments~~half on2005 ~~operating~~loss ~~leases~~ of ~~approximately~~ $15.15 million, ~~and~~ (ivii) $14.1 million used for ~~payments~~common ~~related~~stock torepurchases ~~the~~and ~~production~~(iii) capital expenditures of ~~our~~$1.4 million. ~~video-based~~This ~~training~~decrease ~~materials~~was partially offset by $1.6 million Wein ~~believe~~proceeds ~~there~~received isfrom ~~sufficient~~the ~~cash~~sale onof ~~hand~~common tostock ~~meet~~through ~~these~~our ~~cash~~stock ~~requirements,~~option asplans ~~well~~and asEmployee ~~our cash~~Stock ~~requirements~~Purchase ~~for~~Plan ~~the~~(“ESPP”). ~~foreseeable~~At ~~future~~June 30, 2005, we had no outstanding debt.

~~ITEM~~ Cash flows provided by operating activities were $3.1 million ~~QUANTITATIVE~~in ~~AND~~the ~~QUALITATIVE~~first ~~DISCLOSURES~~six ~~ABOUT~~months ~~MARKET~~of ~~RISK~~2005 compared with $0.2 million in the first six months of 2004. The increase in cash provided by operating activities in 2005 was primarily due to an increase in cash collections on accounts receivables of approximately $3.4 million over the first half of 2004.

~~There~~Cash ~~have~~flows ~~been~~provided noby ~~material~~(used ~~changes~~in) ~~since~~investing ~~December~~activities were $3.3 ~~31,~~million ~~2003~~in the first six months of 2005 compared with $(4.4) ~~See~~million in the ~~Company’s~~first ~~Annual~~six months of 2004. The increase in cash ~~Report~~provided onby ~~Form~~investing 10activities was primarily the result of an increase in cash generated from short-~~K/A~~term investments. Short-term investments of $3.9 million were purchased during the first half of 2004. During 2005, ~~Amendment~~the NoCompany received $4.0 million in net maturities on short-term investments. Capital expenditures were $1.4 million in the first six months of 2005 compared with $0.6 million for the first six months of 2004.

~~ITEM~~ Cash flows used in financing activities were $2.4 million in the first six months of 2005 compared with $0.1 million ~~CONTROLS~~in ~~AND~~the ~~PROCEDURES~~first six months of 2004. During the first six months of 2005, we generated proceeds of approximately $1.6 million from the issuance of common stock through our ESPP and employee stock option exercises. We also used $4.1 million in cash to repurchase 1.3 million shares of our common stock during the first six months of 2005. During the first six months of 2004, we generated proceeds of approximately $1.2 million from the issuance of common stock through our ESPP and employee stock option exercises. We also used $1.2 million in cash to repurchase 0.4 million shares of our common stock during the first six months of 2004.

~~The~~We ~~management~~conduct ofoperations ~~the~~in ~~Company,~~leased ~~including~~facilities ~~the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-14~~ under ~~the~~operating ~~Securities~~leases ~~Exchange~~expiring ~~Act~~at ofvarious ~~1934 as of September 30,~~dates ~~2004~~through ~~(the “Evaluation Date”)~~2015. ~~Based~~The oncontractual ~~that~~obligations ~~evaluation,~~under ~~the~~these ~~Chief~~lease ~~Executive~~commitments ~~Officer~~were ~~and~~comprised ~~the Chief Financial Officer concluded that, as~~ of the ~~Evaluation Date, the Company’s disclosure controls and~~ ~~procedures~~following were effective in ensuring that all material information relating to the Company, including its consolidated subsidiaries, required to be filed in this quarterly report have been made known to them in a timely manner. However, as more fully described below in “Revenue Recognition Issues in BindView’s Latin American Operations”, management later determined that the Company’s disclosure controls and procedures were not effective as of ~~September~~June 30, ~~2004,~~2005 ~~because the Company had a material weakness~~ (in ~~revenue reporting for its Latin American operations.~~thousands):

There have been no significant changes made during the fiscal quarter ended September 30, 2004 in the Company’s internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting. As discussed below, however, we have implemented additional measures to improve our internal controls over financial reporting. These measures took effect after the period covered by this report.


CONTRACTUAL				Remainder of
OBLIGATION	TOTAL			2005			2006 - 2008			2009 - 2011			2012 - 2015
Operating leases	$	20,305		$	2,090		$	11,260		$	6,440		$	515
Sub-leasing arrangements*		(1,757	)		(69	)		(916	)		(772	)		—

	$	18,548		$	2,021		$	10,344		$	5,668		$	515

~~Revenue~~* ~~Recognition~~We ~~Issues~~have insub-leased ~~BindView’s~~portions ~~Latin~~of ~~American~~these ~~Operations~~facilities under operating leases. Anticipated cash receipts from these executed sub-lease arrangements have been taken into account when deriving expected cash outflow on operating lease commitments in the preceding table.

InOur ~~October 2004,~~expected asprincipal acash ~~result~~requirements offor ~~information obtained by~~ the ~~Company~~remainder inof ~~its~~2005 ~~efforts~~are: ~~to collect~~(i) capital ~~certain~~expenditures ~~receivables~~between ~~from Latin American resellers, the Company’s Audit Committee commenced an investigation of the Company’s Latin American operations~~$1.4 ~~The Audit Committee retained independent legal counsel~~ and ~~consultants to assist with the investigation~~$1. ~~On December~~ 6 million, ~~2004,~~primarily ~~with~~for ~~the investigation~~computer ~~substantially~~and ~~complete,~~software ~~the~~equipment ~~Audit~~and upgrading ~~Committee~~our ~~concluded~~customer ~~that~~relationship ~~due~~management tosystem, ~~errors~~(ii) working ~~with~~capital ~~the transactions described below~~requirements, ~~the~~(iii) net payments ~~Company~~on ~~would~~operating ~~restate~~leases ~~its~~of ~~financial~~approximately ~~statements for the year ended December~~$2.0 31million, ~~2003~~ and ~~the~~(iv) stock ~~first~~repurchases ~~two quarters~~ of ~~2004,~~up ~~and also concluded that previously issued~~to ~~financial~~$5.9 million. ~~statements~~We ~~for~~believe ~~those~~there ~~periods~~is ~~should~~sufficient nocash ~~longer~~on behand ~~relied~~to ~~upon.~~meet ~~These~~these ~~conclusions~~cash ~~were set forth in the Form 8-K dated December 6~~requirements, ~~2004,~~as ~~and~~well as ~~were~~our ~~also~~cash ~~discussed~~requirements ~~with~~for the ~~Company’s independent~~foreseeable ~~registered public accounting firm~~future. ~~The Audit Committee investigation was completed on~~ ~~December 8, 2004.~~

Competition

Currently, our products compete with products from a variety of organizations including but not necessarily limited to providers of the following:

	•		security analysis and audit products;

	•		Windows NT management and migration tools;

	•		network security scanning technology;

	•		security-policy products and services;

	•		shareware/freeware software products that perform some of the same functions as our software;

	•		enterprise resource planning application add-ons for SAP security administration and vulnerability assessment;

	•		LAN desktop management suites; and

	•		stand-alone inventory and asset management products.

Some examples of specific companies with whom we compete in particular markets or submarkets are: Altiris, Inc.; BearingPoint, Inc.; Computer Associates International, Inc.; ConfigureSoft, Inc.; CSI International; Ecora Corporation; eEye Digital Security; e-Security Inc.; Foundstone, Inc. (a division of McAfee, Inc.); Hewlett-Packard Company; Intel Corporation; IBM Corporation; Intrusion.Com; ISS Group, Inc.; McAfee, Inc.; Microsoft Corporation; NetIQ Corporation; PoliVec, Inc.; Quest Software; Symantec Inc.; and Tally Systems Corporation.

In addition, companies such as Novell and Microsoft also offer native tools with their products that provide a basic set of management tools. While the native tools currently offered by these companies provide assistance in certain administrative tasks for their own respective platforms, we believe that they do not help IT administrators or security professionals cope, to the same extent that our products do, with the day-to-day management tasks with which they are challenged or address the higher level processes associated with policy creation and management. Our software solutions can be scaled to the largest of the heterogeneous environments. We believe we are in a unique position to help address the growing demand for cross-platform IT security compliance in these installations.

~~The~~ITEM ~~Company’s previously issued financial statements for the periods referenced above have been restated to correct for an overstatement of approximately $1~~3.~~0 million~~ inQUANTITATIVE ~~revenues,~~AND ~~involving six~~QUALITATIVE ~~transactions~~DISCLOSURES inABOUT ~~Latin~~MARKET ~~America. As a result, the Company’s reported revenues were overstated by~~RISK ~~$173,000 in the fourth quarter of 2003; $131,000 in the first quarter of 2004; and $698,000 in the second quarter of 2004.~~

~~Revenues~~There ~~for the fourth quarter of 2003 were overstated by $173,000 related to a product return, which certain Company personnel in Latin America knew to~~ have ~~occurred~~been ~~within~~no ~~the contractually~~material ~~allowable~~changes ~~return~~since ~~period~~December 31, ~~but which they did not report to the Company’s accounting department~~2004. IfSee ~~this return had been reported in a timely manner to~~ the Company’s ~~accounting department,~~Annual ~~revenues from this transaction would not have been recognized in the fourth quarter of~~Report ~~2003.~~on ~~Certain~~Form ~~personnel in Latin America who knew of the product return also made inaccurate representations as to status of the receivable in response to the on~~10-~~going~~K ~~collection~~for ~~efforts of~~ the ~~Company’s~~year ~~accounting~~ended ~~department~~December 31, 2004.

~~Revenues for~~ITEM ~~the first quarter of 2004 were overstated by $131,000~~4. ~~This~~CONTROLS ~~was~~AND ~~comprised of (i)~~PROCEDURES two separate transactions with a single reseller and an end-user customer for which professional services revenues were overstated by $122,000; and (ii) maintenance revenue of $9,000 on the fourth quarter 2003 transaction referred to above. The overstatement of professional services revenues resulted from the recording of revenues based on invalid contracts and statements of work that had been submitted to the Company’s accounting department by certain personnel in Latin America. These documents, certain of which the Company believes were falsified prior to being submitted to its accounting department, purported to show that the Company had entered into an arrangement with a subsidiary of the reseller to provide services to the end-user customer on behalf of the Company.

~~Revenues~~The ~~for~~management of the ~~second~~Company, ~~quarter~~including ofthe ~~2004~~Chief ~~were~~Executive ~~overstated~~Officer byand ~~$698~~the Chief Financial Officer,~~000,~~ ~~resulting~~conducted ~~from~~an ~~the recording~~evaluation of ~~three~~the ~~transactions~~effectiveness ~~based~~of onthe ~~invalid~~Company’s ~~documents~~disclosure ~~that~~controls ~~had~~and procedures ~~been~~pursuant ~~submitted~~ to ~~the~~Rule 13a-15(e) ~~Company’s accounting~~or ~~department~~15d-15(e) byunder ~~certain~~the ~~personnel~~Securities inExchange ~~its~~Act ~~Latin~~of ~~American~~1934 ~~operations.~~as ~~These documents,~~of ~~which~~June 30, 2005 (the ~~Company~~“Evaluation ~~believes~~Date”). ~~were~~Based ~~falsified~~on ~~prior~~that toevaluation, ~~being~~the ~~submitted~~Chief toExecutive ~~its~~Officer ~~accounting department,~~and ~~included~~the ~~contracts~~Chief ~~and~~Financial ~~professional~~Officer ~~services~~concluded ~~statements~~that, as of ~~work~~the ~~and~~Evaluation ~~time~~Date, ~~sheets~~the ~~that~~Company’s ~~purported to~~disclosure ~~show~~controls ~~that~~and ~~valid~~procedures ~~arrangements~~were ~~supporting~~effective ~~the~~in ~~underlying~~ensuring ~~transactions~~that ~~had~~all ~~been~~material ~~entered~~information ~~into~~relating ~~with~~to the ~~third~~Company, ~~parties.~~including ~~Certain~~its ~~personnel~~consolidated insubsidiaries, ~~Latin~~required ~~America~~to ~~also~~be ~~made~~filed ~~inaccurate~~in ~~representations~~this asquarterly toreport ~~status~~have ofbeen ~~these~~made ~~receivables~~known ~~in response~~ to ~~the~~them ~~on-going~~in ~~collection~~a ~~efforts~~timely ~~of the Company’s accounting department~~manner.

~~Individuals~~There ~~who~~have ~~the~~been ~~Company~~no ~~believes~~significant ~~were~~changes ~~culpably~~made ~~involved~~during inthe ~~these~~fiscal ~~transactions~~quarter ~~are~~ended ~~no longer~~June 30, ~~employed~~2005 by in the Company.’s ~~The~~internal ~~Company~~controls ~~has~~over ~~terminated~~financial ~~relationships~~reporting ~~with~~or ~~resellers~~in other factors that itcould ~~believes~~significantly ~~may~~affect ~~have~~internal ~~been~~controls ~~culpably~~over ~~involved~~financial ~~in these transactions~~reporting.

AsPART ~~a result of the investigation into the above matters, the Company has determined that it has a “material weakness” with respect to the reporting of revenues from its Latin American operations~~II. InOTHER ~~addition to the actions taken with respect to personnel and resellers, as mentioned~~INFORMATION above, the Company has also designed and implemented new procedures to improve controls to better ensure revenues are recognized only on transactions that are based on valid arrangements, which meet the Company’s revenue recognition criteria. The significant enhancements to our procedures and controls that have been implemented include:

•ITEM We will obtain signed written representations from each sales and professional services representative, manager, director and vice president prior to finalizing results for a quarterly or annual period and prior to payment of sales commissions or any incentive-based compensation for that period2. ~~Generally~~UNREGISTERED ~~speaking,~~SALES ~~these~~OF ~~representations~~EQUITY ~~state~~SECURITIES ~~that~~AND toUSE ~~the~~OF best of the individual's knowledge, (i) he or she has complied with the Company’s Code of Conduct, (ii) the documentation supporting the sales transactions with which he or she was involved is valid, appropriately authorized and complete and (iii) no conditions to any sales transaction have been agreed to with the customer that have not been explicitly stated in the documentation supporting that sales transaction.PROCEEDS

• In geographies where the Company has a limited operating history (e.g. Latin America or any other new geography the Company may enter), payment of commissions will be deferred until collection of accounts receivable has occurred.


					Total Number of
					Shares Purchased as		Maximum Dollar
					part of Publicly		Value that can Still
	Total Number of		Average Price Paid		Announced Plans or		be Spent Under the
Period	Shares Purchased		per Share		Programs		Program
April 1, 2005 to April 30, 2005		571,025	$	2.97		571,025	$	8,302,494
May 1, 2005 to May 31, 2005		767,650	$	3.09		767,650	$	5,932,368
June 1, 2005 to June 30, 2005		—		—		—	$	5,932,368


Total		1,338,675	$	3.04		1,338,675

On April 5, 2005, the Company’s Board of Directors approved a stock repurchase program whereby the Company may, at its discretion, spend up to $10.0 million for the repurchase of the Company’s common stock in the open market, subject to SEC guidelines and restrictions set forth in Rule 10b-18.

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

At an annual meeting of stockholders on May 26, 2005, the stockholders took the following actions, described in more detail in the definitive proxy statement filed April 29, 2005, by votes as indicated below:

• We are assigning non-sales personnel to communicate directly with foreign resellers and end-user customers regarding past due accounts receivable.


MATTER	FOR		AGAINST		ABSTAIN / WITHHELD		BROKER NON-VOTES
Reelection of Richard A. Hosley II to Board of Directors		44,007,709		0		2,426,537		0

Reelection of Robert D. Repass to Board of Directors		43,882,357		0		2,551,889		0

•Continuing Wein ~~have~~their ~~made~~terms ~~changes~~of tooffice ~~our~~as ~~reporting~~directors ~~structure~~after tothe ~~provide~~meeting ~~for~~were ~~more~~Eric ~~direct communication~~J. ~~These~~Pulaski, ~~changes~~Edward ~~include~~L. Pierce, ~~sales~~Peter ~~operations~~T. ~~now~~Dameris, ~~reports to our chief operating officer~~ and ~~the~~Armand ~~head~~S. ~~of professional services now reports directly to non-sales management~~Shapiro.

•ITEM ~~We have implemented more extensive background and reference checks to be performed on all prospective employees~~6. EXHIBITS

•(a) Exhibits: WeThe ~~have~~following ~~expanded~~exhibits ~~the~~are ~~Company’s~~filed ~~disclosure~~with ~~committee~~this toQuarterly ~~include~~Report ~~representations~~on ~~from~~Form ~~a broader cross section of departments~~10-Q.

• We are implementing enhanced pre-close analytical review procedures to identify emerging changes in our business.


Exhibit 10.1		Form of Second Amended and Restated Executive Employment Agreement dated June 15, 2005 between BindView and Edward L. Pierce (incorporated by reference to Exhibit 10.45 to BindView’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 10-K”)

Exhibit 10.2		Form of First Amended and Restated Change of Control Agreement dated June 15, 2005 between BindView and Edward L. Pierce (incorporated by reference to Exhibit 10.50 to the 2002 10-K)

Exhibit 31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certifications of Eric J. Pulaski, Chief Executive Officer and Edward L. Pierce, Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

By implementing its planned internal control improvements, the Company expects to remediate this “material weakness”. However, if the Company is unable to (i) demonstrate that its internal controls over financial reporting are designed appropriately and operating effectively for a sufficient period of time, (ii) assert that its internal controls over financial reporting are effective as of December 31, 2004, and (iii) complete its evaluation on a timely enough basis for its independent registered public accounting firm to complete their assessment of the Company’s internal controls over financial reporting by the due date for the Company’s 2004 Annual Report on Form 10-K, the Company will have to report the material weakness in such Form 10-K.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of

Shares Purchased as

Maximum Dollar

part of Publicly

Value that can

Total Number of

Average Price Paid

Announced Plans or

Still be Spent

Period

Shares Purchased

per Share

Programs

Under the Program

July 1, 2004 to July 30, 2004

August 1, 2004 to August 31, 2004

361,800

2.98

361,800

0.00

September 1, 2004 to September 30, 2004

**The Company announced on July 29, 2004 that its Board of Directors had approved a stock repurchase program. The Company could spend up to $2.0 million during the third quarter of 2004 under this program.

~~ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS~~SIGNATURES

~~This~~Pursuant ~~Quarterly~~to ~~Report on Form 10-Q includes “forward-looking statements” within~~ the ~~meaning~~requirements of ~~Section 27A~~ of the Securities ~~Act of 1933, as amended, and Section 21E of the Securities~~ Exchange Act of 1934, ~~as amended. All statements other than statements of historical facts included in this Report, including without limitation, statements regarding~~ the ~~Company’s~~registrant ~~future~~has ~~financial position,~~duly ~~revenue~~caused ~~and~~this ~~expense~~report projections, business strategy, planned products, products under development, markets, budgets and plans and objectives of management for future operations, are forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that those expectations will prove to ~~have~~be ~~been~~signed ~~correct. Important~~on ~~factors~~its ~~that~~behalf ~~could~~by ~~cause actual results to differ materially from~~ the ~~Company’s expectations~~undersigned ~~are~~thereunto ~~disclosed~~duly ~~in statements set forth under “Cautionary Statements” in our Annual Report on Form 10-K/A, Amendment No~~authorized. 1.

ITEM 6. EXHIBITS


	BINDVIEW DEVELOPMENT CORPORATION
August 8, 2005	By:	/s/ KEVIN P. COHN
		Kevin P. Cohn
		Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

(a) Exhibits: The following exhibits are filed with this Quarterly Report of Form 10-Q.

Exhibits designated by the symbol * are filed with this Quarterly Report on Form 10-Q.

Exhibit 10.1*		Sublease agreement dated September 30, 2004 between BindView and Nationwide Life Insurance Company of America
Exhibit 31.1*		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2*		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*		Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*		Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~SIGNATURE~~Exhibit Index

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.


Exhibit
Number		Description
Exhibit 10.1		Form of Second Amended and Restated Executive Employment Agreement dated June 15, 2005 between BindView and Edward L. Pierce (incorporated by reference to Exhibit 10.45 to BindView’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 10-K”)

Exhibit 10.2		Form of First Amended and Restated Change of Control Agreement dated June 15, 2005 between BindView and Edward L. Pierce (incorporated by reference to Exhibit 10.50 to the 2002 10-K)

Exhibit 31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certifications of Eric J. Pulaski, Chief Executive Officer and Edward L. Pierce, Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	BINDVIEW DEVELOPMENT CORPORATION
December 20, 2004	By:	/s/ Kevin P. Cohn
		Kevin P. Cohn
		Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

EXHIBIT INDEX

Exhibits designated by the symbol * are filed with this Quarterly Report on Form 10-Q

Exhibit 10.1*		Sublease agreement dated September 30, 2004 between BindView and Nationwide Life Insurance Company of America
Exhibit 31.1*		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2*		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*		Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2*		Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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