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Commission file number 0-23067

600 Nickerson Road

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

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

     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 þ          No o

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

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Company’s common stock on June 30, 2002, as reported on the Nasdaq National Market was approximately $281,681,170.

      The number of shares outstanding of Common Stock as of March 14, 2003 was 17,256,828.

DOCUMENTS INCORPORATED BY REFERENCE

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PART I

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

General

      We develop, market and support a scalable fault and performance management software solution, the eHealth^TM Suite family of products. Our solutions ensure availability of the information technology (“IT”) infrastructure by providing an end-to-end view across the components of this infrastructure: the network, the systems and the applications.

      Technology plays an essential role for many businesses as they rely on their IT infrastructure to deliver products and services to their customers. This dependency on their IT infrastructure requires corporations to closely monitor their applications, client and server systems and networks to ensure high availability. The ability to provide fast, easy-to-access, and high availability IT services has become a differentiator for many successful businesses. Our eHealth^TM Suite products help these businesses optimize the performance and availability of IT infrastructure on which businesses depend for their day-to-day business and operational success.

      Businesses, such as enterprises, managed services providers and telecommunication carriers, use our eHealth^TM fault and performance management software to ensure the availability of their IT infrastructures. Our eHealth^TM Suite of products enables our customers to reduce down time, optimize the usage of current resources, and limit the need for incremental IT personnel as their business IT infrastructures expand. Our eHealth^TM Suite software enables managed service providers and telecommunication carriers to monitor compliance with service level agreements and to introduce new services for their customers. Service providers also rely on the eHealth^TM Suite to help ensure the quality of services such as network and bandwidth services (“carriers”), web hosting, data center/ co-location services, internet service providers (“ISPs”), managed service providers (“MSPs”) and outsourcing services.

      Our software monitors the performance of the infrastructure by collecting high volumes of data from network devices, client and server systems and applications. This information is then stored in a relational database where it is consolidated, normalized and analyzed. IT personnel can retrieve this information to gain a better understanding of the performance of the infrastructure via our eHealth^TM E2E Console or via standard web-based browsers; these personnel can also run standardized or customized reports.

      Our software also enables businesses to test and monitor availability and responsiveness of critical business applications. Our software enables businesses to measure and monitor actual end-user application response time, perform custom monitoring and measurement of individual business transactions and understand application availability through active testing of the application. Our software allows the IT professional to analyze any degradation in service and see if the degradation is being caused by the network, the client, the backend server or the application itself. IT personnel can perform analysis on numerous combinations of response metrics and time periods which enable them to detect degrading performance, service level breaches, and declining availability of applications. IT personnel can also determine the capacity being utilized on a specific network or a server which will help them plan the future capacity of the infrastructure and ensure that service level agreements are met.

      Our target markets include enterprises, managed service providers and telecommunication carriers. We market to these potential customers through our own sales force, sales agents, value-added resellers,

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      We were organized as a Massachusetts corporation in 1980 under the name Concord Data Systems, Inc., and changed our name to Concord Communications, Inc. in 1986. Our principal executive offices are located at 600 Nickerson Road, Marlborough, Massachusetts 01752 and our telephone number is 508-460-4646. Our web site is www.concord.com. We make available, free of charge, through our website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished as soon as reasonably practicable after we have filed with the Securities and Exchange Commission. The information posted on our web site is not incorporated into this Annual Report. The public can also obtain access to such reports at the Securities and Exchange Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website which is www.sec.gov.

The Concord Solution

      We provide businesses an out-of-the-box, quick to deploy, software-only solution. Our eHealth^TM Suite software is a family of automated, scalable, web-based management solutions for business-critical applications, systems, and networks.

      Our eHealth^TM product family incorporates the following features:

      Out-of-the-Box Deployment. Our software can be installed, in most instances, in a few hours, and for certain products, installation can actually occur remotely, over the web. Once installed, our products provide real-time information as well as historical reports on critical areas of the infrastructure.

      Scalable, Software-Only Solution. The eHealth^TM product family is designed to simplify management of the heterogeneous mix of network devices, client and server operating systems, hardware platforms, technologies, and applications that typically comprise today’s IT infrastructures. Our solution is capable of data collection, consolidation, analysis and reporting for up to 80,000 elements by a single console. Our distributed architecture allows configurations, viewable from a single console that supports collection and reporting of up to 1,000,000 elements. In addition, our distributed systems and application management agents can work autonomously on any number of systems. Our products are scaleable to meet the demands of management as an organization’s IT infrastructure expands; add-on software licenses or additional agent software can be purchased as needed.

      Multi-Level Reporting. Our software solution generates a comprehensive package of graphical reports that provide information and analyses on a wide variety of pre-configured parameters. Information is provided for use at multiple levels of management: chief information officers can get a general overview of capacity, availability and response time while IT personnel can get detailed analysis of specific transactions, client and server components, hardware equipment components, bandwidth components and network services.

      Broad Technology Coverage. Our eHealth^TM product family provides embedded intelligence, detailed knowledge, and automated analysis for over 1,000 different types of devices. It enables management across a broad spectrum of industry standard applications like Microsoft Exchange and Information Internet Server; open source Apache; ERP systems from SAP; industry standard operating systems like UNIX, Microsoft Windows NT and Windows 2000, and Linux; and industry standard networking technologies such as ATM, Frame Relay, VoIP, Quality of Service (“QoS”), DSL, Cable, and Wireless.

Products and Technology

      Our eHealth^TM Suite software is composed of the eHealth^TM E2E console, a centralized console and a database that stores, consolidates, analyzes and reports on information gathered from applications, systems and networks. Concord’s software also includes technology-area solution sets that contain products pertaining

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      eHealth^TM E2E Console — This solution provides IT personnel with a centralized view of faults, availability and performance across applications, systems and networks. The eHealth^TM E2E Console combines a customizable graphical user interface for both end-users and administrators, an efficient engine for collecting data, an industry standard relational database, and flexible reporting capabilities. The console collects vital information from multi-vendor agents residing on workstations, servers, and network devices; more than 1,000 devices are currently supported by our software, spanning a range of over 140 different vendors. Once collected, this data is processed through analysis algorithms, then stored in a relational database; these algorithms provide information on which IT personnel can take action. This information can be retrieved via the console or a standard Web-based browser on-demand or scheduled reports, such as: Top-N-Reporting, which helps to identify trouble spots; At-A-Glance Reporting, which enables users to examine critical resources; and Trend Reporting, which provides tools to build custom reports. The MyHealth interface allows users to tailor their own views of business services, selecting from reports on a particular component such as the network, or combining reports across the network, systems, and application components for a complete end-to-end view of a business service. The eHealth^TM E2E Console also provides an interface for administration and configuration tasks such as associating business organizations or processes with underlying resources and scheduling reports.

      eHealth^TM Live Health^TM — This solution provides real time fault management solutions to identify outages, potential outages and sources of delay across the IT infrastructure for rapid problem diagnosis. Our eHealth^TM Live Health^TM solution provides out-of-the-box profiles that detect “brownouts” and service delays without configuring complicated rules. Our Fault Manager module, with its analysis algorithms, processes traps and creates a low number of intelligent alarms; thus, reducing noise and displaying alarms indicating important problems. These alarms are automatically forwarded by our software, via e-mail or pager to the appropriate IT personnel, to a network management system or by invoking any user-specified action. Upon notification, IT personnel can associate the alarms to elements managed by eHealth^TM E2E Console and identify who is at risk for an outage or service degradation by delivering correlated impact analysis organized by customers, services, technologies, and regions. The Live Health Live Status diagram highlights customers’ business topology with current alarm status and is a navigation point to review current and historical reports. The Live Health browser shows details of alarms that result from our trap analysis algorithms. The Live Health Live Trend feature enables IT personnel to monitor performance patterns of the IT infrastructure.

      eHealth^TM — Network Management Solution — This solution set helps IT personnel manage performance and optimize availability of key network resources including LANs, WANs, Frame Relay, ATM, QoS, Wireless LAN, DSL, VoIP, cable technologies and Remote Access Equipment. It also integrates with technologies and operational support systems (“OSS”) from Lucent, Newbridge, Hewlett-Packard, Micromuse and Cisco’s VPN Solutions Center. Our solution automatically discovers, collects information, analyzes, and reports on network resources enabling network managers to track performance, plan capacity, and detect sources of service delay across their networks. Information provided by our solution permits network managers to understand service levels, proactively address potential network failures, manage bandwidth and capacity, watch for security violations, and understand the usage patterns of the network and the network’s various elements.

      eHealth^TM — System and Application Management Solution — This solution provides IT personnel meaningful, compiled information, and analysis about their business-critical systems and applications. This solution enables IT personnel to manage the performance and availability of systems, such as workstations and servers. Our software collects key performance metrics such as utilization of CPU, memory and disk space from our eHealth SystemEDGE^TM agents and other third party agents residing on NT or UNIX systems. This solution also helps IT personnel optimize the performance and availability of applications, such as Microsoft Exchange and SQL Server, Oracle, and Check Point FireWall-1. Our solution works by collecting vital application metrics from eHealth application insight modules residing on application servers. The information collected from systems and applications is brought back to the eHealth^TM E2E Console, where it is stored. IT personnel can perform, from the eHealth^TM E2E Console, comprehensive analyses on various combinations of

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      eHealth^TM — Application Performance Management Solution — This solution enables IT personnel to measure the true end-user client workstation response, detect performance degradations, maintain service levels, and manage application performance and availability. The information is stored in the eHealth^TM database and a comprehensive set of reports is available within the eHealth Suite^TM to help IT personnel proactively manage application performance and availability. Application data provided using this solution, in conjunction with server and network data, enables eHealth^TM Suite software to provide comprehensive performance and availability management across customers’ applications and their complete infrastructures. This solution captures application information from eHealth^TM — Application Response agents that perform observational monitoring as well as active performance and availability testing. Observational monitoring collects application performance information from actual users in a non-intrusive, observational manner; it occurs at the client desktop and measures the actual experience of the end user. Active testing can take place at the desktop, server, or router, providing performance and availability data from these strategic locations in customers’ infrastructures based on executing repeatable, scheduled application tests. From the eHealth^TM E2E Console, IT personnel can perform comprehensive analyses on numerous combinations of response metrics and time periods. The information gathered from this application is also delivered to the eHealth^TM — Live Health^TM product for real-time detection of degrading performance, service level breaches, and declining availability.

      Distributed eHealth^TM — This solution provides the ability to run and manage supported eHealth^TM applications across multiple eHealth^TM systems in a truly distributed fashion. Our distributed architecture solution allows configurations, viewable from a single console, that supports collection and reporting of up to 1,000,000 data elements.

Customer Service

      Our post-sales support organization is responsible for providing ongoing technical support, professional service and training for our customers. For an annual maintenance fee, a customer receives telephone, email and web-based support, as well as updated product releases. We offer support coverage 24 hours a day, seven days a week to customers for an additional annual fee. We offer a web-based tool, Service Express, which enables customers to find, via our website, answers to questions and solutions to technical support issues. We also provide a toll-free customer support line to all customers via our call center located in the United States. Support personnel are on call to answer the technical support calls and generally provide same-day responses to questions that cannot be resolved during the initial call. All calls are logged, opened, tracked, and closed with regular updates to the customer, our sales teams and our executive management team. We recently opened a call center in Australia that will be servicing our customers in the Asia-Pacific region.

      As of December 31, 2002, we employed 46 technical post-sales support personnel, 5 inside sales representatives and one administrative customer service person. In addition, we also had 44 professional service and training personnel who provide services to our customers on a fee-for-service basis.

Sales and Marketing

      We sell our products in the United States, through a direct sales force, sales agents and value added resellers (“VARs”). Internationally, we sell primarily through distributors.

      As of December 31, 2002, we had 28 North America sales teams, each composed of one direct sales person and one or two technical support people targeting the following four regions: East, Central, West and Federal Government. We had 19 international sales teams, also composed of one direct sales person and one or two technical support people, targeting the following three geographic regions: Europe, Middle East and Africa (EMEA); Asia/ Pacific; and Latin America. In addition, we employed 24 inside sales and technical management individuals who support both the North America and International sales teams. As of December 31, 2002, we employed 120 sales personnel.

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      As of December 31, 2002, we had relationships with 61 North American VARs and 78 international distributors. It is the responsibility of each sales team to manage all sales within its geographic territory by signing up, training, and managing sales agents, VARs, distributors, network service providers and outsourcers, as well as selling directly to customers.

      As of December 31, 2002, we had relationships with over 560 telecommunication carriers and managed service providers. These service providers offer our products as part of their service offerings. As of December 31, 2002, we also had relationships with development partners that work with our direct sales force, including Alcatel SA, Cap Gemini Ernst & Young, Cisco Systems, Inc., Dimension Data, Hewlett-Packard Co., KPMG Consulting, Lucent Technologies, Inc., Micromuse, Inc., Nortel Networks Corp. and Siemens AG. We also have a professional services referral program aimed at our key network-consulting partners. Under this program, Concord will provide professional services through these partners directly to our customers.

      We generate sales leads through seminars, trade shows, Internet postings, press articles, referrals, mass mailings and cold calling as well as through relationships with sales agents, distributors, VARs, network service providers and outsourcers. As of December 31, 2002, we employed 49 marketing personnel who position, promote and market our products. These individuals are engaged in a variety of activities, including direct marketing, public relations, tradeshows, advertising, Internet postings, and seminars.

Research and Product Development

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

      During 2000, we introduced our eHealth^TM Suite that offers performance, capacity and availability management across applications, systems, and networks. The introduction of the eHealth^TM Suite is the result of the integration of the products of Empire Technologies, Inc. and FirstSense Software, Inc. which we acquired in 1999 and 2000, respectively, into our eHealth^TM product: Systems and Application Management from Empire and Application Response Management, from FirstSense. During 2000, we also introduced our first fault management application, Live Health^TM, which detects and reports performance and availability faults in real time. The eHealth^TM historical database provides the Live Health^TM application the historical context to reduce fault notifications and to detect performance brownouts as well as hard faults. During 2001, we introduced our second fault management solution, Fault Manager, which combines embedded intelligence and analysis algorithms to create a low number of intelligent alarms; this enables IT personnel to focus on taking corrective action rather than researching potential issues. During 2001, we also introduced our real-time display tool, Live Status^TM, which provides individual users an overview of the business topology of the IT infrastructure. These two products, Fault Manager and Live Status^TM, are now integrated in our eHealth Live Health^TM product. During 2002, we introduced a new distributed infrastructure with a focus on large-scale installations and ease of administration. The introduction of new technologies like DSL, VoIP, VPN, SAN, Wireless, and others rounded out the end-to-end solution set in that same year. We are now developing an enhancement to the fault management capabilities of our eHealth^TM Live Health^TM product. In addition, we are working on integrating the Oracle database software into our offering; this will enable us to replace the Ingres database with the Oracle product. This will enable us to offer one single database solution to our customers. We currently offer both of these databases to our customers.

      Research and product development expenses were $21.9 million, $24.0 million and $21.1 million in 2002, 2001 and 2000, respectively, representing 23.3%, 27.2% and 23.1% of total revenues for those 3 years. We anticipate that we will continue to commit substantial resources to research and development in the future and that product development expenses may increase in absolute dollars in future periods. To date, our development efforts have not resulted in any capitalized software development costs. As of December 31, 2002, our product development organization consisted of 125 people.

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License and Service Revenues

      Our revenues are generated from license revenues and service revenues. License revenues represent fees earned from licensing our software. License revenues accounted for 54.6%, 61.8% and 75.9% of total revenues in 2002, 2001 and 2000, respectively. Concord’s service revenues consist of fees for maintenance, training and professional services. Service revenues accounted for 45.4%, 38.2% and 24.1% of total revenues in 2002, 2001 and 2000, respectively. See “Results of Operations” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations for a more complete discussion of license and service revenues.

Competition

      We compete in the performance and availability management market for networks, systems and applications. This market is characterized by rapid change and by intense competition. Although we have experienced competition to date from products with comparable capabilities, we expect competition to increase in the future. Further development by our principal competitors, and acquisitions of smaller companies by large established vendors and the integration of their products may be the main source of future competition for us.

      The principal competitive factors in the markets in which we presently compete and may compete in the future include: (i) The ability to provide an integrated fault, performance, and availability solution for applications, systems and networks, as a single vendor; (ii) product performance; (iii) product features and functionality and (iv) price. While we believe that we currently compete favorably overall with respect to these factors, there can be no assurance that we will be able to continue to do so.

      We compete or may compete directly or indirectly with the following categories of companies: (i) application performance software vendors such as Mercury Interactive and Candle Corporation; (ii) report toolset niche vendors such as InfoVista; (iii) fault management software vendors such as Hewlett-Packard Company; (iv) enterprise management software, framework and platform providers such as BMC Software, Inc. and Computer Associates, Inc; (v) large, well established management framework companies such as International Business Machines Corporation and Lucent Technologies Inc., that have developed network management platforms; (vi) developers of network element management solutions such as Cisco Systems, Inc., 3Com Corporation and Nortel Networks, Inc.; and (vii) probe vendors such as NetScout Systems, Inc. and Visual Networks, Inc.

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

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

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

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Intellectual Property and Other Proprietary Rights

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

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

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

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

Revenue by Geographic region

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

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

Business Segment Data

      Enterprise customers comprised 58%, 55% and 56% of revenues in 2002, 2001 and 2000, respectively. Managed service providers and telecommunication carriers comprised 42%, 45% and 44% of revenues in 2002, 2001 and 2000, respectively. See Note 11 of Notes to Consolidated Financial Statements for information regarding revenue by segment. Also See “Results of Operations” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations for a more complete discussion of segment revenues.

Employees

      As of December 31, 2002, we had a total of 454 employees, all but 47 of whom were based in the United States. Of the total, 125 were in research and development, 96 were in customer service, 120 were in sales, 49

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FACTORS THAT COULD AFFECT FUTURE RESULTS

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

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

Our future operating results are uncertain.

      Prior to 2001, we marketed and sold our products primarily in the performance management market. In 2001, our product functionality was expanded to include both fault and performance management features to penetrate the fault management market. While sales of our fault and application response products were approximately 15% and 10%, respectively, of our license revenues for the fiscal year ended December 31, 2002, we still have a limited operating history in this expanded market upon which we can evaluate our business. As currently developed, our product is an integrated fault and performance management tool that manages applications, systems and networks. The integrated fault and performance market is highly competitive and rapidly evolving. Additionally, many of our competitors in this new market have a longer operating history and greater resources. Our limited operating history, an uncertain economic climate due to worldwide economic conditions and the possibility of war in Iraq or North Korea, makes the prediction of future results of operations difficult or impossible. Our prospects must be considered in light of the risks, costs, and difficulties frequently encountered by emerging companies operating in the highly competitive software industry.

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

      As a company, we have expended considerable resources to the research and development of new technologies and new or improved product features that have enabled us to penetrate new markets both in the United States and internationally. This investment in product development allowed the company to achieve revenue growth and profitability for the fiscal year ended December 31, 2002. Despite our results in 2002, we cannot ensure that we can generate revenue growth on a quarterly or annual basis, or that we can achieve or sustain any revenue growth in the future.

      In an effort to retain profitability, we continue to work to reduce operating expenses while maintaining funding for product development. However, competition in the marketplace may require us to increase our operating expenses in the future in order to:

	•	fund higher levels of research and development;
	•	increase our sales and marketing efforts;
	•	develop new distribution channels;

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	•	broaden our customer support capabilities;
	•	expand our administrative resources in anticipation of future growth; and
	•	respond to unforeseeable economic or business circumstances.

      To the extent that increases in our expenses precede or are not followed by increased revenues, our profitability will be at risk. In addition, in view of the rapidly evolving nature of our business and markets, the uncertain economic and geopolitical landscape, and our limited operating history in our current market, we believe that one should not rely on period-to-period comparisons of our financial results as an indication of our future performance.

Our quarterly operating results may fluctuate.

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

	•	changes in the demand for our products by customers or groups of customers;
	•	the timing, composition, and size of orders from our customers, including the tendency for significant bookings to occur in the final two weeks of each fiscal quarter;
	•	our customers’ spending patterns and budgetary resources for our products;
	•	geopolitical conditions in the world, with specific reference to the current situation in Iraq, North Korea, and portions of South America;
	•	the success of our new customer generation activities;
	•	introductions or enhancements of products, or delays in the introductions or enhancements of products, by us or our competitors;
	•	changes in our pricing policies or those of our competitors;
	•	changes in the distribution channels through which our products are sold;
	•	our success in anticipating and effectively adapting to developing markets and rapidly changing technologies;
	•	our success in attracting, retaining, and motivating qualified personnel;
	•	the publication of opinions about us and our products, or our competitors and their products, by industry analysts or others;
	•	changes in general economic conditions; and
	•	changes in accounting rules, such as recording expenses for employee stock option grants.

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

      A significant portion of our product sales occurs in the final two weeks of each fiscal quarter. Any delay in the shipment of products near the end of the quarter may result in decreased revenues for the quarter. Additionally, intense competition and budgetary constraints placed upon our customers typically increase during the final two weeks of a fiscal quarter and may adversely affect our revenues for that quarter.

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

Our success is dependent upon sales to telecommunication carriers, service providers, and enterprise customers.

      We derive and likely will continue to derive a significant portion of our revenues from the sales of our products to telecommunication carriers, service providers, and enterprise customers. These markets worldwide have suffered from a turbulent economy during 2000, 2001, and 2002. We have been negatively affected by the general weakness in capital spending within these markets. The volume of sales of our products and services to telecommunication carriers, service providers, and enterprise customers may increase slower than we expect or may decrease.

The market for integrated fault and performance management software is emerging.

      The market for our integrated fault and performance solution is still in an early stage of development. Although the rapid expansion and increasing complexity of computer applications, systems, and networks in recent years have increased the demand for fault and performance management software products, the awareness of, and the demand for, an integrated fault and performance solution is a recent development; therefore, it is difficult to assess:

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

      The development of this market and our growth will depend significantly upon the desire and success of telecommunication carriers, managed services providers, and enterprises to integrate fault and performance management into their applications, systems, and networks. Moreover, this market is very competitive and we are in direct competition with larger companies with substantially greater resources. These larger companies are able to devote considerable resources to the development of competitive products and the creation and maintenance of direct and indirect sales channels. The continued presence of these larger companies in this market may impact our ability to retain or increase our market share.

The market for our products is intensely competitive and rapidly evolving.

      The market for our products is intensely competitive and rapidly evolving. Our current and future competitors include:

	•	fault management software vendors;
	•	application performance software vendors;
	•	report toolset niche vendors;
	•	enterprise management software, framework and platform providers;
	•	software vendors providing service assurance for the wireless market;
	•	large, well established management framework companies that have developed network or application management platforms;
	•	developers of network element management solutions;
	•	probe vendors;

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	•	telecommunications vendors;
	•	system agent vendors; and
	•	vendors who provide as a service some of the functionality of our products.

      We expect competition to persist, increase, and intensify in the future which will likely result in price competition within our relevant market. If we do not provide products that achieve success in our market in the short term, we could suffer an insurmountable loss in market share and brand name acceptance. We cannot ensure that we will compete effectively with current and future competitors.

Market acceptance of our eHealth^TM product family is critical to our success.

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

	•	the availability and price of competing integrated solutions, products and technologies;
	•	the demand for integrated, as opposed to stand-alone, solutions; and
	•	the success of our sales efforts and those of our marketing partners.

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

We may need future capital funding.

      We plan to continue to expend substantial funds on the continued development, marketing, and sale of the eHealth^TM product family. While we have approximately $72.8 million in short term investments (cash, cash equivalents and marketable securities), excluding restricted cash totaling $839,000 as of December 31, 2002, we cannot ensure that our existing capital resources and any funds that may be generated from future operations together will be sufficient to finance our future operations or that other sources of funding will be available on terms acceptable to us, if at all. In addition, future sales of substantial amounts of our securities in the public market could adversely affect prevailing market prices and could impair our future ability to raise capital through the sale of our securities.

We must introduce product enhancements and new products on a timely basis.

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

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

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

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

Continuing public company accounting improprieties may adversely impact our revenues.

      The public’s perception of accounting improprieties by public companies has undermined confidence in the public markets, adding to economic uncertainty. This economic uncertainty can affect customer demand for our products and services, thus affecting our revenue. For example, the announcement by a large American telecommunications firm near the end of our second fiscal quarter that it had improperly accounted for some expenses created uncertainties for some of our customers last quarter. Specifically, banks holding debt for this telecommunications company reduced expenditures to mitigate the exposure created by the telecommunications company’s actions. Our revenues suffered in the final weeks of the quarter ended June 30, 2002 as many of our customers considerably decreased, postponed or potentially canceled IT infrastructure purchases due to this uncertainty. It is likely that similar announcements by other companies would impact the Company’s future sales.

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

      International tensions, exacerbated by the possibility of war in Iraq and the escalating tensions in North Korea contribute to an uncertain political and economic climate, both in the United States and globally, which may affect our ability to generate revenue on a predictable basis. In addition, recent terrorist attacks internationally have contributed to continued international tension and uncertainty, which has exacerbated an already weakened worldwide economy. As we sell products both in the United States and internationally, the threat of future terrorist attacks may adversely affect our business.

Our common stock price could experience significant volatility.

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

	•	variations in results of operations;
	•	announcements of technological innovations or new products by us or our competitors;
	•	changes in financial estimates by securities analysts;
	•	announcements relating to financial improprieties by public companies; or
	•	other events or factors.

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

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Our industry is subject to rapid technological change. Our success depends upon maintenance of standard protocols.

      The software industry is characterized by:

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

      The introduction of products embodying new technologies and the emergence of new industry standards can render existing products and integrated solutions obsolete and unmarketable. While we actively work to develop products that operate with standard protocols, any change in industry standards or the emergence of new network technologies could affect the compatibility of our products, which in turn could affect the demand for, or the pricing of, our products and solutions.

We rely on strategic partners and other evolving distribution channels.

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

	•	strategic marketing partners;
	•	value added resellers;
	•	system integrators;
	•	telecommunication carriers;
	•	original equipment manufacturers; and
	•	independent software vendors and international distributors.

      We have developed a number of these relationships and intend to continue to develop new “channel partner” relationships. Specifically, beginning in the second half of 2002, we have focused on identifying and developing our key distribution partners worldwide. We intend to decrease the total number of distributors selling our products, but increase the quality and focus of our most valuable distributors. Our success will depend in large part on our development of these more focused distribution relationships and on the performance and success of these third parties, particularly telecommunication carriers and other network service providers. We sell our products in the United States through both direct sales to customers and indirect sales to customers through our channel partners. Outside the United States, we sell our products almost exclusively through indirect sales via our channel partners. Our international channel partners are located in Europe, the Middle East, Africa, Asia, and North and South America and are subject to local laws, regulations, and customs that may make it difficult to accurately assess the potential revenues that can be generated from a certain market. Our success depends upon our ability to attract and retain valuable channel partners and to accurately assess the size and vitality of the markets in which our products are sold. While we have implemented policies and procedures to achieve this, we cannot predict the extent to which we are able to attract and retain financially stable, motivated channel partners. Additionally, our channel partners may not be successful in marketing and selling our products. We may:

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

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

      We have experienced reductions in our sales and operations personnel; our products have become increasingly complex; and our product distribution channels are being developed and expanded. The rapid evolution of our markets and the increasing complexity of our products has placed, and is likely to continue to place, significant strains on our administrative, operational, and financial resources and increase demands on our internal systems, procedures, and controls that may impact our ability to grow our business.

Our success depends on our retention of key personnel.

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

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

      We intend to continue to expand our operations outside of the United States and enter additional international markets, primarily through the establishment of channel partner arrangements. As mentioned above, we have concentrated recently on developing more focused relationships with fewer key distributors. We expect to commit additional time and development resources to customizing our products and services for selected international markets and to developing international sales and support channels. We cannot ensure that such efforts will be successful.

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

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

      Our successful expansion into certain countries will require additional modification of our products, particularly national language support. Presently, the majority of our current export sales are denominated in United States dollars. To the extent that international sales continue to be denominated in United States dollars, an increase in the value of the United States dollar relative to other currencies could make our

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

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

      We have nine issued and twelve pending U.S. patents, and various foreign counterparts as of December 31, 2002. We cannot ensure that patents will issue from our pending applications or from any future applications or that, if issued, any claims allowed will be sufficiently broad to protect our technology. In addition, we cannot ensure that any patents that have been or may be issued will not be challenged, invalidated or circumvented, or that any rights granted by those patents would protect our proprietary rights. Failure of any patents to protect our technology may make it easier for our competitors to offer equivalent or superior technology.

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

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

We license certain technologies from third parties.

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

      We have started shipping Oracle® software as the database on which the eHealth^TM Suite of products runs, which will eventually replace the Ingres® database on which our eHealth^TM Suite of products currently operates. While we believe the switch to Oracle will make our products even more robust and we are comfortable with the choice of Oracle as a database vendor, there is no guarantee that our customers will readily accept this change. As with any vendor, there also is no guarantee that Oracle will be able to continue to deliver to us an acceptable database solution, nor that the product Oracle delivers will continue to interface effectively in conjunction with our eHealth^TM Suite of products.

Intellectual property infringement claims would harm our business.

      Although we do not believe that we are infringing upon the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops legal protections for

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We may not have sufficient protection against product liability claims.

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

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

      Arthur Andersen LLP served as our independent auditors until June 10, 2002. On June 15, 2002, Andersen was found guilty on federal obstruction of justice charges arising from the government’s investigation of Enron Corporation. Following this indictment, Andersen informed the SEC that it would cease its operations. On June 10, 2002, we dismissed Andersen and on June 11, 2002, we retained PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ended December 31, 2002. SEC rules require us to present historical audited financial statements in various SEC filings, such as registration statements, along with Andersen’s consent to our inclusion of its audit report in those filings. Since our former engagement partner and audit manager have left Andersen and in light of the announced cessation of Andersen’s SEC practice, we will not be able to obtain the consent of Andersen to the inclusion of its audit report in our relevant current and future filings. The SEC recently has provided regulatory relief designed to allow companies that file reports with the SEC to dispense with the requirement to file a consent of Andersen in certain circumstances, but purchasers of securities sold under our registration statements, which were not filed with the consent of Andersen to the inclusion of its audit report will not be able to sue Andersen pursuant to Section 11(a)(4) of the Securities Act and therefore their right of recovery under that section may be limited as a result of the lack of our ability to obtain Andersen’s consent.

Limitations on the Effectiveness of Controls.

      The Company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all errors and intentional misrepresentations. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or

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Item 2.     Properties

      Concord’s corporate headquarters and principal facilities are located in approximately 142,400 square feet of office space in Marlborough, Massachusetts under separate lease arrangements that expire in June 2006 and August 2007. These principal facilities accommodate finance, administration and operations, research and development, customer support, marketing and sales management. We also lease sales office space in Atlanta, GA; Dallas, TX; Plymouth, MI; Seattle, WA; Vienna, VA; Palo Alto, CA; Canada; England; France; Germany; the Netherlands; Spain; Sweden; Australia; Hong Kong; Japan; Singapore; Mexico and Brazil. We believe that our current facilities are adequate for our needs through the next twelve months and that, should it be needed, suitable additional or substitute space will be available to accommodate expansion of our operations on commercially reasonable terms, although there can be no assurance in this regard.

      The Company’s reportable segments are determined by customer type: managed service providers/ telecommunication carriers and enterprise. The Company evaluates segment performance based on revenue only. Accordingly, all of the Company’s facilities are used by each of the Company’s operating segments.

Item 3.     Legal Proceedings

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

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

      No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2002.

PART II

Item 5.     Market for the Registrant’s Common Stock and Related Stockholder Matters

Price Range of Common Stock

      Concord affected its initial public offering on October 24, 1997 at a price of $14.00 per share. Since that date, Concord’s Common Stock has traded on the Nasdaq National Market under the symbol CCRD. The following table sets forth, for the period indicated, the high and low sales prices for the Common Stock, all as reported by the Nasdaq National Market.

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