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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2004

OR

For the transition period from _________ to _________             

Commission file number: 001-16073

OPENWAVE SYSTEMS INC.

(Exact name of registrant as specified in its charter)

1400 Seaport Blvd.

Redwood City, California 94063

(Address of principal executive offices, including zip code)

(650) 480-8000

(Registrant’s telephone number, including area code)

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

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

Common Stock, $0.001 Par Value

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 than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $664,456,188 as of December 31, 2003 based upon the closing sale price on the NASDAQ National Market reported for such date. Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 67,010,715 shares of the registrant’s Common Stock issued and outstanding as of August 13, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement relating to the Company’s 2004 Annual Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III hereof.

Forward-Looking Statements

In addition to historical information, this Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and beliefs of our management and are subject to certain risks and uncertainties, including economic and market variables. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and similar expressions identify such forward-looking statements. Forward-looking statements include, among other things, the information and expectations concerning our future financial performance and potential or expected growth in our markets and markets in which we expect to compete, business strategy, projected plans and objectives, anticipated cost savings from restructurings and our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include the limited number of potential customers, highly competitive market for our products and services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation and the other risks discussed below under the subheading “Risk Factors” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and any subsequently filed reports.

PART I

Item 1.    Business

Company Background

Openwave Systems Inc., (“Openwave”) is a leading independent provider of open standards software products and services for the telecommunications industry. We provide software and services to mobile and wireline carriers, Internet service providers (“ISP’s”), broadband providers, and handset manufactures. Our customers use our products and technologies and leverage our deep industry experience and knowledge to continuously innovate and deliver differentiated services that enhance the user experience for their subscribers. Our product development is focused on: client software, mobile infrastructure software anchored by wireless application protocol (“WAP”) and Open Mobile Alliance (“OMA”) standards, and messaging applications software built around a flexible Internet-Protocol (“IP”) messaging core.

Our software products comprise client software, that resides on mobile phones; mobile infrastructure software which comprises the foundation software required to enable internet connectivity to mobile phones and to build a set of services for mobile phone users; and messaging application software which enables end-users to exchange electronic mail and multimedia messages from personal computers, wireline and mobile phones, and provides end-users with spam and virus protection.

We were incorporated in 1994 as a Delaware corporation and completed our initial public offering in June 1999. Our principal executive offices are located at 1400 Seaport Boulevard, Redwood City, CA 94063. Our telephone number is (650) 480-8000. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, are available free of charge through our website at www.openwave.com, as soon as reasonably practicable after we file or furnish such material with the SEC. Information contained on our website is not incorporated by reference to this report.

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Acquisition

We continue to pursue our business plan to grow our revenues and income through organic growth and strategic acquisitions. To that extent, on July 30, 2004, we completed the acquisition of Magic4 Ltd. (“Magic4”), a leading provider of messaging software for mass-market mobile phones, for total consideration of $82.6 million. We are integrating Magic4 into our client software operation. With this addition, we have strengthened our position as one of the leading open standards-based software provider for data phone manufacturers. Browsing and messaging are the core engines that power advanced mobile data services today. This acquisition deepens our relevance on the mobile phones while enabling manufacturers to deliver an intuitive user experience as operator service requirements evolve.

Industry

Industry Growth and Opportunities

We operate in both the mobile and wireline markets of the telecommunications industry. Within the mobile market, we partner with mobile operators and device manufacturers to deliver innovative and differentiated data services and next-generation mobile phones. Within the wireline market, we offer our modular, highly scalable IP-based messaging platform and complementary professional services to wireline service providers; broadband cable suppliers, digital subscriber line (“DSL”) operators, ISPs, and telecommunication providers.

Mobile Market

The mobile market continues to face a multitude of service and technological transitions, which has created a complex and challenging environment for the operators and vendors who serve the mobile market. Key technological transitions include the transition from second generation (“2G”) circuit-switched networks to third-generation (“3G”) IP-based networks. The number of advanced wireless data subscribers, those on 2.5G and 3G networks, rose sharply from 76 million in March 2003 to 133 million in March 2004 according to research from EMC World Data Metrics.

New data services are emerging and being actively deployed by service providers who are striving to increase revenue through, among other strategies, increased mobile data usage. Basic download services are improving as next generation networks and mobile phones enable the delivery of animation, color content and polyphonic ringtones, while games are becoming richer and more entertaining as mobile content providers develop applications for Java-capable devices. Location technologies may be used to launch innovative new applications, such as finding the nearest restaurant location, while person to person messaging is expanding beyond the basic text messaging, as operators offer email, and photo- and multimedia-messaging services. The number of networks deploying Multimedia Messaging Services (“MMS”), has gained rapid market acceptance, growing from 135 networks in March 2003 to 219 networks in March 2004, per EMC World Data Metrics. The mobile phone market has grown and is expected to continue to grow as indicated by research published by a number of leading telecommunications industry market research firms:

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The introduction of higher quality and feature-rich mobile phones (color screens, cameras and other multimedia applications) has raised mobile phone users’ expectations. We expect basic “silo-ed” services from downloads to location and presence to multimedia messaging will become more integrated and intuitive which should help drive usage and revenues. Therefore, we believe mobile phone operators will be looking for ways to provide subscribers with multiple applications and personalized services with an intuitive user experience.

Wireline

The wireline market has continued to grow due to the wider adoption of broadband services lead by cable and DSL services. This trend is exhibited by:

Spam and Anti Virus

In both wireline and mobile markets, operators must deploy a more effective antispam and antivirus solution to ensure the usage of new services is not delayed or slowed down due to consumers’ frustrations with spam and viruses. Spam is growing so fast that it actually jeopardizes the future of broadband communications. Short message service (“SMS”) customers are also starting to receive spam. As a result, outbound abuse protection is now as important as inbound protection. Phishing is a prime example; phishing attacks use ‘spoofed’ emails and fraudulent web sites designed to fool recipients into divulging personal financial data. By hijacking the trusted brands of well-known banks, online retailers and credit card companies, these criminals are able to convince up to 5% of recipients to respond to them.

In order to successfully realize these new growth opportunities in both the mobile and wireline markets, we believe operators seek the right technology and expertise to develop new revenue generating data services with a better user experience that will attract and retain subscribers.

The Openwave Solution

Our customer relationships position us well to benefit from the growth of mobile data services, broadband, messaging and anti-abuse opportunities. We sell our software products worldwide, primarily to communications service providers, including wireless and wireline telecommunications operators and cable operators, as well as mobile phone manufacturers. We also provide our communication service provider customers with professional services that enable them to rapidly adopt our technology and bring wireless and wireline Internet-based services and applications to market. Our professional services focus on those areas where our products interface with our customers’ internal systems such as billing, provisioning and customer care. We have a team of professionals who work with leading mobile operators and mobile phone manufacturers around the world at all stages of development and implementation of wireless services

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Our strategy is to simplify the deployment and innovation of data services by delivering a client/server architecture which focuses on dramatically improving the user experience. We achieve this in three core areas: integrating the experience across multiple services, phones and technologies; enhancing the experience with new features and capabilities; and protecting the experience from spam and viruses. Our approach is aligned with operators’ needs, giving operators the control, customization, influence, and ability to customize their service offerings they want on both the mobile phone and on their networks.

Our products allow communication service providers to offer new revenue-generating data services such as photo and video messaging; application downloads including games and music, and location-based services such as identifying a mobile phone user’s location in emergency situations. In addition, mobile phone manufacturers can use our products such as our browser and application products for exchanging multimedia messaging, to build highly differentiated mobile phones and services for the widest range of mobile phones.

We believe our strategy will help our customers drive incremental subscriber revenues and increase subscriber loyalty while transitioning to a world of personalized data services, multiple applications and open standards-based networks.

We believe that we are well positioned to benefit from the growth in both the mobile and wireline markets due to our relationships with more than 70 mobile operators, including 16 of the top 20 global mobile operators; 51 mobile phone manufacturers, including four of the top five global manufacturers; and 29 broadband operators, including nine of the top 15 broadband operators in North America. As data offerings become a more important role in driving overall growth coupled with the number of higher quality and feature-rich mobile phones rising, we believe there are growth opportunities for our software and services in the following areas:

We believe that the increased dependence on email services, the need for spam and virus detection, remote access to corporate intranets, and the rise of services such as ring tones, games and messaging on mobile phones, will provide us the opportunity to further benefit from demand for our software and services.

Our agreements with our communication service provider customers grant them nonexclusive licenses to use our software in connection with providing mobile data services to their subscribers. Pricing and payment terms for

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licenses are usually negotiated with each customer based upon subscriber count or transaction capacity. Products are generally licensed under a perpetual license model or under a monthly or quarterly time-based license model. In addition, we typically provide fee-based maintenance and support services to our customers, under which customers receive error corrections and support.

Products and Services

Our products are modular and based on open standards, providing our customers the ability to choose, mix and match the right products and technologies to bring usability to the mobile services they offer subscribers. Our technology and products are designed to work on multiple mobile phones and technologies regardless of the brand of mobile phone or the type of service operators select to roll out to their subscribers. Our product portfolio includes offerings in the areas of client software for mass-market mobile phones, mobile infrastructure products and messaging application products for the communications industry. We also have a professional services group who work with our customers around the world at all stages of development and implementation of wireless services. For financial information about our operating segment and geographic areas, see Note 5 to our Consolidated Financial Statements.

Client Software Products

Our client software includes our flagship Openwave Mobile Browser, designed and optimized for mobile phones, our Openwave Mobile Messaging Client, our Openwave Phone Suite Version 7, and our Openwave Mobile SDK:

With the acquisition of Magic4, we have further strengthened our client portfolio in client messaging software for mobile phones.

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Mobile Infrastructure Software Products

Our mobile infrastructure software products contain the foundation software required to enable Internet connectivity to mobile phones and the functioning of a set of applications for mobile users that allows subscribers to provision their own phones, use their phones to take pictures, message each other, download music, games and ringtones, and find the nearest movie theater or coffee shop. These products include Openwave Mobile Access Gateway, Openwave Device Manager, Openwave Download Manager, and the Openwave Location Manager.

Messaging Applications Products

Our messaging applications products enable end users to exchange electronic mail, voicemail and multimedia messages from PC’s, wireline telephones and mobile phones. Our messaging applications products include Openwave Email Mx, Openwave Email Gx, Openwave Multimedia Messaging Services Center, and Openwave Voice Messaging. We are starting to see IP mobile messaging accelerate in mobile environments.

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Professional Services and Maintenance and Support Services

Our products and our customers’ networks are complex, requiring experienced and knowledgeable professional services, support, and training to provide advanced solutions to our customers. Our support organization provides both 24-hour maintenance and support services to our operator customers and maintenance and engineering support services to wireless device manufacturers, who have ported our Openwave Mobile Browser and other device applications to their wireless mobile phones. In addition, we provide consulting services to communication service providers who license our software and engage us to perform integration services relating to commercial launches of our technology, as well as value-added services that are designed to improve the end-to-end consumer experience, which we believe will increase adoption rates for wireless data services. As of June 30, 2004, we had 288 employees in our professional services and maintenance and support organizations.

Research and Product Development

Our ability to meet our customer’s expectation of innovation and enhancement depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and bring products to market on a timely basis and at competitive prices. Consequently, we continue to enhance the features and performance of our existing products and have made, and intend to continue to make, significant investments in research and product development. Our research and development expenses were $93.3 million, $115.1 million and $135.1 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively. As of June 30, 2004, we had 448 employees engaged in research and product development activities.

Technology

Our success is dependent upon continued technological development and innovation. We have contributed to the development of mobile data services. Our messaging products have substantial innovation and technology dedicated to the specific and stringent needs of the service provider marketplace. Our products are based on open standards, and we contribute to the development of such standards; in particular, contributions are made in the areas of mobile Internet protocols, messaging, mobile Internet technology and enabling technologies for 2.5G and 3G networks.

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Our technology is designed for deployment on very large-scale networks. Our customers require highly scalable systems, tools for monitoring and managing systems and other features specific to the size, scale and performance characteristics of their networks and service offerings. Our technology is designed with these requirements in mind and includes features such as:

Client Software Technology

Our client software technology is designed to be embedded in limited-function mobile phones, such as mass-market mobile phones, and to minimize hardware resource requirements. The technology includes multiple applications, such as browsing and messaging, and platform support to enable the correct and efficient operation of these applications in a wide variety of mobile phones.

Mobile Access Gateway Technology

We have designed MAG to be modular, expandable, flexible, scalable and reliable. Using an architecture based on scalable, object-oriented technology, MAG typically runs on a large, distributed set of servers. MAG is intended to meet the stringent performance, scalability and reliability requirements of communication service providers. MAG implements OMA specifications for communications with mobile phones and other mobile terminals including standards ratified by the OMA.

Messaging Platform Technology

We have developed a scalable platform for building messaging and other Internet-standard, data intensive applications. Our platform is based on a partitioned cluster architecture, which enables excellent scalability and performance across a wide variety of configurations. Our Internet messaging technology implements a wide variety of messaging standards, including SMTP, MIME, IMAP4, POP3, and VoiceXML. The message storage subsystem is designed to reliably and efficiently store, organize and retrieve a variety of messaging media types, including text, graphics, voice, audio and facsimile.

Directory Technology

Many of our products require access to common information, such as a user name, password, phone number or email address. Our directory technology has a core database that contains the common information, and a set of high-speed replicas of that information. By using multiple replicas, the common information can be repeatedly accessed in a reliable and efficient manner. The replicas support the industry-standard Lightweight Directory Access Protocol (“LDAP”), so that third-party applications can access the information contained within the directory by using this standard format.

Standards

We believe the growth and development of standards is key to our success and the success of our industry. Therefore, we take an active role in a number of industry standards organizations including the OMA, the World Wide Web

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Consortium (“W3C”), CDMA Developer Group, 3G Americas, and Mobile Entertainment Forum among others. In addition, the Third Generation Partnership Projects (“3GPP” and “3GPP2”), which are the 3G standards organizations for the Global System for Mobile Communication (“GSM”) and CDMA, respectively, represent strategic standards for our products.

Sales, Marketing and Customer Support

We sell our products through both a direct sales force and third-party resellers. As of June 30, 2004, we had 309 employees in sales, marketing and customer support worldwide. Our sales and marketing groups focus on selling products by establishing and managing relationships with customers and resellers. Our customer support group focuses on performing maintenance and support. Our third-party resellers are strategic alliance partners such as Cap Gemini, HP, IBM and Siemens.

International sales of products and services accounted for 59%, 60% and 68% of our total revenues for our fiscal years ended June 30, 2004, 2003 and 2002, respectively. Our international sales strategy is to sell directly to large operators and to partner with leading distributors and systems integrators who have strong industry backgrounds and market presence in their respective markets and geographic regions.

We believe that customer service and ongoing technical support are an essential part of the sales process in the telecommunications industry. Senior management and assigned account managers play an important role in ongoing account management and relationships. We believe maintaining focus on these customer relationships will enable us to improve customer satisfaction and develop products to meet specific customer needs.

Developer Marketing

We actively recruit content and application developers to our platform and make available to them free of charge our software development kit, Openwave Mobile SDK. We also provide them with free membership in the Openwave Developer Network, free email-based support and the opportunity to participate in the Openwave Developer Alliance Program.

The Openwave Developer Network promotes a select group of our content and application developers as members and we help aggregate a variety of content through this extensive network. We screen applications and content from the Developer Programs based on the availability and quality of the content or applications produced by the candidates. We perform joint marketing activities with Developer partners, as well as provide introductions between them and our wireless communication service providers.

Partners

We partner with leading companies including HP, IBM, Lucent, Siemens and others that expand our reach and capabilities, maintain our company-wide focus on increasing customer satisfaction and improving the end user experience.

Competition

The market for wireless and wireline Internet standards-based infrastructure and applications software products and services continues to be intensely competitive. In addition, the widespread and increasing adoption of open industry standards may make it easier for new market entrants and existing competitors to introduce new products that compete with our software products.

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We expect that we will continue to compete primarily on the basis of quality, technical capability, breadth of product and service offerings, functionality, price and time to market.

In the client products market, our competitors include Access, Microsoft, Nokia, Symbian, and Teleca Systems. In the mobile infrastructure software products market, our competitors include Comverse, Ericsson, LightSurf, LogicaCMG, Nokia, Qualcomm and 7.24 Solutions. In addition, we have competitors within the location products market, which include Ericsson, Intrado, Nokia and Siemens. In the messaging applications products market, our competitors include Comverse, Critical Path, Ericsson, iPlanet, LogicaCMG and Nokia. In addition, we have competitors within the antispam and antivirus market, such as Ironport.

Intellectual Property Rights

Our performance depends significantly on our ability to protect our intellectual property and proprietary rights to the technologies used in our products. If we are not adequately protected, our competitors could use the technologies that we have developed to enhance their products and services, which could harm our business.

As a member of several groups involved in setting standards for the industry, such as the OMA, we have agreed to license our intellectual property to other members of those groups on fair and reasonable terms to the extent that the intellectual property is essential to implementing the specifications promulgated by those groups. Each of the other members of the groups has agreed to similar provisions.

Employees and Executive Changes

As of June 30, 2004, we had 1,265 employees. None of our employees are covered by any collective bargaining agreements, except for certain employees located in Europe.

In July 2004, we promoted Joshua Pace to Chief Financial Officer (“CFO”). He previously served as Chief Accounting Officer since April 2003 and has served as Vice President of Finance since 2001. Prior to Openwave, Mr. Pace held several finance positions, including senior vice president and CFO of M2Networx, vice president of finance at Covad Communications and executive director of finance at US West Communications.

In April 2004, Ken Denman was appointed to the Board of Directors. Mr. Denman currently serves as Chairman of the Board and Chief Executive Officer of iPass and has more than 20 years of experience in the telecommunications and IT industries.

Item 2.    Properties

Our principal office is located in Redwood City, California, where we lease a 283,000 square foot building under a 12-year lease that commenced in the fourth quarter of the fiscal year ended June 30, 2001. In addition, we have two options to extend the lease for five years each. We also have other facility leases in other locations in the United States and throughout the world.

Item 3.    Legal Proceedings

IPO securities class action.

On November 5, 2001, a purported securities fraud class action complaint was filed in the United States District Court for the Southern District of New York. In re Openwave Systems Inc. (sic) Initial Public Offering Securities Litigation,

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Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased the Company’s common stock from June 11, 1999 through December 6, 2000. The defendants are the Company and five of its present or former officers (the “Openwave Defendants”), and several investment banking firms that served as underwriters of the Company’s initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice, subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were issued. No specific damages are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999 and 2000, and the cases were consolidated for pretrial purposes.

The Company has accepted a settlement proposal presented to all issuer defendants. Plaintiffs will dismiss and release all claims against the Openwave Defendants, in exchange for a contingent payment by the insurance companies responsible for insuring the issuers, and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Openwave Defendants will not be required to make any cash payment in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of insurance coverage, a circumstance which the Company does not believe will occur. The settlement will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to or opt out of the settlement. We believe a loss is not probable or estimable. Therefore no amount has been accrued as of June 30, 2004.

Commercial Dispute.

One of the Company’s resellers, Intrado Inc., commenced arbitration proceedings against the Company on August 11, 2003 alleging breach of contract in connection with the performance of certain software and services. The demand for arbitration did not include a specific demand for damages. The Company had asserted arbitration counterclaims alleging that Intrado used the Company’s technology to develop a competing service. In August 2004, the Company entered into a confidential settlement agreement with Intrado, which had no material impact on the results of the Company’s reported result of operations. As of June 30, 2004, the Company had accrued for the settlement of the litigation in the accrued liabilities on the Company’s Consolidated Balance Sheet.

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

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock has been listed for quotations on the Nasdaq National Market under the symbol OPWV. On October 21, 2003, the Company completed a one-for-three reverse split of its common stock. All share and per share data in the financial statements presented herein have been adjusted to reflect this change. The following table sets forth the fiscal periods indicating the high and low closing sales prices for our common stock.

As of August 13, 2004, there were 805 holders of record of our common stock. We have not paid any dividends and currently intend to retain future earnings for reinvestment in our business or the repurchase of outstanding shares of our common stock. Therefore, we do not anticipate paying cash dividends in the foreseeable future.

On August 2, 2004, we issued 2,271,446 shares of Openwave common stock, $54.2 million in cash and a $3.8 million loan note in connection with our acquisition of Magic4. We believe that the transaction was exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(10) because the California Department of Corporations held a fairness hearing and granted a permit pursuant to Section 25121 of the California Corporations Code to issue the securities.

On October 4, 2002, we issued approximately 53,667 unregistered shares in the purchase of infrastructure software technology from Personity, Inc. We believe that the transaction was exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) or another applicable exemption.

Item 6.    Selected Financial Data

The following selected financial data should be read in conjunction with our consolidated financial statements and related notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The selected Consolidated Statements of Operations data for the fiscal years ended June 30, 2004, 2003, 2002, 2001 and 2000 and the selected Consolidated Balance Sheet data as of June 30, 2004, 2003, 2002, 2001 and 2000 are derived from our consolidated financial statements which have been audited by KPMG LLP, an independent registered public accounting firm. Additionally, certain prior period amounts in the consolidated financial statements and notes thereto have been reclassified to conform to the current period presentation.

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You should also consider that on November 17, 2000, we merged with Software.com, Inc. in a transaction that was accounted for as a pooling-of-interests. As of the merger date, Software.com changed its fiscal year end to June 30 to conform to our fiscal year-end. Software.com’s consolidated financial statements for the year ended June 30, 2000 were combined with our consolidated financial statements for the same period. Software.com’s unaudited results of operations for the six months ended December 31, 1999 included revenues of $29.0 million, expenses of $37.2 million and net loss of $8.2 million. An adjustment has been made in stockholders’ equity as of June 30, 2000 to eliminate the effect of including Software.com’s unaudited results of operations for the six months ended December 31, 1999 in both the years ended June 30, 2000 and 1999.

The following table sets forth selected Consolidated Statements of Operations and Consolidated Balance Sheet data for fiscal years ended June 30, 2004, 2003, 2002, 2001 and 2000 (in thousands, except per share data):

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents Management’s Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction with Item 1 Business which provides Management’s view of our products, services, and business strategy, Item 8 Financial Statements and Supplementary Data which contains our consolidated financial statements and notes thereto, and the Risk Factor section contained later in this Item 7.

Our total revenues for the fiscal year ended June 30, 2004 increased by $22.8 million or 8.5% from $268.0 million for the fiscal year ended June 302, 2003 to $290.8 million. The increase in revenues reflected increases in sales of our client software product and services, our infrastructure software and services, and our services, which were partially offset by decreases in our application software and services and our project/systems revenues. The increase in sales of our client software and services were primarily generated by the continued growth of our customers’ shipments of mobile phones. The increase in the sales of our infrastructure software and services was primarily the result mobile phone users increased adoption and usage of mobile data through our wireless carrier customers. Revenue from our application software and services decreased due to price compression resulting from increased price competition in the market. The increase in services revenues primarily attributed to an increase in the number of custom and extended solutions projects we have engaged in as well as an increase in services provided in relation to our product upgrades on our existing technology and other value-added services to our customers.

Out total operating expenses decreased by $153.0 million or 39.9% from $383.2 million for the fiscal year ended June 30, 2003 to $230.2 million for the fiscal year ended June 30, 2004. The decrease in our operating expenses was primarily due to the realization of our cost savings from our three restructurings that occurred in the fiscal years 2003 and 2002 related to our reduced headcount and reduced facility costs and our continued efforts to reduce operation costs.

Corporate Governance and Internal Controls

We have historically considered our policies and procedures relating to our corporate governance and internal controls over financial reporting a high priority and will continue to do so. We believe that our accounting policies are prudent and provide a clear and accurate view of our financial performance. As of June 30, 2004, we have made significant progress in our efforts to comply with the Sarbanes-Oxley Act, including Section 404 thereof, and anticipate that we will meet all requirements within the applicable time frames as specified by the Sarbanes-Oxley Act.

We have formed a Disclosure Committee, comprised primarily of senior financial and legal personnel, which helps to ensure that our internal controls over financial reporting, and financial results and disclosures, are complete and accurate. Prior to the release of our financial results, representatives of our senior management team review our operating results, key accounting policies and estimates with our Audit Committee, which is comprised solely of independent members of our Board of Directors.

Critical Accounting Policies and Judgments

We believe that there are several accounting policies that are critical to understanding our business and prospects for our future performance, as these policies affect the reported amounts of revenue and other significant areas that involve Management’s judgment and estimates. These significant accounting policies are:

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These policies, and our procedures related to these policies, are described in detail below. In addition, please refer to the Notes to Condensed Consolidated Financial Statements for further discussion of our accounting policies.

Revenue Recognition

We recognize revenue in accordance with Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, “Modification of 97-2 Software Revenue Recognition, With Respect to Certain Transactions,” and generally recognize revenue when all of the following criteria are met as set forth in paragraph 8 of SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable.

One of the critical judgments that we make is the assessment that “collectibility is probable.” Our recognition of revenue is based on our assessment of the probability of collecting the related accounts receivable balance on a customer-by-customer basis. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection had been made at the time the transactions were recorded in revenue. In cases where collectibility is not deemed probable, revenue is recognized at the time collection becomes probable, which is generally upon receipt of cash.

Another critical judgment that we make involves the “fixed or determinable” criterion. We consider payment terms where arrangement fees are due within 12 months from delivery to be normal. Payment terms beyond 12 months from delivery are considered extended and not fixed or determinable. For arrangements with extended payment terms, arrangement fee revenues are recognized when fees become due, assuming all other revenue recognition criteria have been met. In arrangements where fees are due within one year or less from delivery, we consider the entire arrangement fee as “fixed or determinable.”

For contracts accounted for under SOP No. 81-1, we believe we are able to reasonably estimate, track, and project the status of completion of a project, and therefore use the percentage of completion method as our primary method for recognizing revenue. We also consider customer acceptance our criteria for substantial completion. Use of estimates requires management to make judgments to estimate the progress to completion, (see Risk Factors).

Certain arrangements permit the customer to pay us maintenance and support fees based only on the number of active subscribers using our software product, rather than the number of subscribers to which the customer has committed to purchase under the license agreement. Such arrangements cause an implied maintenance and support obligation for us relating to unactivated subscribers. In these cases, we defer revenue equal to the Vendor Specific Objective Evidence (“VSOE”) of maintenance and support of the total commitment for the estimated life of the software. This additional deferral of maintenance and support revenue results in a smaller amount of residual license revenues to be recognized upon delivery.

In certain arrangements we recognize revenue based on information contained in license usage reports provided by our customers. If such reports are not received in a timely manner, we estimate the revenue based on historical reporting trends, if possible.

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During the year ended June 30, 2002, we entered into a significant contract with a service partner, under which we ported our software to the service partner’s hardware/software platform in exchange for a predetermined reimbursement rate; the partner resold our products and engaged in other joint activities. We recognized porting services revenues from this contract as project/systems revenues in our Consolidated Statement of Operations as the services were performed. With our adoption of Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, during the quarter ended December 31, 2002, we separated the reseller and porting activities related to the project and recognized reseller revenues separately as they were earned. Cumulative revenues recognized may have been less or greater than cumulative billings at any point in time during the contract’s term. The resulting difference was recognized as either unbilled accounts receivable or deferred revenue. In accounting for project/systems revenue, we recognized revenue as the services were proportionally performed. As of June 30, 2004, the project was completed and all related project revenues were recognized.

During the year ended June 30, 2004, we entered into a significant contract with a communication services provider to provide a “managed service” software and system solution. Under the terms of the arrangement, we agreed to provide the following products and services in exchange for project milestone payments and ongoing service payments: software; third party software and hardware; maintenance and support and new version coverage; third party maintenance and support and new version coverage; implementation services, including significant customization and modification of the software and third party software; and, managed services for ongoing operational support of the software system/solution. We determined we have a single accounting unit as defined in EITF Issue No. 00-21. We will recognize revenue using the proportional performance method initially assuming a zero profit margin, as we believe we can not reasonably estimate project completion status at June 30, 2004, but we believe profitability is reasonably assured. We use labor hours incurred as a percentage of total estimated labor hours in determining the proportional performance on the project. Furthermore, applying the guidance in EITF Issue No. 00-21, which limits revenue recognition to earned and realizable billings or amounts that are not contingent upon the delivery of additional items or meeting other specified performance conditions, revenue recognition on the arrangement is limited to non-contingent revenue. During the year-ended June 30, 2004, we recognized $5.0 million in systems revenues on this arrangement and which was classified as project/systems revenues in the our Consolidated Statement of Operations. As of June 30, 2004, direct and incremental costs of $5.7 million on the arrangement incurred in excess of non-contingent revenue were deferred and were classified within prepaid and other current assets, as we have enforceable contractual rights to recover such costs, anticipate recognition of a profit margin on this project as future revenues are recognized, and view such costs as an investment in the remainder of the contract.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the anticipated non-payment of contractual obligations to us.

The total allowance for doubtful accounts is comprised of a specific reserve and a general reserve. We regularly review the adequacy of our allowance for doubtful accounts after considering the size of the accounts receivable aging, the age of each invoice, each customer’s expected ability to pay and our collection history with each customer. We review all customer receivables to determine if a specific reserve is needed, based on our knowledge of the customer’s ability to pay. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, a specific allowance would be made. When a customer is specifically identified as uncollectible, the total customer receivable is reduced by the customer’s deferred revenue balance resulting in the net specific identified reserve, and we discontinue recognition of revenue from that arrangement until cash is received. In addition, we

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maintain a general reserve for all other receivables not included in the specific reserve by applying specific percentages of projected uncollectible receivables to the various aging categories. In determining these percentages, we analyze our historical collection experience and current economic trends.

If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. However, historically the reserve has proven to be adequate.

Impairment Assessments

(a)  Goodwill and intangible assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, we review the carrying amount of goodwill for impairment on an annual basis. Additionally, we perform an impairment assessment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value of goodwill and other intangible assets may not be recoverable. Significant changes in circumstances can be both internal to our strategic and financial direction, as well as changes to the competitive and economic landscape. Past changes in circumstances that were considered important for asset impairment include, but are not limited to, decrease in our market capitalization, contraction of the telecommunications industry, reduction or elimination of geographic economic growth, reductions in our forecasted growth and significant changes to operating costs.

We record goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. On July 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Prior to the adoption of SFAS No. 142, goodwill and the identified intangible assets were amortized on a straight-line basis over three to five years. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. We have no intangible assets with indefinite useful lives. Goodwill is tested for impairment in the Company’s fiscal third quarter. SFAS No. 142 also requires that we amortize other intangible assets over their respective finite lives up to their estimated residual values.

With the adoption of SFAS No. 142 on July 1, 2002, we determined that there was a single reporting unit for the purpose of goodwill impairment tests under SFAS No. 142. While goodwill is tested for impairment in our fiscal third quarter, interim impairment tests may be necessary if indicators suggest the carrying value of the goodwill may not be recoverable. For purposes of assessing the impairment of our goodwill, we estimate the value of the reporting unit using our market capitalization as the best evidence of fair value. This fair value is then compared to the carrying value of the reporting unit. We have impaired our goodwill and intangible assets during the fiscal years ended June 30, 2003 and 2002, (see Note 6(f) to our consolidated financial statements).

(b)  Strategic investments

We perform an impairment assessment of our strategic equity investments on a quarterly basis. In performing the impairment assessment, we consider the following factors, among others, in connection with the businesses in which investments have been made: the implicit valuation of the business indicated by recently completed financing or similar transactions, the business’ current solvency, and its access to future capital. During the fiscal year ended June 30, 2004 there were no impairments to our strategic investments. In the prior fiscal years ended June 30, 2003 and June 30, 2002, we recorded impairment charges of $5.3 million relating to three investments and $5.6 million

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relating to four investments, respectively. These impairment charges are recorded within impairment of non-marketable equity securities in our Consolidated Statements of Operations. As of June 30, 2004, the remaining book value of our investments in non-marketable equity securities was approximately $1.1 million and was recorded within deposits and other assets in our Consolidated Balance Sheets.

Restructuring—related assessments

Our critical accounting policy and judgment as it relates to restructuring-related assessments includes our estimate of facility costs and severance-related costs. To determine the facility costs, which consist of the loss after our cost recovery efforts from subleasing a building, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges. The facility cost is an estimate representing the low end of the range and will be adjusted in the future upon triggering events (such as changes in estimates of time and rates to sublease, based upon current market conditions, or changes in actual sublease rates). We have estimated that the lease loss for the fiscal year 2003 and fiscal year 2002 restructuring plans could be as much as $25.4 million higher if facilities operating lease rental rates continue to decrease in the applicable markets or if it takes longer than expected to find a suitable tenant to lease the facility. To determine the severance and employment-related charges, we made certain estimates as they relate to severance benefits including the remaining time employees will be retained and the estimated severance period. The actual severance and employment-related charges incurred during fiscal year 2004 for all restructuring plans were higher than our initial estimates by $0.3 million.

Summary of Operating Results for Fiscal Years ended June 30, 2004, 2003 and 2002

Revenues

We generate four different types of revenues. License revenues are primarily associated with the licensing of our software products to communication service providers and wireless device manufacturers; maintenance and support revenues are derived from providing support services to communication service providers and wireless device manufacturers; professional services revenues are primarily a result of providing deployment and integration consulting services to communication service providers; and project/systems revenues are derived from a porting services project and systems revenues which are comprised of packaged solution elements which may include our software licenses, professional services, third-party software and hardware.

The majority of our revenues have been to a limited number of customers and our sales are concentrated in a single industry segment. Significant customers during the years ended June 30, 2004, 2003 and 2002 include Sprint and KDDI. Sales to Sprint accounted for 8%, 13% and 5% of total revenues during the years ended June 30, 2004, 2003 and 2002, respectively. Sales to KDDI accounted for 5%, 11% and 20% of total revenues during years ended June 30, 2004, 2003 and 2002, respectively. No other customers accounted for 10% or more of total revenues for the fiscal years ended June 30, 2004, 2003 and 2002.

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The following table presents the key revenue financial metric information for the fiscal years ended June 30, 2004, 2003 and 2002, respectively (in thousands):

License Revenues

License revenues remained relatively flat for fiscal year 2004 as compared to fiscal year 2003, but decreased by 40.1% during fiscal year 2003 as compared to fiscal year 2002. The overall decrease in fiscal year 2003 as compared to fiscal year 2002 was primarily attributed to the economic downturn that significantly affected the telecommunications market, which resulted in a reduced number and value of new contracts and a decrease in the subscriber adoption rate over the prior year. In addition, increased competition, particularly in Europe, caused a further decline in license revenues.

Maintenance and Support Services Revenues

The increase in maintenance and support services revenues of 7.2% and 3.0% in the fiscal year 2004 and 2003, respectively, compared to the respective prior fiscal years due to the growth of our customers’ subscriber base and our ability to maintain contractual renewal rates of existing customer agreements.

Professional Services Revenues

Professional services increased 73.8% for fiscal year 2004 as compared to fiscal year 2003, but decreased 39.2% for fiscal year 2003 as compared to fiscal year 2002. The increase in 2004 as compared to the prior fiscal year was primarily attributed to an increase in the number of custom and extended solutions projects as well as an increase in services provided in relation to our product upgrades on our existing technology and other value-added services to our customers. The decrease in 2003 as compared to the prior fiscal year was primarily due to the decrease in the number of commercial launches of our technology by our customers.

Project/Systems Revenues

Project/Systems revenues generated in fiscal year 2002 comprised revenue recognized under our porting systems arrangement with a service partner under which we recognized revenues up until the third quarter of fiscal year 2004 when the porting project was substantially complete. In the fourth quarter of fiscal year 2004 we derived $5.0 million from systems revenues which are comprised of packaged solution elements which may include our software licenses,

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our professional services, and third-party software and hardware. We expect to recognize revenue from system revenues in fiscal years 2005 and 2006 as performance milestones are met.

Other Key Financial Revenue Metric

Other key financial revenue metric includes our disaggregated revenues by product groups. The disaggregated revenues by product group for the fiscal years ended June 30, 2004, 2003, and 2002 were as follows (in thousands):

Client software and services revenue continued to increase in fiscal year 2004 as compared to fiscal year 2003 as our customers’ shipments of mobile phones continues to grow. Infrastructure software and services increased in fiscal year 2004 as compared to fiscal year 2003 as mobile phone users increased their adoption and usage of mobile data through our wireless carrier customers. Application software and services decreased in fiscal year 2004 as compared to fiscal year 2003 primarily due to price compression resulting from increased competition. The increase in services revenues in 2004 as compared to the fiscal year 2003 was primarily attributable to an increase in the number of custom and extended solutions projects we had engaged in as well as an increase in services provided in relation to our product upgrades on our existing technology and other value-added services to our customers.

Cost of Revenues

The following table presents cost of revenues as a percentage of related revenue type for the fiscal years ended June 30, 2004, 2003 and 2002, respectively (in thousands):

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Cost of License Revenues

Cost of license revenues consists primarily of the following: third-party license and related support fees; amortization of customer contract and relationship intangible assets related to our prior acquisitions; and costs associated with our Applications Service Provider (“ASP”) business that we determined during the fourth quarter of fiscal 2001 would be exited, and a majority of the costs were completed by the end of the second quarter of fiscal year 2002.

Costs of license revenues during fiscal year 2004 as compared to fiscal year 2003 remained relatively flat and was comprised of an increase in royalty costs of $1.4 million associated with anti-virus and anti-spam products, offset by a decrease in amortization of customer contract and relationship intangibles in the amount of $0.9 million and other charges of $0.6 million.

Cost of license revenues decreased by $46.8 million in fiscal year 2003 as compared to fiscal year 2002 due to a decrease in the amortization of customer contract and relationship intangible assets in the amount of $10.0 million, the impairment of developed and core technology of $31.4 million in fiscal year 2002, a decrease in charges of $4.8 million associated with the exiting of the ASP business in fiscal year 2002, and a decrease in other costs of $0.6 million.

Cost of Maintenance and Support Services Revenues

Cost of maintenance and support services revenues consists of compensation and related overhead costs for personnel engaged in training and support services to wireless device manufacturers and communication service providers.

The decrease in maintenance and support services costs for the comparative periods resulted from a decrease in labor, overhead, and other employee costs due to a decrease in our average headcount of 22 employees and 31 employees for the comparative periods in fiscal years 2003 and 2002, respectively, as a result of our realignment and restructuring efforts. This, along with an increase in revenues due to increased subscriber growth during the comparative periods is responsible for increased margins in this category.

Cost of Professional Services Revenues

Cost of professional services revenues consists of compensation and independent consultant costs for personnel engaged in performing professional services and related overhead.

Professional services costs increased by $15.3 million in fiscal year 2004 as compared to the prior fiscal year. During the FY2003 Q1 restructuring, which took place late in the first quarter of fiscal year 2003, we reorganized the professional services departments and sales and marketing departments and focused the activities of the professional services staff more specifically towards consulting activities and away from selling activities. Therefore, during fiscal year 2003, a larger portion of the costs were allocated to sales and marketing operations as compared to fiscal year 2004, increasing the variance between the respective periods by approximately $2.5 million. Additionally, increased demand for our products resulted in an increase of $7.8 million in subcontractor costs, an increase of $2.5 million in total travel costs, an increased utilization of our research and development group resulting in $4.3 million in cross-charges, and an increase in utilization bonus expense of $2.0 million. These increases were off-set by a decrease in salary and other costs of $0.9 million and a departmental cross-charge of $2.9 million to Project/Systems costs of sales.

Professional services expenses decreased by $3.3 million in fiscal year 2003 as compared to fiscal year 2002 primarily due to a decrease in our average headcount of 52 employees during fiscal year 2003 as compared to fiscal year 2002 and an increase in deferred charges related to professional services of $1.4 million in fiscal year 2003 as compared to

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fiscal year 2002. The deferred charges were capitalized within prepaid and other current assets as of June 30, 2003 in our Consolidated Balance Sheet. These reductions in the professional services expenses were partially offset by higher consulting costs that were allocated into professional services expenses in fiscal year 2003 due to the reorganization previously discussed.

Professional services gross margin increased from 12.9% in fiscal year 2003 to 17.4% during fiscal year 2004. The increase in the margin was primarily due to improved operational performance in our services organization. We expect the professional services gross margin to continue to fluctuate as revenue is recognized based on completion of milestones.

Professional services gross margin decreased from 39.6% in fiscal year 2002 to 12.9% during fiscal year 2003. This decrease in margin was primarily due to lower revenues associated with the slowdown in the telecommunications market, the timing of revenue and expense recognition on certain multiple-element arrangements, as well as the realignment of the sales force during the first quarter fiscal year 2003 restructuring.

Cost of Project/Systems Revenues

The fiscal year 2004 margin increased to 29.2% from 10.2% in fiscal year 2003. The increase was primarily due to an increase in the margin related to the porting service project, on the which the margin was 43.4% in fiscal year 2004 as compared to 10.2% in the prior fiscal. The increase in the margin on the porting services project was the result of our recognition of revenue, which had previously been deferred, upon completion of certain project milestones. This increase was offset by the recognition of systems revenue during our fiscal fourth quarter of approximately $5.0 million which was recognized with no margin, (see Critical Accounting Policy). The costs incurred related to the systems revenue comprised $2.9 million of professional services and $2.1 million of third-party hardware costs. Once we are able to estimate the cost of completion for this systems arrangement, we expect to recognize a margin on this systems arrangement.

Operating Expenses

We reduced costs and expenses to better align our resources with revenue opportunities anticipated in the current information technology market. During fiscal year 2003, we announced two separate restructurings and in fiscal year 2002, we announced one restructuring. The restructurings reduced our workforce at the time of the restructurings by approximately 12%, 24% and 17%, respectively. The cost benefits associated with the restructurings were primarily realized during the latter part of fiscal year 2003 and fiscal year 2002, respectively. Average overall headcount decreased by 355 people in fiscal year 2004 as compared to fiscal year 2003 and decreased by 392 people during fiscal year 2003 as compared to fiscal year 2002. In addition to the restructurings, we also reduced variable costs across the company as a result of discretionary spending controls.

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The following table represents operating expenses for the three fiscal years ended June 30, 2004, 2003 and 2002, respectively (in thousands):

Research and Development Expenses

Research and development expenses consist principally of salary and benefit expenses for software developers, contracted development efforts, related facilities costs, and expenses associated with computer equipment used in software development. We believe that investments in research and development, including recruiting and hiring of software developers, are critical to remain competitive in the market place and are directly related to continued timely development of new and enhanced products. While we continue to focus our attention on research and development, we undertook initiatives during our restructuring efforts to redistribute some of our research and development work offshore as well as increase our use of outside consultants.

As a result of our continued restructuring efforts and resource realignments, our average research and development headcount decreased by 160 employees during the fiscal year 2004, resulting in a decrease in salary and other salary-related costs of $16.4 million for the year as compared to the prior fiscal period. Bonus expense also decreased by $1.9 million due to reduced headcount and fewer retention bonuses. Lower headcount also resulted in lower employee development and staffing costs by $0.4 million. As a result of our restructuring and other costs savings initiatives, we renegotiated several of our agreements with outside vendors and effectively reduced our telecommunications and connectivity costs by $0.9 million. Asset depreciation and amortization costs decreased by $2.2 million for the current period as compared to the prior fiscal year and continues to decrease as existing assets become fully depreciated. Allocation costs also decreased by $10.0 million during the current year period, as compared to the respective prior fiscal period due to a $5.7 million decrease in costs allocated in as a result of lower headcount and overhead from restructuring efforts as well as lower depreciation and information technology (“IT”) costs, and an increase in allocated costs out primarily to the Professional Services organization of $4.3 million for services provided on extended and custom solutions projects. The overall decrease was partially offset by a $2.5 million increase in contingent workers expense due primarily to the use of contractors as a short term solution to meet customer commitments and an overall

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decrease in the allocation of certain employee expenses out to other departments of $7.4 million in the current fiscal year compared to the respective prior year period and are comprised primarily of those costs associated with project revenues.

As a result of our restructuring efforts, average research and development headcount decreased by 111 employees during the year ended June 30, 2003 compared to the prior fiscal period. The decrease in headcount resulted in a $6.6 million decrease in salaries and other salary-related costs for the comparative period. In addition, the transition of certain employees to departments associated with project revenues decreased total research and development expenses by $10.0 million. We also incurred lower overall facility and IT department charges of $6.8 million due to the restructurings and other cost saving measures, as well as lower other overall costs of $3.6 million. The overall decrease was offset primarily by a $0.5 million increase in contingent workers expense due primarily to our decision to outsource certain projects to companies located in other countries such as India; and an overall increase in bonus expense of $6.5 million.

Sales and Marketing Expenses

Sales and marketing expenses include salary and benefit expenses, sales commissions, travel expenses, and related facility costs for our sales and marketing personnel. Sales and marketing expenses also include the costs of trade shows, public relations, promotional materials, redeployed professional service employees and other market development programs.

Our average sales and marketing headcount decreased by 123 employees during the year ended June 30, 2004, resulting in a decrease in salary and other salary-related costs of $13.1 million for the year as compared to the prior fiscal period. This decrease was offset in part by an increase in our reliance on contingent workers by $0.9 million as well as an increase in outside services and other costs of $1.6 million. In addition, commission expense was higher by $6.5 million due to increased sales. Lower overall headcount and other cost savings initiatives resulted in lower travel costs of $2.6 million, lower telecommunication and connectivity costs of $1.6 million, lower marketing costs of $0.4 million and lower asset depreciation expense of $1.1 million. Finally, bonus expenses also decreased by $1.0 million overall. As part of our reorganization, our professional services staff focused more on consulting activities rather than general selling activities resulting in lower overall professional services expenses being allocated to sales and marketing activities in fiscal year 2004 as compared to fiscal year 2003. This reorganization resulted in a decrease in allocated consulting costs of $2.5 million during the current fiscal year compared to the prior year. Finally, our overall allocations decreased by $4.1 million primarily as a result of lower overall headcount and other costs savings initiatives.

As a result of our restructuring efforts, average sales and marketing headcount decreased by 174 employees during the fiscal year 2003 compared to fiscal year 2002 resulting in a $17.3 million decrease in salaries and other salary-related costs for the year as compared to the prior fiscal period. The transition of certain employees to departments associated with project revenues decreased total expenses by $0.4 million. We also incurred lower overall facility and IT department charges of $14.3 million as a result of the restructuring, as well as lower other overall costs reductions of $10.6 million as a result of our cost cutting efforts. Employee staffing development charges decreased primarily due a decrease in recruiting fees of $2.4 million. We also decreased our dependence on contractors leading to a decrease of $1.3 million in contingent worker expense. Finally, commission expense decreased $1.6 million as a result of lower overall revenue. The overall decrease was offset primarily by an increase in bonus expense of $2.1 million.

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General and Administrative Expenses

General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and related facility costs for our finance, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for doubtful accounts, and expenses associated with computer equipment and software used in administration of the business.

General and administrative expenses decreased by approximately $13.6 million in fiscal year 2004 as compared to fiscal year 2003. The decrease in expenses was due in part to a reduction in our average headcount of 37 employees as a result of the continuation of our restructuring and costs cutting efforts which lead to a savings in salaries and other related costs of approximately $3.8 million during fiscal year 2004 as compared to the prior fiscal year. The lower overall headcount also decreased the need to purchase new and replacement equipment and combined with many of the existing assets becoming fully depreciated during fiscal 2004 resulted in lower overall depreciation expense of $6.5 million. In addition, bonus expenses decreased by approximately $4.5 million due to certain incentive targets not being reached in the current fiscal year which were reached in the prior fiscal year and the absence of certain executive retention bonuses paid in the prior fiscal year. Operational efficiencies lead to lower legal and other costs of $3.0 million. Bad debt expense also decreased by approximately $4.4 million due to improved cash collections, reducing the aging of our accounts receivables, and the collection of several accounts that had previously been written off, which included the receipt of approximately $1.1 million from the resolution of certain bankruptcy proceedings. These decreases were primarily offset by an $8.6 million decrease in allocated costs out to other departments related to lower facility and IT costs incurred as the company continued its cost savings measures.

During fiscal year 2003 our average general and administrative headcount decreased by 31 employees compared to the prior fiscal year, as a result of our restructuring efforts. The decreased headcount translated to a $0.9 million decrease in salaries and other salary-related costs as compared to the prior fiscal period. Other costs savings efforts resulted in a decrease in recruiting fees of $2.9 million, a decrease of $1.9 million in cost for outside contractors, and a decrease of $2.8 million in other overall costs. The provision for doubtful accounts decreased $7.6 million as a result of the net accounts receivable balance decrease of approximately $34.4 million and improved cash collections. This decrease was offset by an increase in bonus expense of $6.6 million.

Restructuring and Other Costs

As a result of our change in strategy and our desire to improve our cost structure, we initiated three separate restructurings during the years ended June 30, 2003 and 2002, (see Restructuring-related assessments under Critical Accounting Policies.) These restructurings included the fiscal year 2003 fourth quarter restructuring (“FY2003 Q4 Restructuring”), the fiscal year 2003 first quarter restructuring (“FY2003 Q1 Restructuring”), and the fiscal year 2002 restructuring (“FY2002 Restructuring”).

The FY2003 Q4 Restructuring was announced during the quarter ended June 30, 2003 and included further reductions in operating expenses in order to better align our overall costs structure with current revenues. These reductions included a decrease in the Company’s workforce of approximately 200 employees. The majority of these reductions were completed by December 31, 2003. In connection with the implementation of the restructuring plan, during the fiscal year ended June 30, 2004, the Company incurred an additional $0.5 million in facilities, $0.9 million in severance and $0.8 million in fixed asset impairment charges to bring the total restructuring cost to approximately $10.8 million. The restructuring charges included facility costs of $1.3 million, equipment costs of $2.9 million, severance and employment related charges of $6.5 million and other restructuring related costs of

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$0.1 million. This restructuring effort lead to approximately $10 million of realized cost savings during the fiscal year ended June 30, 2004. Of the $0.8 million remaining restructuring accrual at June 30, 2004, we expect to pay $0.5 million through June 30, 2005 and $0.3 million during the three years ending June 30, 2008.

The FY2003 Q1 Restructuring was announced during the quarter ended September 30, 2002 and included the consolidation of products within three core product groups: client software and services, application software and services, and infrastructure software and services. This restructuring plan resulted in a decrease in the Company’s workforce by approximately 480 employees. In connection with the implementation of this restructuring plan in fiscal year 2004, the Company incurred additional facility charges of $0.6 million, offset by a decrease of $0.6 million in severance as a result of changes in certain estimates. Restructuring cost totaled approximately $82.2 million, including facility costs of $52.1 million, fixed asset impairments of $12.2 million, severance and employment related charges of $17.6 million and other restructuring related costs of $0.3 million. This restructuring effort lead to approximately $25 to $30 million in total cost savings of which approximately 26% was realized in cost of revenues, 40% in research and development activities, 23% in sales and marketing activities and 11% in general and administrative activities. Of the remaining $42.6 million accrual at June 30, 2004, we expect to pay $6.6 million through June 30, 2005 and $36.0 million from July 2005 through April 2013.

The FY 2002 Restructuring was announced during the quarter ended December 30, 2001 as a result of our desire to improve our cost structure and profitability. This restructuring plan resulted in a decrease in the Company’s workforce by approximately 400 employees. In connection with the implementation of the restructuring plan, during fiscal year 2004, the Company incurred an additional $0.8 million in charges primarily as a result of changes in the estimates of sublease income to bring the total restructuring costs to $38.8 million. Other related costs totaled $1.9 million which were primarily associated with the accelerated depreciation charges related to the planned closing of certain facilities under the restructuring plan. The restructuring costs included facility costs of $20.3 million, fixed asset impairments of $5.4 million, severance and employment-related charges of $10.3 million and other restructuring-related charges of $2.8 million. The restructuring effort led to $25 to $30 million in total savings, of which approximately 10% was realized in cost of revenues, 35% was realized in the research and development departments, 30% in the sales and marketing departments and 25% in the general and administrative departments. Of the remaining $5.9 million accrual as of June 30, 2004, we expect to pay $3.5 million through June 30, 2005 and $2.4 million through various dates to November 2012.

The following table summarizes the future payments for the remaining fiscal years 2003 and 2002 restructuring liabilities (in thousands):

Stock-Based Compensation

All stock-based compensation is being amortized in a manner consistent with Financial Accounting Standards Board Interpretation (“FIN”) No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”

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Stock-based compensation consists of continued amortization of the deferred stock-based compensation related to acquisitions, as well as compensation expense recognized on warrants, options issued to non-employees and restricted stock granted to executives and other employees at exercise prices below the current fair value of our stock.

The following table summarizes stock-based compensation expense by category (in thousands):

Stock-based compensation expense decreased $0.5 million during the fiscal year ended June 30, 2004 as compared to the prior fiscal year. We issued restricted stock grants that resulted in deferred stock-based compensation that totaled approximately $3.0 million and $1.8 million during the fiscal years ended June 30, 2004 and 2003, respectively. In addition, during fiscal year 2003, we reversed $1.7 million of stock-based compensation expense due to the termination of research and development employees prior to the vesting of their respective options. Stock-based compensation expense decreased by $2.2 million, excluding the reversal, as a result of fiscal year 2003 stock-based compensation expense including the recognition of a significant portion of the deferred stock-based compensation from past acquisitions in accordance with the accelerated amortization policy as prescribed in FIN No. 28.

Stock-based compensation expense decreased $9.4 million during fiscal year 2003, excluding the reversal, as compared to the respective prior fiscal year, primarily due to a higher proportion of amortization of deferred stock-based compensation attributable to prior acquisitions being charged to stock-based compensation expense in fiscal year 2002 in accordance with the accelerated amortization policy as prescribed in FIN No. 28.

Amortization and Impairment of Goodwill and Intangible Assets

Amortization and impairment of goodwill and intangible assets, In-process research and development, and cumulative effect of change in accounting principle for the fiscal years ended June 30, 2004, 2003 and 2002 were (in thousands):

(a) Amortization of acquisition-related contract intangible assets and developed and core technology is included in cost of license revenue in our Consolidated Statements of Operations. We amortize the contract intangible assets on a pro-rata basis over the period that the related contractual revenue is recognized. The developed and core technology

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assets are amortized on a straight-line basis over three to five years. Prior to our adoption of SFAS No. 142 on July 1, 2002, we amortized goodwill and other intangible assets on a straight-line basis over a three- to five-year period.

During the year ended June 30, 2002, we performed two separate impairment analyses and recorded a total impairment charge to the remaining goodwill on the acquisitions acquired prior to June 30, 2002 of $618.3 million. During the year ended June 30, 2003, we performed an additional impairment analysis on the goodwill acquired in the acquisition of SignalSoft and recorded $8.0 million in impairment charges. The impairment charges for both years were reported in “Amortization and impairment of goodwill and other intangible assets” in the Consolidated Statements of Operations. As of June 30, 2004, we have $723,000 in goodwill, and in accordance with SFAS No. 142, the goodwill will not be amortized, but will be tested for impairment in the future which may result in future impairment losses.

The decrease in total amortization of goodwill and other intangible assets for years ended June 30, 2004 and 2003, as compared to their respective prior fiscal years, was primarily due to the impairment of goodwill and intangible assets during fiscal year 2002.

(b) In-process research and development represents the fair value of the acquired in-process research and development projects that had not yet reached technological feasibility and had no alternative use. Accordingly, this amount was expensed when we acquired SignalSoft, and was reflected in our Consolidated Statements of Operations for the year ended June 30, 2003.

(c) $31.4 million for the impairment of developed and core technology related to acquisitions completed prior to June 30, 2002, was recorded in cost of license. In addition to the discussion above regarding the impairment of goodwill and intangible assets, see “Critical Accounting Policies and Judgments—Impairment Assessments” for further discussion.

(d) During the year ended June, 30, 2003, we adopted SFAS No. 142 and recognized a transitional impairment of $14.5 million, which was reported as a cumulative effect of change in accounting principle.

During the year ended June 30, 2003, we completed an acquisition of a business, SignalSoft, for $63.9 million. At September 30, 2002, we had $7.3 million of goodwill recorded on the acquisition. The goodwill was adjusted by an additional $758,000 during the three months ended December 31, 2002 to reflect finalization of the purchase price allocation. The significant decrease in our market capitalization through September 30, 2002, as well as our announcement during the quarter of a restructuring, triggered the requirement for an impairment analysis of our goodwill and long-lived assets under SFAS No. 142 and 144. Upon completion of the recoverability test, we determined that none of our long-lived assets have been impaired under SFAS No. 144. We concluded that we are a single reporting unit under SFAS No. 142, and the fair value of the reporting unit is approximated by market capitalization under SFAS No. 142. Considering the significant decrease in our market capitalization from the date of the SignalSoft acquisition, all remaining SignalSoft goodwill as of September 30, 2002 was fully impaired. As the adjustments to the SignalSoft goodwill during the three months ended December 31, 2002 related to finalization of the purchase price allocation, the goodwill related to these adjustments was fully impaired during the three months ended December 31, 2002. The impairment of the goodwill resulted in impairment charges of $8.0 million for the year ended June 30, 2003 and was classified as amortization and impairment of goodwill and intangible assets in our Consolidated Statements of Operations.

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During the year ended June 30, 2002, prior to the adoption of SFAS No. 142, we performed two separate impairment analyses as a result of changes within the telecommunications industry that led to reductions in our forecasted revenue. The triggering events for the quarters ended December 31, 2001 and June 30, 2002 include the restructuring plan that was announced during the quarter ended December 31, 2001 and the significant decrease in our market capitalization during the quarter ended June 30, 2002. For the December 31, 2001 impairment analysis, assets were grouped at the product level, which was the lowest level for which there were identifiable cash flows. For the June 30, 2002 analysis, to the extent that cash flows were not identifiable at the product level, we assessed impairment at the enterprise level. If the sum of the expected future cash flows expected to result from the use of the assets and their eventual disposition was less than the carrying amount of the assets, we recorded an impairment loss measured as the amount by which the carrying amount of the asset exceeded the fair value. The fair value was based upon the present value of the estimated expected future cash flows using a discount rate of 26.3% during the quarter ended December 31, 2001 and 22.6% during the quarter ended June 30, 2002. The assumptions supporting the estimated cash flows, including the discount rate and an estimated terminal value, reflect management’s best estimates. The discount rate was based upon the average of the long-term and short-term cost of capital using the risk-free rate, the expected return on the market portfolio and our risk-based rate. In addition, where all of the assets related to a specific acquisition had been abandoned, the goodwill and intangible asset balances relating to that acquisition were recorded as an impairment loss in accordance with Accounting Principles Board (“APB”) Opinion No. 17, “Intangible Assets.”

As a result of the impairment analyses, we recorded a $618.3 million impairment charge during the fiscal year ended June 30, 2002 within amortization and impairment of goodwill and intangible assets in our Consolidated Statements of Operations. The $17.4 million of goodwill and intangible assets remaining on our balance sheet at June 30, 2002 consisted of goodwill and intangible assets related to the Ellipsus acquisition. Upon the adoption of SFAS No. 142 as of July 1, 2002, $14.5 million of goodwill related to the Ellipsus acquisition was recorded as a cumulative effect of change in accounting principle in our Consolidated Statements of Operations.

Merger, Acquisition and Integration-Related Costs

As a result of the SignalSoft acquisition, we recorded merger, acquisition and integration-related costs of $0.4 million for the fiscal year ended June 30, 2003, relating to retention bonuses for employees and other costs incurred solely as a result of the integration. We incurred merger, acquisition and integration-related costs of $0.6 million during the fiscal year ended June 30, 2002 related to professional fees associated with the Software.com merger that was completed in fiscal year 2001.

Interest income

Interest income totaled $4.4 million, $5.9 million and $12.8 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively. Although our average cash and investments balance increased in fiscal year 2004 as compared to fiscal year 2003, our interest income did not increase correspondingly because the effective interest rate obtained decreased from 2.3% to 1.3% in fiscal years 2003 and 2004, respectively.

Interest expense

We incurred interest expense during the fiscal years ended June 30, 2004, 2003, and 2002 of $4.2 million, $29,000 and $0.5 million, respectively. Interest expense during the year-ended June 30, 2004 was due to the amortization of the debt issuance costs, as well as an interest accrual of 2.75% per annum on the convertible subordinated notes issue September 9, 2003.

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Other income (expense), net

Included in other income (expense), net is foreign exchange gain (losses), which totaled $(0.2) million, $1.1 million, and $(0.9) million for the years ended June 30, 2004, 2003 and 2002, respectively. These fluctuations are the result of our exposure to movements in foreign currency rate changes. We use hedges to limit our exposure to these types of movements.

Impairment of non-marketable equity securities

During the years ended June 30, 2003 and 2002, we impaired non-marketable equity securities of $5.3 million and $5.6 million, respectively. The impairments recorded represented three and four strategic investment(s) during the years ended June 30, 2004 and 2003, respectively, (see Item 7 for further discussion).

Income taxes

Income tax expense totaled $9.3 million, $11.0 million and $17.9 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively. Income taxes in all periods consisted primarily of foreign withholding and foreign income taxes. Foreign withholding taxes fluctuate from year to year based on both the geographical mix of our revenue, as well as the timing of the revenue recognized.

In light of our recent history of operating losses, we recorded a valuation allowance for substantially all of our net deferred tax assets outside of two foreign jurisdictions, as we are presently unable to conclude that it is more likely than not that the deferred tax assets in excess of deferred tax liabilities will be realized.

As of June 30, 2004, we had net operating loss carryforwards for federal and state income tax purposes of approximately $1.1 billion and $404.7 million, respectively.

Liquidity and Capital Resources

Operating Lease Obligations and Off-Balance Sheet Arrangements

The balance of our restricted cash and investments at June 30, 2004 was $5.1 million larger than our restricted cash investment balance at June 30, 2003. The increase was primarily due to the restriction of $10.1 million in cash for five of the initial six semi-annual interest payments on our convertible subordinated debt, offset by a $5.0 million decrease in our worldwide collateral obligations as related to our principle commitments on operating leases.

During the year-ended June 30, 2004, we renegotiated the security obligation requirements on our operating lease agreements to remove the stipulation that cash equal to 125% of the letter of credit be restricted and replaced it with a stipulation that only cash equal to 100% of the letter of credit be restricted with the condition that the collateral needed to be invested in certificates of deposits. As of June 30,2004, our principal commitments consisted of obligations outstanding under operating leases, as well as our convertible debt obligations.

In March 2000, we entered into a lease for approximately 280,000 square feet of office space in Redwood City, California (“Redwood City Lease”). The Redwood City Lease terms commenced in April 2001, and required a base rent of $3.25 per square foot per month increasing by 3.5% annually on the anniversary of the initial month of the commencement of the lease. The lease is for a period of 12 years from the commencement date. The agreement required that we provide a letter of credit in the amount of $16.5 million. In addition we have $0.8 million in letters of credits primarily related to facilities located outside of the Redwood City headquarters. The restricted cash on the operating lease commitments are earning an annual interest rate of approximately 1.9% as of June 30, 2004, and the resulting income earned is not subject to any restrictions.

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In addition, during the year ended June 30, 2004, we issued $150 million of 2 ³/4 % convertible subordinated notes. As part of the debt issuance, we were required to place in escrow treasury strips at face value whose principal and related interest earned would be used to pay the first six semi-annual payments. The restricted cash and investments held in escrow under these agreements total $10.1 million and are earning an annual interest rate of approximately 1.6% as of June 30, 2004, and the resulting income earned is restricted.

Except for the operating lease obligations discussed above, we do not have any off-balance sheet arrangements as of June 30, 2004.

The following table discloses our gross off balance sheet contractual obligations as of June 30, 2004 (in thousands):

Working capital and cash flows

The following table presents selected financial information and statistics as of June 30, 2004, 2003 and 2002, respectively (in thousands):

We obtained a majority of our cash and investments prior to fiscal year 2004 through prior public offerings. We intend to use cash provided by such financing activities for general corporate purposes, including potential future acquisitions or other transactions. In addition, we received approximately $145.0 million from the issuance of our

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$150 million convertible subordinated notes during the year-ended June 30, 2004. While we believe that our current working capital and its anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities, obtain a credit facility or sell certain assets. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and terms of any debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us. If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition and operating results. In the mean time, we will continue to manage our cash portfolios in a manner designed to ensure that we have adequate cash and cash equivalents to fund our operations as well as future acquisitions, if any.

Working Capital

The increase in working capital of 98.5% for the year ended June 30, 2004 as compared to the prior fiscal period was primarily the result of the cash received from the convertible debt issuance during fiscal year ended 2004, offset by cash used in operations. The decrease in working capital of 34.9% for the year-ended June 30, 2003 as compared to the prior fiscal period was primarily do to cash used in operations.

Cash used for operating activities

During the years ended June 30, 2003 and 2002, we incurred charges related to our restructuring as a result of our desire to change our strategy and to improve our cost structure and profitability. The restructuring resulted in $19.4 million, $26.6 million and $16.0 million of cash used in operations for the fiscal years ended June 30, 2004, 2003 and 2002, respectively. Excluding restructuring, the cash used in operating activities totaled $28.4 million, $31.4 million, and $16.0 million for the years ended June 30, 2004, 2003 and 2002, respectively.

During the year ended June 30, 2004, our revenue increased by $22.8 million, and our accounts receivable increased by $14.2 million compared to the prior fiscal year. Operating costs decreased since the prior year ended June 30, 2003 as a result of a decrease in average headcount of 355 employees. Furthermore, we received a settlement that resulted in a $3.6 million prepayment of sublease rental income during the year-ended June 30, 2004. However, these cash inflows were offset by a one-time charge of $1.3 million related to a foreign jurisdiction tax audit of one of our customers, net cash outflow of $5.7 million due to prepaid contract expenses related to a contract for which revenue will be recognized in the future within the Project/Systems line item on the Statement of Operations, and lower overall accounts receivable collections than the prior fiscal year period.

During the year ended June 30, 2003, our revenue decreased by $96.9 million, and our accounts receivable decreased by $33.9 million, which was used to fund our operations, as compared to the prior year. Operating costs decreased since the prior year ended June 30, 2002 as a result of a decrease in average headcount of 392 employees, but the cash flow from accounts receivable was less than the previous year leading to an increase in the cash flow used in operating activities, without the effect of restructuring, of $31.4 million.

During the year ended June 30, 2002, our revenue decreased by $104.2 million as compared to the prior fiscal year leading to a decrease in accounts receivable of $46.5 million that was used to fund our operations. Our operations included higher salary expense than the prior fiscal period as a result of an increase in average headcount of 81 employees as compared to the prior year. Despite FY 2002 restructuring, average headcount increased during fiscal

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year 2002 as compared to the prior year since the benefits of reduced headcount associated with the restructuring did not occur until the later part of fiscal year 2002. We ended the June 30, 2002 year with a decrease in our cash used in operations, without the effect of restructuring, of $16.0 million.

Cash provided by (used for) investing activities

Cash flows provided by (used for) investing activities during the fiscal years ended June 30, 2004, 2003 and 2002 totaled $(23.2) million, $53.5 million and $29.7 million, respectively.

The decrease in our cash flows from investing activities for fiscal year ended June 30, 2004 as compared to 2003 of $76.8 million primarily comprised purchases of short- and long-term investments and non-marketable equity securities, net of sales of short- and long-term investments of $91.4 million. We purchased additional long-term investments in order to obtain higher interest rate returns on our available cash. Cash used to purchase restricted cash and investments also increased by $5.7 million during the current fiscal year as compared to the prior fiscal year. This increase in restricted cash and investments was primarily related to our debt offering, which required that monies from the debt offering be pledged to secure the initial six semi-annual interest payments, (see Note 7 to our consolidated financial statements). Theses increases in the use of cash were offset by decrease in cash paid of $19.0 million in connection with the acquisition of SignalSoft in fiscal year 2003 and a decrease in the net purchases of property and equipment in fiscal year 2004 of $1.3 million as compared to fiscal year 2003.

The increase of $23.9 million in cash flows for fiscal year ended June 30, 2003 as compared to fiscal year 2002 was comprised primarily of $25.4 million in net proceeds on sales of short- and long-term investments which were made to fund operations, $12.4 million decrease in net purchases of property and equipment in fiscal year 2003 as compared to the prior fiscal period, and lower cash investments in non-marketable equity securities of $2.7 million, offset by $19.0 million in cash paid in connection with the acquisition of SignalSoft in fiscal year 2003 and $2.4 million net decrease in restricted cash and investments and proceeds from the sale of fixed assets.

Cash flows provided by (used for) financing activities

Cash flow provided by financing activities increased by $160.3 million in fiscal year 2004 as compared to the prior fiscal year primarily due to the issuance of convertible debt of $145.0 million during the fiscal year 2004 year and a net increase in proceeds from the exercise of employee stock options compared to the respective prior year period.

Cash flow provided by financing activities increased by $22.0 million in fiscal year 2003 as compared to the prior fiscal year 2002 period as a result of the repurchases of treasury stock of $38.1 million during fiscal year 2002, offset by net proceeds on put warrants (See stock repurchase program discussed below), and lower exercises of employee stock options during fiscal year 2003.

During the year ended June 30, 2002, we announced that our Board of Directors had authorized a stock repurchase program of up to 1.67 million shares of common stock. Any purchases under our stock repurchase program were authorized to be made in the open market, in privately negotiated transactions or through the use of derivative securities. In accordance with the program, we repurchased 233,333 shares at a weighted average of $25.20 on the open market, and we also sold 1.172 million put options that entitled the holder of each option to sell to us, for cash, by physical delivery or net share settlement at our election, one share of common stock at a specified price. The cumulative net proceeds to us from the sale of these put options were recorded as additional paid-in capital of $10.5 million under EITF Issue No. 00-19, “Accounting for Derivative Financial Instrument; Indexed to, and Potentially Settled in, a Company’s Own Common Stock.” Of the 1.17 million put options sold: 333,333 options were exercised, and we acquired the shares as treasury stock for $12.8 million; 333,334 of the put options were called by the holder of the

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options as a result of our closing price falling below the contractual minimum, and we chose to settle the option by paying $6.6 million and recorded a decrease in additional paid-in capital in accordance with EITF Issue No. 00-19. Prior to the stock dropping below the minimum price, the remaining 500,000 put options were renegotiated to permit physical settlement of the put options upon an early termination event, and we bought 500,000 shares for $19.4 million and recorded the settlement of the put options as treasury stock. Thus, for the year ended June 30, 2002, we repurchased a total of 1.07 million shares under the stock repurchase program at a weighted-average price of $35.70, and we recorded net proceeds from put options of $3.9 million. Management’s authority to purchase any additional shares under our stock repurchase program that was announced in September 2001 has expired. The 1.1 million treasury shares were retired during the first quarter of the fiscal year ended June 30, 2003.

Recent Accounting Pronouncements

In April 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 129-1, “Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities.” The adoption of Staff Position No. FAS 129-1 did not have a material impact on our consolidated financial position or results of operations.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Applications to Certain Investments.” EITF Issue No. 03-01 includes new guidance on evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are considered to be temporarily impaired. The accounting guidance of EITF Issue No. 03-01 is effective for reporting periods beginning after June 15, 2004, while the disclosure requirements for debt and equity securities accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, are effective for annual periods ending after December 15, 2003. The adoption of EITF Issue No. 03-01 will not have a material impact on our financial position or results of operations.

In December 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”, which supercedes SAB No. 101, “Revenue Recognition in Financial Statements.” SAB No. 104’s primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF Issue No. 00-21. Additionally, SAB No. 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (“FAQ”) issued with SAB No. 101 that had been codified in SEC Topic 13, “Revenue Recognition.” Selected portions of the FAQ have been incorporated into SAB No. 104. While the wording of SAB No. 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. EITF 00-21 was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. There was no impact to our consolidated financial statements related to SAB No. 104 for the fiscal year ended June 30, 2004.

Risk Factors

You should carefully consider the following risks, as well as the other information contained in this annual report, before investing in our securities. If any of the following risks actually occurs, our business could be harmed. You should refer to the other information set forth or referred to in this annual report, including our consolidated financial statements and the related notes incorporated by reference herein.

We have a history of losses and we may not achieve or maintain profitability.

We have incurred losses since our inception, including losses of approximately $29.9 million during the year ended June 30, 2004. As of June 30, 2004, we had an accumulated deficit of approximately $2.6 billion, which includes

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approximately $2.0 billion of goodwill impairment and amortization. We currently have net losses and negative cash flows and expect to continue to spend significant amounts to develop or enhance our products, services and technologies and to enhance sales and operational capabilities. We may not achieve profitability in accordance with our expectations. We will need to generate increases in revenue and continue to manage costs to achieve profitability. We face a number of risks including:

In addition, our customer base consists of a limited number of communication service providers and mobile device manufacturers. Our ability to achieve or maintain profitability depends in large part on our continued ability to introduce reliable and robust products that meet the demanding needs of these customers and their willingness to launch, maintain and market commercial services utilizing our products. As a result, our business strategy may not be successful, and we may not successfully address these risks.

We issued $150 million of convertible subordinated notes due September 2008, which we may not be able to repay in cash upon a change of control or at maturity and could result in dilution of our earnings per share.

In September 2003, we issued $150 million of 2¾% convertible subordinated notes due September 9, 2008. The notes are convertible into shares of our common stock at the option of the holder at any time on or prior to the business day prior to maturity. The notes are currently convertible at a conversion price of $18.396 per share, or 54.3596 shares of our common stock per $1,000 principal amount of notes, subject to adjustment upon the occurrence of specified events. In addition, each holder may require us to purchase all or a portion of such holder’s notes upon the occurrence of specified change in control events. We may choose to pay the repurchase price of the notes in cash or shares of our common stock. We may not have enough cash on hand or have the ability to access cash to pay the notes in cash on a change of control or at maturity. The repurchase of our notes with shares of our common stock or the conversion of the notes into shares of our common stock may result in dilution of our earnings per share.

Our operating results are subject to significant fluctuations, and this may cause our stock price to decline in future periods.

Our operating results have fluctuated in the past and may do so in the future. Our revenue, particularly our licensing revenue, is difficult to forecast and is likely to fluctuate from quarter to quarter. Factors that may lead to significant fluctuation in our operating results include, but are not limited to:

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Our operating results could also be affected by disputes or litigation with other parties, general industry factors, including a slowdown in capital spending or growth in the telecommunications industry, either temporary or otherwise, and general political and economic factors, including an economic slowdown or recession, acts of terrorism or war, and health crises or disease outbreaks.

Most of our expenses, such as compensation for current employees and lease payments for facilities and equipment, are relatively fixed. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from period to period. Due to the foregoing factors, we believe period-to-period comparisons of our revenue levels and operating results may be of limited use. From time to time we may be unable to meet our internal projections or the projections of securities analysts and investors that follow us. To the extent that we are unable to do so, we expect that the trading price of our stock could fall dramatically. These fluctuations may be exaggerated if the trading volume of our common stock is low.

Changes in accounting standards or our accounting policy relating to stock-based compensation may negatively affect our reported operating results.

We are currently not required to record stock-based compensation charges if the employee’s stock option exercise price equals or exceeds the deemed fair value of our common stock at the date of grant. However, several companies have recently elected to change their accounting policies and begun to record the fair value of stock options as an expense. Although the standards have not been finalized, the FASB has announced its support for recording expense for the fair value of stock options granted. Please see Note 2 of the Condensed Consolidated Financial Statements for a table displaying the impact to our operating expenses if we were to change our accounting policy in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, and retroactively restate all prior periods as if we had adopted SFAS No. 123 for all periods presented. If we elect, or are required, to expense stock-based compensation then such a change will negatively affect our reported operating results.

Our sales cycle is long and our stock price could decline if sales are delayed or cancelled.

Our sales cycle is lengthy, often between six months and twelve months, and unpredictable due to the lengthy education and customer approval process for our products, including internal reviews and capital expenditure approvals. Further, the emerging and evolving nature of the market for data services via mobile phones may lead prospective customers to postpone their purchasing decisions. Any delay in sales of our products could cause our operating results to vary significantly from projected results, which could cause our stock price to decline.

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We depend substantially on the sale of international product licenses. A slow-down in international sales could harm our operating results.

International sale of product licenses and services accounted for approximately 59% of our total revenues for the fiscal year ended June 30, 2004. Risks inherent in conducting business internationally include:

Any of these factors could harm our international operations and, consequently, our operating results.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets which could result in write-offs in excess of amounts reserved for credit exposure.

Since the cost of developing new technology is high, there are many companies that are experiencing difficulties in obtaining the necessary financing to continue in business. A portion of our sales is derived through customers who tend to have access to more limited financial resources than others and, therefore, represent potential sources of increased credit risk. Although we have programs in place to monitor and mitigate the credit risk associated with our existing customers, there can be no assurance that such programs will be effective in reducing our credit risk. We have recently experienced losses due to customers failing to meet their obligations, primarily as a result of the weakened financial state of the wireless and telecommunications industry. Future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition.

We may not be successful in obtaining complete license usage reports from our customers on a timely basis, which could impact our reported results.

Although our customers are contractually obligated to provide license usage reports, we are sometimes unable to obtain such reports in a timely manner. In addition, the reports may not completely reflect actual usage. We assist customers in complying with this obligation by providing a software measurement tool, installing the measurement tool whenever possible and customizing that tool where appropriate. The measurement tool, however, currently is not installed with all of our customers, does not measure the use of all of our products and has other limitations that we are continuing to attempt to address by refining the tool. In addition, we may be unable to install our measurement tool with all of our customers or we may be unable to overcome all of the limitations currently within the tool. The inability to obtain accurate license usage reports on all of our customers could have an adverse impact on the revenues that we realize and could, accordingly, negatively affect our financial performance.

We rely on estimates to determine arrangement fee revenue recognition for a particular reporting period. If our estimates change, future expected revenues could adversely change.

For certain fixed fee solutions-based arrangements, we apply the percentage of completion method to recognize revenue. Applying the percentage of completion method, we estimate progress on our professional services projects,

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which determines license and professional service revenues for a particular period. If, in a particular period, our estimates to project completion change and we estimate project overruns, revenue recognition for such projects in the period may be less than expected or even negative.

Certain arrangements have refundability and penalty provisions that, if triggered, could adversely impact future operating results.

In certain of our solution-based arrangements, customers have refundability rights and can invoke penalties should we not perform against certain contractual obligations. If these refundability provisions or penalty clauses are invoked, certain deferred revenues may not be recognizable as revenue, negative revenues may be recorded, and certain deferred charges and penalty expenses may be recognized as expenses at such time.

We rely upon a small number of customers for a significant portion of our revenues, and the failure to retain these customers or add new customers may harm our business.

To date, a significant portion of our revenues in any particular period has been attributable to a limited number of customers, comprised primarily of communication service providers. Significant customers for the fiscal year ended June 30, 2004 include KDDI and Sprint. Sales to KDDI accounted for approximately 5% of total revenues during the year ended June 30, 2004. Sales to Sprint accounted for approximately 8% of total revenues during the year ended June 30, 2004. Either of these customers may not continue to generate significant revenues for us and we may be unable to replace these customers with new ones on a timely basis or at all.

We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues from each period for the forseeable future, and any failure by us to capture a significant share of these customers could materially harm our business. We believe that the telecommunications industry is entering a period of consolidation. To the extent that our customer base consolidates, we will have increased dependence on a few customers who may be able to exert increased pressure on our prices and contractual terms in general.

The market for our products and services is highly competitive. We may be unable to successfully compete which may decrease our market share and harm our operating results.

The market for our products and services is highly competitive. Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we have. Their greater financial resources have enabled, and may continue to enable, them to aggressively price, finance and bundle certain of their product offerings to attempt to gain market adoption or to increase market share. These activities have increased price pressure on us and increased the need for us to partner with larger resellers with broader product offerings and financing capabilities, which may negatively affect our market share and financial performance.

If our competitors offer deep discounts on certain products in an effort to gain market share or to sell other products or services, we may then need to lower prices, change our pricing models, or offer other favorable terms in order to compete successfully. Any such changes would be likely to reduce margins and could adversely affect operating results and constrain prices we can charge our customers in the future.

We expect that we will continue to compete primarily on the basis of quality, breadth of product and service offerings, functionality, price and time to market. Our current and potential competitors include the following:

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Nokia also competes directly with us by offering WAP servers, client software and messaging (offering end-to-end solutions based on its proprietary smart messaging protocol and on MMS) to communication service providers. Nokia also markets its WAP server to corporate customers and content providers, which if successful, could undermine the need of communication service providers to provide their own WAP gateways (since these WAP servers directly access applications and services rather than through WAP gateways).

Qualcomm’s end-to-end proprietary system called “BREW” ^TM does not use our technology and offers wireless device manufacturers an alternative method for installing applications. Qualcomm’s strong market position in CDMA with its chipsets technology provides them with a position to build the BREW system with CDMA operators. If Qualcomm’s BREW system is widely adopted it could undermine the need for wireless device manufacturers to install our client software and reduce our ability to sell gateways and wireless applications to communication service providers.

Furthermore, the proliferation and evolution of operating system software in smartphones, a market segment backed by corporations with resources greater than ours, such as Microsoft and Nokia, may threaten the market position of our client software offerings as other software becomes more competitive in price.

Our technology depends on the adoption of standards such as those set forth by the Open Mobile Alliance (“OMA”). If such standards are not effectively established our business could suffer. Use of open industry standards, however, may also make us more vulnerable to competition.

We promote open standards in our technology in order to support open competition and interoperability. We aim to achieve this through working together with customers, suppliers and industry participants regarding standardization issues. Through open standards, specifications and interoperability, we hope that the mobile data market achieves enhanced interoperability. We do not exercise control over many aspects of the development of open standards. Our products are integrated with communication service providers’ systems and mobile phones. If we are unable to continue to successfully integrate our platform products with these third-party technologies, our business could suffer. For example Qualcomm’s BREW^™ system is a proprietary standard that could create impediments to the integration of our platform products. In addition, large wireless operators sometimes create detailed service specifications and requirements, such as Vodafone Live or DoCoMo iMode, and such operators are not required to share those specifications with us. Failure or delay in the creation of open, global specifications could have an adverse effect on the mobile data market in general and a negative impact on our sales and operating results. In addition, a number of our competitors, including Nokia, have announced or are expected to announce enhanced features and functionality both as proprietary extensions to the WAP standard and in the area of messaging platforms. Finally, infrastructure providers like Nokia and Ericsson may leverage installed technology and/or wireless device sales to sell end-to-end solutions.

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The widespread adoption of open industry standards, however, may make it easier for new market entrants and existing competitors to introduce products that compete with our software products.

Our software products may contain defects or errors, which could result in rejection of our products, delays in shipment of our products, damage to our reputation, product liability and lost revenues.

The software we develop is complex and must meet the stringent technical requirements of our customers. We must develop our products quickly to keep pace with the rapidly changing Internet software and telecommunications markets. Software products and services as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. We have in the past experienced delays in releasing some versions of our products until software problems were corrected. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products and damage to our reputation, as well as lost revenues, diverted development resources and increased service and warranty costs, any of which could harm our business.

If mobile phones are not widely adopted for mobile delivery of data services or if new data services such as mobile messaging are not adopted widely our business could suffer materially.

We have focused a significant amount of our efforts on mass-market mobile phones as the principal means of delivery of data services using our products. If mobile phones are not widely adopted for mobile delivery of data services, our business could suffer materially. End-users currently use many competing products, such as portable computers, PDAs, and smart phones, to remotely access the Internet and email. These products generally are designed for the visual presentation of data, while, until recently, mobile phones historically have been limited in this regard. In addition, the development and proliferation of many types of competing products capable of mobile delivery of data service in a rapidly evolving industry represents a significant risk to the development of a primary standard. If end-users do not adopt mobile phones or other wireless devices containing our browser or client middleware platform as a means of accessing data services, our business could suffer materially.

Our success depends on continued acceptance of our products and services by communication service providers, their subscribers, and by wireless device manufacturers.

Our future success depends on our ability to increase revenues from sales of our software and services to communication service providers and other customers. To date, only a limited number of communication service providers and other customers have implemented and deployed services based on our products. In addition, many of these customers are large telecommunications companies who may be able to exert significant influence over our relationship with them. Furthermore, we are dependent upon our customers having growth in subscriber adoption for additional purchases as well as future versions of our products. Some of our customers have purchased license seats exceeding their current needs and may not have additional purchases, if any, until they utilize all of their current purchased licenses. Communication service providers and other partners may not widely deploy or successfully market services based on our products, and large numbers of subscribers might not use these services. The failure to do so could harm our operating results.

The market for the delivery of Internet-based services is rapidly evolving, and we may not be able to adequately address this market.

The market for the delivery of Internet-based services is rapidly evolving. As a result, the life cycle of our products is difficult to estimate. We may not be able to develop and introduce new products, services and enhancements that

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respond to technological changes or evolving industry standards on a timely basis, in which case our business would suffer. In addition, we cannot predict the rate of adoption by wireless subscribers of these services or the price they will be willing to pay for these services. As a result, it is extremely difficult to predict the pricing of these services and the future size and growth rate of this market.

Our communication service provider customers face implementation and support challenges in introducing Internet-based services, which may slow their rate of adoption or implementation of the services our products enable. Historically, communication service providers have been relatively slow to implement new complex services such as data services. In addition, communication service providers may encounter greater customer service demands to support data services via mobile phones than they do for their traditional voice services. We have limited or no control over the pace at which communication service providers implement these new services. The failure of communication service providers to introduce and support services utilizing our products in a timely and effective manner could harm our business.

If widespread integration of browser technology does not occur in mobile phones, our business could suffer.

All of our agreements with wireless device manufacturers are nonexclusive, so they may choose to embed a browser other than ours in their mobile phones. We may not succeed in maintaining and developing relationships with wireless device manufacturers, and any arrangements may be terminated early or not renewed at expiration. In addition, wireless device manufacturers may not produce products using our browser in a timely manner, in sufficient quantities, or with sufficient quality, if at all.

Our business depends on continued growth in use and improvement of the Internet and customers ability to operate their systems effectively.

The infrastructure, products and services necessary to maintain and expand the Internet may not be developed, and the Internet may not continue to be a viable medium for secure and reliable personal and business communication, in which case our business, financial condition and operating results could be harmed. Because we are in the business of providing Internet infrastructure software and services, our future success depends on the continued expansion of, and reliance of consumers and businesses on, the Internet for communications and other services. The Internet may not be able to support an increased number of users or an increase in the volume of data transmitted over it. As a result, the performance or reliability of the Internet in response to increased demands will require timely improvement of the high speed modems and other communications equipment that form the Internet’s infrastructure. The Internet has, in the past, experienced temporary outages and delays as a result of damage to portions of its infrastructure. The effectiveness of the Internet may also decline due to delays in the development or adoption of new technical standards and protocols designed to support increased levels of activity and due to the transmission of computer viruses and widespread spamming.

In addition to problems that may affect the Internet as a whole, our customers have in the past experienced some interruptions in providing their Internet-related services, including services related to our software products. We believe that these interruptions will continue to occur from time to time. Our revenues depend substantially upon the number of subscribers who use the services provided by our customers. Our business may suffer if our customers experience frequent or long system interruptions that result in the unavailability or reduced performance of their systems or networks or reduce their ability to provide services to their subscribers.

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In addition, to increase the growth in use and improvement of the Internet requires that mobile phone or other wireless device manufacturers produce new mobile phones that contain updated software and functionality that are compatible with our software. There can be no assurance that mobile phone or wireless device manufactures will produce enough mobile phones, meet delivery dates, or produce devices that work properly and are not subject to a high level of recalls. In addition, there can be no assurance that consumers will purchase mobile phones or wireless devices that contain updated software and functionality that are compatible with our software.

Our business depends on continued investment and improvement in communication networks and our customers’ ability to operate their systems effectively.

Many of our customers and other communication service providers have made major investments in 3rd generation networks that are intended to support more complex applications and to provide end users with a more satisfying user experience. If communication service providers delay their deployment of networks or fail to roll such networks out successfully, there could be less demand for our products and services and our business could suffer. In addition, if communication service providers fail to continue to make investments in their networks or invest at a slower pace in the future, there may be less demand for our products and services and our business could suffer.

We may not be successful in forming or maintaining strategic alliances with other companies, which could negatively affect our product offerings and sales, and could result in deterioration of our sales channels.

Our business is becoming increasingly dependent on forming or maintaining strategic alliances with other companies, and we may not be able to form alliances that are important to ensure that our products are compatible with third-party products, to enable us to license our software into potential new customers and into potential new markets, and to enable us to continue to enter into new license agreements with our existing customers. There can be no assurance that we will identify the best alliances for our business or that we will be able to maintain existing relationships with other companies or enter into new alliances with other companies on acceptable terms or at all. The failure to maintain or establish successful strategic alliances could have a material adverse effect on our business or financial results. If we cannot form and maintain significant strategic alliances with other companies as our target markets and technology evolves, the sales opportunities for our products could deteriorate.

Our success depends in part on our ability to maintain and expand our distribution channels.

Our success depends in part on our ability to increase sales of our products and services through value-added resellers and systems integrators and to expand our indirect distribution channels. If we are unable to maintain the relationships that we have with our existing distribution partners, increase revenues derived from sales through our indirect distribution channels, or increase the number of distribution partners with whom we have relationships, then we may not be able to increase our revenues.

We expect that many communication service providers, especially in international markets will require that our products and support services be supplied through value-added resellers and systems integrators. Thus, we expect that a significant portion of sales will be made through value-added resellers and systems integrators, and the success of our operations will depend on our ability to maintain productive relationships with value-added resellers and systems integrators.

In addition, our agreements with our distribution partners generally do not restrict the sale by them of products and services that are competitive with our products and services, and each of our partners generally can cease marketing our products and services at their option and, in some circumstances, with little notice and with little or no penalty.

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We may not be successful in our strategic investments, which could harm our operating results.

We have made, and in the future, we may continue to make strategic investments in other companies. These investments have been made in, and future investments will likely be made in, immature businesses with unproven track records and technologies. Such investments have a high degree of risk, with the possibility that we may lose the total amount of our investments. We may not be able to identify suitable investment candidates, and even if we do, we may not be able to make those investments on acceptable terms, or at all. Further, even if we make investments, we may not gain strategic benefits from those investments. In addition, we may need to record an impairment charge of the strategic investments to our operations.

We may be unable to successfully integrate acquisitions of other businesses and technologies into our business or achieve the expected benefits of such acquisitions or business combinations.

To date, we have acquired or combined with numerous companies and technologies and may acquire additional companies or technologies or enter into additional business combinations in the future. Our past acquisitions and combinations have resulted in a variety of challenges, including the ability to successfully assimilate the personnel, operations and customers of these businesses and integrate their technology with our existing technology, products and services.

We may acquire or enter into business combinations in the future. Entering into any business combination entails many risks, any of which could materially harm our business. These risks include: