We are a leading provider of software that enables the delivery of Internet-
based services to mass-market wireless telephones. Using our software, network
operators can provide Internet-based services to their wireless subscribers,
and wireless telephone manufacturers can turn their mass-market wireless
telephones into mobile Internet appliances. Wireless subscribers thus have
access to Internet- and corporate intranet-based services, including email,
news, stocks, weather, travel and sports. In addition, subscribers have access
via their wireless telephones to network operators' intranet-based telephony
services, which may include over-the-air activation, call management, billing
history information, pricing plan subscription and voice message management.
Our software platform consists of the UP.Link Server Suite, which is installed
on network operators' systems, and UP.Browser, which is embedded in wireless
telephones. As of August 1999, 31 network operators have licensed our software
and have commenced or announced commercial service or are in market or
laboratory trials. In addition, 25 wireless telephone manufacturers have
licensed UP.Browser.
 

and 

Our business strategy also relies to a significant extent on the widespread
propagation of UP.Browser-enabled telephones through our relationships with
network operators and wireless telephone manufacturers. In order to encourage
adoption of UP.Browser-enabled wireless telephones, we license our UP.Browser
software to wireless telephone manufacturers free of per-unit royalties and
other license fees and provide maintenance and support services for an annual
flat fee. As of September 1999, we had licensed UP.Browser to 25 wireless
telephone manufacturers. As of September 1999, 10 wireless telephone
manufacturer customers had made commercial shipments of telephones with the
UP.Browser embedded. In addition, as of September 1999, we are currently
providing engineering support services in connection with 60 browser
integration projects.
 

and

Deferred revenue was $36.8 million as of June 30, 1999, comprised of $33.6
million in prepaid fees charged to wireless network operators and $3.2 million
in prepaid maintenance and other service fees charged to wireless telephone
manufacturers. We expect that deferred revenue will decline in the long term as
network operators deploy services based on our products. In particular, we
began recognizing license revenue in the third quarter of fiscal 1999 in
connection with the launch by CEGETEL/SFR of commercial services based on our
products and the acceptance of our products by DDI Corporation. Relating to our
sales to CEGETEL/SFR, we recognized previously deferred license revenues of
$541,000 for the year ended June 30, 1999 and will recognize approximately
$400,000 in each of the quarters ending September 30, 1999, December 31, 1999
and March 31, 2000. With regard to sales to DDI Corporation, we recognized
license revenues of $1.5 million for
 
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the year ended June 30, 1999, and will recognize approximately $2.4 million in
each of the quarters ending September 30, 1999 and December 31, 1999, and $1.6
million in each of the quarters ending March 31, 2000 through March 31, 2001,
and $1.1 million in the quarter ending June 30, 2001. The revenues recognized
and deferred for DDI Corporation include direct sales and sales through an
indirect channel partner, Itochu Techno Science Corporation. We also began
recognizing license revenue in the fourth quarter of fiscal 1999 in connection
with the launches by two other wireless network operator customers. With
respect to these customers, we recognized license revenue of $441,000 in the
fourth quarter of fiscal 1999, and will recognize substantially all of the
remaining deferred revenue by September 30, 2001.
 
   Under an agreement with AT&T Wireless Services, initially entered into in
May 1996, AT&T Wireless Services prepaid $4.7 million for the right to deploy
up to a fixed number of licenses through December 1999. Due to the early nature
of the commercial deployments of our products by network operators and because
we believed we would assume additional obligations to assist AT&T Wireless
Services in deploying the software licenses if difficulties were encountered
during the deployment, the license portion of the prepaid fee was recognized as
licenses were deployed. Between August 1997 and December 1998, $484,000 was
recognized relating to this prepayment. In connection with an amendment to the
agreement entered into in March 1999, AT&T Wireless Services agreed that we
would not be further obligated to assist them in the deployment of the prepaid
licenses discussed above. Therefore, the remaining deferred revenue of
approximately $4.2 million as of the date of the contract amendment in March
1999 that related to the prepayment is being recognized as revenue ratably over
the remaining contractual term of the prepaid arrangement. Accordingly, we
recognized revenue of $1.9 million for the year ending June 30, 1999 and will
recognize approximately $1.25 million in each of the quarters ending September
30, 1999, and December 31, 1999, associated with the prepayment.
 
   We expect that our gross profit on revenues derived from sales through
indirect channel partners will be less than the gross profit on revenues from
direct sales. Our success, in particular in international markets, depends in
part on our ability to increase sales of our products and services through
value-added resellers and to expand our indirect distribution channels. In
addition, our agreements with our distribution partners generally do not
restrict the sale of products that are competitive with our products and
services, and each of our partners can cease marketing our products and
services at their option.