~~UNITED~~ ~~STATES~~ ~~SECURITIES~~Table ~~AND~~of ~~EXCHANGE~~Contents ~~COMMISSION Washington, D.C. 20549~~

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

ý ~~ANNUAL~~Commission ~~REPORT~~file ~~PURSUANT~~number: ~~TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~0-23282

~~For~~ ~~the~~LIVEWIRE ~~fiscal~~MOBILE, INC. (Exact ~~year~~name ~~ended~~of ~~December 31,~~registrant ~~2001~~ as specified in its charter)

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


Delaware (State or other jurisdiction of incorporation or organization)		04-2814586 (I.R.S. Employer Identification No.)
One Monarch Drive Suite 203 Littleton, MA (Address of principal executive offices)		01460 (Zip Code)
Registrant's telephone number, including area code: (978) 742-3100

~~For~~ Securities ~~the~~registered ~~transition~~pursuant ~~period from~~ to Section 12(b) of the Act:

Commission file number 0-23282

Title of Each Class		Name of Exchange on Which Registered

Common Stock, $.01 par value		NASDAQ Global Market

~~NMS~~Securities ~~COMMUNICATIONS~~registered ~~CORPORATION (Exact~~pursuant ~~name~~to Section 12(g) of ~~registrant~~the asAct: ~~specified in its charter)~~ None

~~DELAWARE~~ Indicate ~~(State~~by orcheck ~~other~~mark ~~jurisdiction~~if ofthe ~~incorporation~~registrant oris ~~organization)~~a 04well-~~2814586~~known ~~(IRS~~seasoned ~~Employer~~issuer, ~~Identification~~as Nodefined in Rule 405 of the Securities Act.) Yes o No ý

~~100~~ Indicate ~~CROSSING~~by ~~BOULEVARD,~~check ~~FRAMINGHAM,~~mark ~~MASSACHUSETTS~~if ~~01702 (Address~~the ofregistrant ~~principal~~is ~~executive~~not ~~offices~~required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý

~~508-271-1000~~ Indicate by check mark whether the registrant (~~Registrant's~~1) has ~~telephone~~filed ~~number,~~all ~~including~~reports ~~area~~required ~~code~~to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

~~SECURITIES~~ Indicate ~~REGISTERED~~by ~~PURSUANT~~check TOmark ~~SECTION~~if ~~12(b)~~disclosure OFof ~~THE~~delinquent ~~ACT:~~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. ý

Title of class		Name of each exchange on which registered
Common stock, $.01 per share		NASDAQ National Market

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

~~SECURITIES~~Large ~~REGISTERED~~accelerated ~~PURSUANT~~filer TOo ~~SECTION~~Accelerated 12filer ý Non-accelerated filer o (gDo not check if a smaller reporting company) OFSmaller ~~THE~~reporting ~~ACT:~~company ~~NONE~~ o

Indicate by check mark whether the registrant ~~(1) has~~is ~~filed~~a ~~all~~shell ~~reports~~company ~~required~~(as todefined bein ~~filed by Section~~Rule 1312b-2 ~~or 15(d)~~ of the ~~Securities~~ Exchange ~~Act of 1934~~ ~~during the preceding 12 months (or for such shorter period that the registrant was required to file such report~~Act)~~, and (2)~~. ~~has been subject to such filing requirements for the past 90~~Yes ~~days.~~o No ý ~~YES /X/ NO / /~~

~~Indicate by~~ The ~~check~~aggregate ~~mark~~market ifvalue ~~disclosure~~ of ~~delinquent~~the ~~filers~~registrant's ~~pursuant~~common tostock ~~Item~~held ~~405~~by ~~of Regulation S~~non-Kaffiliates isof ~~not~~the ~~contained~~registrant ~~herein,~~was ~~and~~approximately ~~will~~$51.0 million ~~not~~calculated using bethe ~~contained~~last toreported ~~the~~sale ~~best~~price of the ~~registrant's~~ ~~knowledge,~~common instock ~~definitive~~on ~~proxy~~the orNASDAQ ~~information~~Global ~~statements~~Market ~~incorporated~~on ~~by reference in Part~~June ~~III~~30, ~~of this Form 10-K or any amendment to this Form 10-K~~2008. ~~/ /~~

As The ofnumber ~~February 28, 2002, the aggregate market value~~ of ~~the~~shares ~~voting~~outstanding ~~stock held by non-affiliates~~ of ~~the~~each ~~registrant was approximately $125.9 million, based on the closing price on such date~~ of the registrant's Common Stock, onpar ~~the~~value ~~NASDAQ~~$0.01 ~~National~~per ~~Market.~~share, Asas of ~~February~~March 2813, ~~2002,~~2009: 3545,~~959~~941,~~983~~700 shares ~~of Common Stock, $~~.01 ~~par value per share were outstanding.~~

~~Documents~~ ~~Incorporated~~DOCUMENTS byINCORPORATED ~~Reference~~BY REFERENCE

Portions of the registrant's definitive Proxy Statement on Schedule 14-A to be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year ended December 31, 2008 relating to the ~~2002~~2009 Annual Meeting of Stockholders of the registrant are incorporated by reference into Part III of this annual report on Form 10-K. ~~Some of the exhibits listed in the accompanying Exhibit Index beginning on page 75 are incorporated by reference.~~

~~EXHIBIT~~ Table ~~INDEX~~of ONContents ~~PAGE 75~~

~~The~~ ~~following~~ LIVEWIRE ~~are~~MOBILE, INC. ANNUAL ~~trademarks~~REPORT ~~and~~ON ~~trade~~FORM ~~names~~10-K FOR ofTHE ~~the~~YEAR ~~company~~ENDED ~~indicated.~~ DECEMBER 31, 2008 TABLE OF CONTENTS

NMS Communications Corporation, NMS, CT Access, Natural Access, Natural Call Control, Convergence Generation, Mercury, Sonata III, Symphony, Cadenza II, PacketMedia, HearSay, PowerBlade and PowerAccess are trademarks; Studio Sound and Alliance Generation are registered trademarks; and NMS is a trade name of the registrant. All other brand names or trademarks appearing in this Form 10-K are the property of their respective holders.


PART I
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters	25
Item 6.	Selected Financial Data	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 8.	Financial Statements and Supplementary Data	56
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	101
Item 9A.	Controls and Procedures	101
Item 9B.	Other Information	102
PART III
Item 10.	Directors and Executive Officers and Corporate Governance	103
Item 11.	Executive Compensation	103
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
Item 13.	Certain Relationships and Related Transactions, and Director Independence	104
Item 14.	Principal Accounting Fees and Services	104
PART IV
Item 15.	Exhibits and Financial Statement Schedules	105
Signatures		106

~~This~~ ~~Form 10-K,~~Table ~~future filings~~ of ~~the~~Contents registrant, press releases of the registrant and oral statements made with the approval of an authorized executive officer of the registrant may contain forward-looking statements. In connection therewith, please see the cautionary statements and risk factors contained in Item 1, "Business—Forward-Looking Information" and "Business—Factors That May Affect Future Operating Results," which identify important factors which could cause actual results to differ materially from those in any such forward-looking statements.

References in this Form 10-K to the "Company," the "registrant," "we," "our" and "us" refer to NMS Communications Corporation and its subsidiaries.

PART I

~~Item~~ ITEM 1. ~~Business.~~ BUSINESS

~~OVERVIEW~~ This annual report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve substantial risks and uncertainties including, but not limited to, statements concerning new services, services development and offerings, cash and non-cash charges, product and price competition, competition and strategy, customer diversification, employees, contingent consideration payments, deferred revenues, economic and political market conditions, potential government regulation, seasonal factors, stock-based compensation, revenue recognition, profits, growth of revenues, composition of revenues, cost of revenues, operating expenses, sales and sales cycle, marketing and support expenses, general and administrative expenses, research and development expenses, valuations of investments, technology relationships, gross margins, amortization expense, goodwill and intangible assets, interest income, interest expense, anticipated operating and capital expenditure requirements, cash inflows, contractual obligations, borrowings, advertising campaigns, tax rates and deductions, SFAS 123R, leasing and subleasing activities, acquisitions, divestitures, liquidity, litigation matters, intellectual property matters, stock price, restructuring, impairment and other charges, and potential debt or equity financings. Our actual results of operations and financial condition have varied and could in the future vary materially from those stated in any forward-looking statements. If any of the following risks and uncertainties actually occurs, our business, financial condition and operating results would likely suffer. You can identify these forward-looking statements by our use of the words "believes," "anticipates," "plans," "expects," "may," "will," "would," "intends," "estimates," "predicts," "potential," "continue" and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results to differ from the forward-looking statements include, but are not limited to, those discussed in Item 1A. "Risk Factors" below, as well as other risks and uncertainties referenced in this annual report on Form 10-K. We do not assume any obligations to update any of the forward-looking statements after the date of this Form 10-K to conform these statements to actual results.

~~NMS~~LiveWire ~~Communications~~Mobile ~~Corporation ("NMS") designs, delivers~~ and ~~supports~~MyCaller ~~technology-leading~~are ~~systems~~registered ~~and~~trademarks ~~system~~of ~~building~~LiveWire ~~blocks for innovative voice~~Mobile, Inc. ~~video and data~~All ~~services~~other onbrand ~~wireless~~names ~~and~~or ~~wireline~~trademarks ~~networks.~~appearing ~~NMS~~in ~~products~~this ~~and~~annual ~~services~~report ~~are built~~ on ~~open technologies and strategic relationships with application and technology suppliers, and leverage best~~Form 10-~~in-class~~K ~~supply~~are ~~chain and integration partnerships. Because of this, NMS customers, all of~~ the ~~world's~~property ~~top communications equipment suppliers, and many~~ of ~~the world's top solution developers and service providers, are able to enhance~~ their ~~competitive~~respective ~~position and bring their applications and services to market faster and at lower cost~~holders.

~~Our~~References ~~products~~in ~~consist~~this ofForm 10-K ~~complete~~to ~~systems~~the ~~for voice enhancement and voice applications and services~~"Company," ~~and~~the ~~system building blocks for customer relationship management and contact centers~~"registrant, ~~interactive~~" ~~voice response~~"we," ~~unified~~"our" ~~messaging, enhanced services, media servers, voice over Internet protocol gateways~~ and ~~conferencing. The voice enhancement offering, recently acquired from Lucent Technologies, Inc. (~~"~~Lucent~~us"), ~~consists~~refer ~~of a comprehensive portfolio of open, ready-~~to~~-install~~ ~~products~~LiveWire ~~and services that are deployed in large switching systems to facilitate the achievement of consistently clear audio quality—and through which all voice traffic on wireless networks must pass~~Mobile, Inc. ~~These systems have been installed in central offices~~ and ~~mobile switching~~its ~~centers worldwide with over 10 million channels deployed~~subsidiaries.

~~Voice application~~ systems provide wireless and wireline operators with the capability for rapid and cost-effective deployment of customized, innovative voice-driven services. Our voice application systems include call and media processing, speech technology from all of the leading suppliers, operations, administration, management, provisioning, and billing interfaces, application servers with open, standard programming interfaces, and a validated group of well-known, third-party applications including voice- activated dialing and unified messaging. NMS system building blocks, consistent leaders in price performance, scalability and flexibility, provide basic hardware and software functions that enable network equipment manufacturers and solutions developers to rapidly develop and deploy new voice communications services, applications and infrastructure. Our system building blocks are deployed in over 90 countries in enhanced services, network infrastructure, and voice-based enterprise applications. Overview

~~Demand~~We are a provider of managed personalization services for mobile operators and mobile subscribers. We infuse personalization capabilities into traditional mobile communications that are easy to use for mobile subscribers and generate revenue for mobile operators. Our integrated managed service offerings include ringback tones, ringtones, full track downloads and other applications, as well as, dedicated content and service marketing, integrated storefront management and merchandising. We sell these offerings as a managed service to mobile operators who then offer these services to their subscribers as a la carte purchases and through monthly subscriptions. Mobile operators brand and offer our ~~solutions~~services ~~arises~~to increase ~~from:~~subscriptions and subscriber content consumption, and grow average revenue per user ("ARPU") and reduce subscriber turnover. We also sell our MyCaller ringback platform as a bundled product (hardware and licenses) and service offering (including installation, maintenance and support, professional services and training), which we refer to as a "cap-ex" arrangement. We sell our products and services primarily through our direct sales force as well as

~~Our products and services help our customers achieve a reduced time to market and allow them to focus their development efforts on new service creation and next generation infrastructure.~~ 1

~~During 2001,~~Table weof ~~took important steps to focus our company on markets for wireless systems and solutions, where healthy competition among operators, rapidly evolving technologies, and new service~~ Contents

through channel partners. Our offerings are deployed in approximately 32 operators around the world with approximately seven million active subscribers.

We were incorporated in Delaware in 1983 under the name Natural Microsystems Corporation and changed our name to NMS Communications Corporation in May 2001 prior to changing our name to LiveWire Mobile, Inc. in December 2008. We previously operated as one of three separate operating business units, which also included our Network Infrastructure business and our NMS Communications Platforms business. In an effort to focus our efforts on our managed personalization services to mobile operators and mobile subscribers, we undertook the following:

•: On December 21, 2007, we sold our Network Infrastructure business ("NI Business") to Verso Technologies, Inc. ("Verso") for cash consideration of $0.9 million and 5,374,033 shares of Verso common stock, which was valued at $1.8 million as of December 31, 2007. The Network Infrastructure business focused on solutions for the radio access network ("RAN") portion of mobile operators' infrastructure.
•: On March 17, 2008, we acquired Groove Mobile, Inc., ("Groove Mobile") for a total purchase price of $15.9 million, including cash consideration of $14.5 million, and total transaction costs and facility exit costs of approximately $1.4 million. Of the total cash consideration paid, $1.2 million of which was placed into an escrow account to settle certain claims for indemnification which could be made by the Company following the closing of the Groove Mobile acquisition. Groove Mobile is a provider of mobile music solutions.
•: On December 5, 2008, we sold our NMS Communications Platforms business (the "Asset Sale") to Dialogic Corporation ("Dialogic") for cash consideration of $28.0 million, $2.8 million of which was placed into an escrow account to settle certain claims for indemnification which can be made by Dialogic following the closing of the Asset Sale and $0.4 million of which was placed in escrow to settle certain contingencies that may arise related to levels of working capital. The NMS Communications Platforms business provided embedded technology and platforms that enabled the rapid creation and deployment of a broad range of value-added services for mobile and converged networks, ranging from voice mail and interactive voice response solutions, to video portals and mobile TV, and multi-media messaging systems.

The consummation of the Asset Sale, and the subsequent restructuring of the Company to focus exclusively on our mobile personalization services business, has provided us with additional resources to pursue the growing mobile personalization services market.

Our Service and Products

We believe our managed personalization offerings address the needs of mobile operators and their subscribers. We offer a complete portfolio of integrated mobile personalization services including ringback tones, ringtones, full-track downloads and other applications, as well as dedicated content and service marketing, allowing mobile operators to deliver these popular services through an integrated storefront management system resulting in a better mobile experience for subscribers.

•

Managed Personalization Suite. Today's mobile subscribers are continually looking for ways to set themselves apart. Our suite of managed personalization services lets mobile subscribers create a unique mobile identity. We tailor our managed services for an operator's brand, network and subscribers. We help to secure the success of deployed services by working with operator's marketing teams from concept to service launch.

•: Ringback Tones: Our ringback services give mobile subscribers the power to select world-class original recordings of music, sounds and voices for callers to hear in place of the conventional ringback. We offer a comprehensive suite of ringback services that have a broad appeal across the full spectrum of mobile subscribers. Our ringback service gives

Table of Contents

mobile subscribers access through multiple storefront options including Web, Wireless Application Protocol ("WAP"), Interactive Voice Response ("IVR") and Short Message Service ("SMS").

•: Full-Track Music: Our mobile music service includes a-la-carte downloads, a rental subscription service and the ability to side-load music from a PC. This service is supported by our content catalog, merchandising expertise, and marketing knowledge to help mobile operators deliver full -track music to their subscribers, and includes the following features:
•: Web and WAP store enables mobile subscribers to browse, discover, purchase and manage their mobile music. The WAP store is designed for fast deployment and wide handset penetration.
•: Mobile Music Player is a full-featured software application designed specifically for mobile subscribers. It supports aacPlus media and leverages artwork, track metadata and enhanced features including playlist management and music sharing to provide mobile subscribers with a rich mobile music experience.

•: Ringtones: Our ringtone service provides a comprehensive set of real tones and polyphonic ringtones that allows mobile subscribers to personalize their mobile phone's ringer. The service is supported through Web and WAP interfaces.
•: Achieve Marketing Service: This service provides comprehensive life-cycle marketing and content support for our managed services. The service tracks trends and shares information including best practices, operator benchmarks, pre-launch check lists and post-launch reviews. The Achieve Marketing Service also provides detailed assessments and consultation to mobile operators focusing on service utilization, content management and offers marketing campaign brainstorming and user interface ("UI") design. In addition, the service provides access to our extensive content library, and content merchandising designed to encourage increased content consumption and greater service usage. Our team of Achieve regional music experts is well-versed about the music industry and stays on top of current hits and emerging artists.
•: Infuse: Infuse is a service platform that powers our services and delivers a complete personalization capability that encompasses simplified user experience and service discovery, robust content management, powerful personalization engines, targeted marketing and promotions, and flexible services billing.
•: Integrated Storefront: This service enables mobile operators to streamline business operations and simplify their subscribers' experience by offering a range of LiveWire Mobile's mobile personalization services and other third party services, under a single storefront. This integrated approach allows our team of content merchandising experts to increase mobile operators' service adoption, usage and revenues by creating multi-content, multi-service cross-selling and up-selling opportunities such as promotional campaigns, content bundles and user-specific recommendations. Powered by the Infuse service platform, the Integrated Storefront simplifies an operator's business and network operations across multiple content services by streamlining service management such as content ingestion, storefront merchandising and cross-service reporting.

•: MyCaller Ringback: This is the platform version of our ringback service that is made available through channel partners and to mobile operators who prefer to purchase capital equipment, software licenses and support to deploy a ringback service. MyCaller Ringback gives subscribers the power to select world-class original recordings of music, sounds and voices for callers to hear in place of the conventional ringback.

~~requirements~~Table are expected to drive sustained growth and profitable opportunities. We significantly reduced our cost structure during the past six months by exiting certain activities, including our IP Services Management initiative, and by reducing our yearly expense rate by approximately $25 million. We established new initiatives in the areas of voice-driven applications and services and packet infrastructure. These directly address critical wireless operator requirements such as increased revenue per subscriber, reduced customer turnover and cost effective migration to next generation networks. Contents

~~In November 2001,~~ ~~NMS~~Competitive completed the acquisition of the voice enhancement and echo cancellation business of Lucent. This acquisition provides NMS with a family of complete, ready-to-install systems, an experienced carrier-facing sales force, a top-notch development group, significant intellectual property, including patents, and access to a set of customers, through Lucent, that includes some of the world's largest wireless operators. Additionally, NMS has a multi-year agreement to serve as the exclusive supplier of stand-alone voice enhancement and echo cancellation systems for Lucent, as Lucent continues to supply these systems to its global service provider customers. At the same time, the agreement allows NMS to expand its market reach by establishing new alliances with other communications equipment suppliers and service providers. Strengths

~~In April 2001,~~We ~~NMS~~believe ~~acquired~~that ~~privately~~we ~~held~~have ~~Mobilee~~the capability to develop, ~~Inc.~~ ~~("Mobilee")~~deploy, amanage ~~Boston~~ and ~~Israel~~market ~~based~~services ~~wireless~~that ~~Internet~~address ~~infrastructure~~mobile ~~provider.~~operator ~~With~~needs ~~this~~for ~~acquisition,~~a ~~NMS added~~complete ~~VoiceXML,~~managed ~~audio~~mobile ~~streaming~~personalization ~~technologies,~~services ~~and~~suite. ~~considerable~~We ~~applications~~believe ~~integration~~that ~~experience~~we will continue to ~~its~~be ~~portfolio~~attractive to mobile operators and mobile subscribers because of ~~capabilities.~~the following strengths:

•: Breadth of mobile personalization services which include ringback tones, full-track music, and ringtones;
•: Strong relationships with content providers across multiple media types;
•: Achieve Marketing Services offering which provides marketing and operational benefits to our mobile operator customers;
•: Technology expertise in delivering end-to-end solutions into the mobile network;
•: Platform expertise which spans from client to server; and
•: Experience in delivering successful services on behalf of mobile operators.

~~Strong partnerships~~ ~~with~~Growth companies around the world enhance our ability to deliver essential technologies to service providers and network equipment suppliers and reduce time-to-market for these customers. Beginning in early 2002, we added new technology partners including Oracle and Sun Microsystems in conjunction with the introduction of NMS' Hearsay product. NMS works with Oracle to enable operators to take advantage of the wireless capabilities of Oracle9 Application Server and give their customers access to advanced voice services. Because wireless operators around the world know and trust Sun's Netra systems, NMS works closely with Sun's Network Equipment Provider Group to deliver carrier-grade, NEBS-certified reliability and uptime. Strategy

~~NMS has~~Our ~~also~~goal ~~broadened~~is ~~and~~to ~~strengthened~~be ~~relationships~~the ~~with~~leading ~~speech~~provider ~~technology~~of ~~suppliers,~~managed ~~such~~personalization asservices ~~InfoTalk,~~for ~~Nuance,~~mobile ~~Philips~~operators and ~~SpeechWorks,~~mobile tosubscribers. ~~ensure~~Our ~~that NMS platforms~~ strategies for ~~developing~~growth ~~new enhanced services~~ and ~~applications~~to ~~support~~achieve athis ~~wide~~goal ~~range of speech processing technologies. New speech application partners, announced in early 2002,~~ include ~~Oracle~~the ~~and~~following ~~Ureach~~elements: ~~Technologies, Inc.~~

•: Provide our customers with high-value offerings that enable them to bring services to market quickly and grow revenue and increase profitability;
•: Focus on the growing market opportunity in North America for mobile personalization services;
•: Leverage our leadership and highly-focused market position to build new customer relationships with leading mobile operators;
•: Expand our existing customer relationships by launching additional services from our mobile personalization suite delivered via an integrated storefront;
•: Bring best-in-class managed service programs of deployment, operations, and storefront merchandising to the mobile personalization marketplace;
•: Continue to investigate offerings that address the growing importance of the off-portal and on-line marketplace; and
•: Collaborate with content provider partners, handset manufacturers and mobile operators on content strategies and programs that increase ARPU.

~~We broadened~~ ~~our~~Business ~~reach~~Segments and ~~expanded~~Geographic ~~our market coverage by adding new distribution partners, including AVNET/ACS in Europe, the S.A.S. Group in Hong Kong and Taiwan, and other distributors in Asia.~~ Information

~~NMS has~~We ~~made~~operate ~~and~~as ~~continues~~one tobusiness ~~make~~segment. ~~significant~~For ~~investments~~the inyears ~~its~~ended ~~supply~~December 31, ~~chain~~2008, ~~capabilities~~2007 and 2006, ~~improving~~34%, 26% and 37%, respectively, of our total ~~ability~~revenues towere ~~rapidly~~derived ~~fulfill~~from ~~product~~operations atinside ~~competitive~~the ~~costs~~Americas. ~~This~~For isthe ~~increasingly required~~years byended December 31, 2008, 2007 and 2006, 25%, 19% and 2% of our ~~customers~~total asrevenues, ~~they~~respectively, ~~seek~~were toderived ~~make~~from Asia, ~~their~~and ~~operations~~41%, ~~more~~55%, ~~efficient~~and 61% of overall revenues, respectively, were derived from Europe, Middle East and ~~responsive~~Africa, collectively. For ~~example~~more geographic information, weincluding ~~extended~~revenue ~~our~~by geographic area for ~~contract~~each ~~manufacturing~~of ~~relationships~~the three last fiscal years, ~~which~~and ~~now~~long-lived ~~include~~assets ~~the~~by ~~globally~~geographic ~~distributed~~area ~~capabilities~~for each of ~~SMTC~~the ~~Manufacturing~~two ~~Corporation~~last fiscal years, ~~Celestica~~see our consolidated financial statements included in this annual report on Form ~~Inc.~~10-K, including Note 17 "Segment and ~~Via~~Geographic ~~Systems, Inc~~Information."

INDUSTRY BACKGROUND

The communications sector is a diverse, multi-billion dollar market that ranges from wireless applications and infrastructure, to Web services and voice portals, to equipment that delivers voice, video and data over packet and broadband networks. Participants in this industry succeed by maintaining a clear focus on business fundamentals, particularly developing and selling revenue-generating applications and services, maximizing the value of existing network infrastructure, and reducing the time to market, cost and risk of developing solutions.

The communications industry has experienced dynamic change over the past few years, including reduced capital expenditures by service providers, limited availability of capital in the capital markets,

~~reduced~~Table ~~valuations, consolidation~~ of service providers and equipment manufacturers, and workforce reductions. In addition, we are in a broad-based economic slowdown affecting most technology sectors. There are indications of stabilization that suggest the restructuring of the industry may be nearing completion, yet carrier capital expenditure concerns continue, as evidenced by the delay in the buildout of the 3G wireless network. Upon recovery of the economy, we expect the resumption of rapid growth in the telecommunications industry and the purchase of communications equipment, including our products, driven by the primary factors described below. Contents

~~MARKET~~ ~~NEEDS~~Customers

~~The~~We ~~most~~sell ~~advanced~~our ~~markets~~managed ~~for~~service ~~wireless~~offerings ~~services~~primarily ~~are~~through ~~Japan~~our ~~and~~direct ~~Western~~sales ~~Europe~~force. ~~International~~We ~~Data~~also ~~Corporation~~sell ~~("IDC")~~our ~~estimates~~cap-ex ~~that~~offerings 69through our direct sales force and channel partners.4% ofDuring ~~the~~2008, ~~European population~~three customers—Ericsson AB, Samsung, and 57Sprint Nextel Corporation—represented 24%, of18%, and 17%, respectively, of the ~~Japanese~~Company's ~~population~~total ~~were~~revenues. ~~mobile~~During ~~subscribers~~2007, atthree ~~the~~customers—Ericsson ~~end~~AB, ofLeap ~~2001~~Wireless International Inc., ~~The~~and ~~market~~Acision—represented ~~for~~59%, ~~wireless~~22%, ~~services~~and in17%, respectively, of the Company's ~~United~~total ~~States~~revenues. isDuring on2006, ~~the~~three ~~threshold~~customers—Ericsson ofAB, ~~enormous~~Acision ~~change~~and Nokia Corporation—represented 72%, 13% and ~~opportunity. IDC~~13%, ~~estimates~~respectively, of the Company's total ~~number~~revenues. At ofDecember 31, ~~wireless~~2008, ~~subscribers~~two incustomers—Ericsson ~~the~~AB ~~United~~and ~~States~~Sprint ~~will~~Nextel ~~increase~~Corporation—represented ~~from~~39% ~~125.5 million~~and at26%, ~~the~~respectively, ~~end~~ of ~~2001~~the toCompany's ~~200~~outstanding accounts receivable balance.6 At December ~~million~~31, ~~subscribers~~2007, intwo ~~2006~~customers—Ericsson AB, ~~growing~~and atJabil ~~a compound~~Circuit, Inc.—represented ~~annual~~14% ~~growth~~and ~~rate~~11%, ~~(CAGR)~~respectively, of 9the Company's outstanding accounts receivable balance.~~8%.~~ ~~IDC~~The ~~further~~loss ~~estimates~~or ~~that~~reduction ~~business~~in ~~subscribers~~revenue ~~will~~from ~~account~~one ~~for~~or more of the ~~strongest~~foregoing ~~growth~~customers ~~(12.4%~~would ~~CAGR)~~have a material adverse effect on our business and operations.

~~There are~~ ~~major~~Sales opportunities for growth in the consumer market in the coming years. We believe, beginning as early as 2003, new wireless terminals optimized to enhance wireless data services, such as access to Internet content, will emerge in the marketplace. This trend paves the way for carriers to provide richer media experiences by offering premium services such as high-quality multimedia beginning in 2004. Wireless carriers are now aggressively upgrading their networks to 2.5G, which adds data (internet access and text messaging) to the current wireless infrastructure, and rolling out services expansively in their markets as part of their gradual migration paths to full 3G, a completely new wireless infrastructure with high performance and greater packet orientation, expected to be commercially deployed and operational in 2004 with widespread deployment thereafter. Marketing

~~As wireless~~We ~~carriers~~sell ~~begin~~our ~~their~~managed ~~2.5G/3G~~service ~~deployments~~offerings inprimarily ~~the~~on ~~next~~a 18direct basis to ~~24 months,~~mobile ~~they~~operators. ~~are~~We ~~expected~~also tosell ~~offer~~our ~~enhanced~~cap-ex ~~functionality~~offerings through toour ~~existing~~direct ~~services~~sales ~~while~~force ~~introducing~~and ~~more robust~~channel ~~wireless~~partners. ~~data~~As ~~applications~~of toDecember 31, ~~consumers~~2008, ~~and~~our ~~businesses.~~sales ~~These~~and ~~advanced~~marketing ~~networks~~organization ~~will~~consisted ~~support~~of ~~higher~~28 employees ~~data~~in ~~speeds~~four ~~and~~countries ~~provide~~worldwide, ~~always-on~~including 7 employees ~~functionality~~in India, ~~global~~16 employees ~~roaming~~in the United States, ~~location services~~1 employee in Canada and ~~support~~4 employees ~~for~~in ~~high-quality~~the ~~multimedia~~United Kingdom. ~~Consumers~~We ~~can~~also ~~expect~~recruit toand ~~see~~partner ~~some~~with of the ~~following~~major ~~applications~~ and independent ~~functionality~~record ~~based~~labels onto ~~2.5G~~create ~~and~~a 3Gcontent ~~wireless~~library ~~network~~of ~~deployments:~~over ten million assets.

~~Declining~~Our ~~subscriber~~marketing ~~growth~~strategy ~~and~~consists ~~the~~of ~~resulting~~three ~~need~~primary methods to increase ~~the~~awareness ~~average~~and ~~revenue~~create ~~per~~demand ~~user~~for ~~will~~our ~~compel~~offerings: ~~carriers~~public toand ~~migrate~~analyst ~~their~~relations; ~~existing~~collateral/thought ~~customer~~leadership; ~~base~~and ~~from~~trade show ~~analog~~events. ~~and~~Our 2Gpublic torelations ~~2.5G~~efforts are focused on mobile entertainment and ~~3G networks~~wireless toindustry-related ~~provide~~and ~~new~~general ~~revenue~~business ~~streams~~media ~~from~~relationships, ~~these~~which increase general awareness of our business and services. ~~Additionally~~As a complement to our public relations, ~~the~~industry ~~efficiencies~~analysts inact ~~the~~as ~~use~~independent ofreferences ~~the~~and ~~radio~~provide ~~spectra~~opinions ~~that~~on ~~allow~~our ~~for~~service ~~significant~~offerings. ~~increases~~With inour ~~subscribers~~collateral and ~~services~~thought ~~afforded by~~leadership ~~2.5G~~efforts, ~~and~~we 3Gtarget ~~networks~~specific ~~will~~audiences ~~further~~with ~~necessitate~~a ~~carriers~~variety ~~migrating~~of ~~their~~sales ~~customers~~tools toand ~~next~~brand-building ~~generation~~materials ~~networks~~consisting of mostly web-based communications. 3GWe ~~operators~~also ~~will~~speak, ~~seek~~sponsor toand/or ~~differentiate~~conduct meeting ~~their~~campaigns ~~high-value~~at ~~services~~selected inlarge ~~the marketplace,~~and ~~while~~small ~~new~~industry ~~opportunities~~trade shows in North America.

Manufacturing

Through a supply agreement, we utilize Arrow Electronics, Inc., a provider of manufacturing services, to assemble, test and ship all of our hardware product offerings.

Research and Product Development

We believe that the extension and enhancement of our existing services and offerings as well as the development of new products and services are critical to our future success. Therefore, we undertake direct research and development, engage in joint product development with selected partners, and participate in the development of industry standards where appropriate. Our research and development activities consist of the design, development, testing and enhancement of our services and products. During the years ended December 31, 2008, 2007 and 2006, we spent $7.5 million, $5.7 million and $8.2 million, or 48%, 44%, and 92%, respectively, of our revenue on research and development. As of December 31, 2008, our current product development is conducted by 79 employees located at our headquarters in Littleton, Massachusetts and at our office in Bangalore, India.

~~will~~Table ~~arise~~of ~~for~~Contents ~~infrastructure suppliers, content providers, advertisers and application service providers to thrive in the evolving 3G ecosystem.~~

~~In the~~ ~~near~~Intellectual term, however, the growth of wireless data services will be gated by a number of hurdles. These include customer awareness, uncertain or confusing pricing strategies, lack of interoperability among different carrier networks, carrier control of content and customer security concerns. Consumers will initially be unaware of the burgeoning array of new services offered. Carriers will need to focus on educating consumers about wireless services other than voice and will have to step up targeted marketing campaigns to reflect this new concept. Initially, pricing of wireless data services is likely to be confusing and frustrating to consumers as carriers experiment with connection-based and usage-based pricing structures, both of which are neither familiar nor amenable to consumers. This confusion may delay or prevent consumer adoption of one or more services. Currently, widespread adoption of wireless messaging services, including short message service and instant messaging is inhibited by the lack of network interoperability among all carriers. Additionally, based on their respective affiliations, carriers still control wireless content, quite unlike the way traditional Internet content is provided. This limits the Internet content choices for subscribers and thus the widespread adoption of wireless Internet content services. Additionally, consumer perception about wireless security will need to be addressed to allay any consumer concerns related to wireless messaging applications, Internet access, and ultimately mobile commerce. Property

~~THE~~ Our ~~NMS~~success ~~COMMUNICATIONS~~depends ~~SOLUTION~~ in part on proprietary technology and know-how. We rely primarily on a combination of trade secret and copyright laws and restrictions on access to protect our trade secrets and proprietary rights. We hold certain issued patents and have filed additional patent applications with respect to certain of our technology. We distribute our products and services under license and other agreements, which grant customers a non-exclusive license to use our software and services and contain certain terms and conditions prohibiting unauthorized reproduction or transfer. We enter into confidentiality agreements with our suppliers and customers when we disclose proprietary information to them. In addition, we enter into confidentiality agreements and assignment of invention agreements with our employees and consultants. Despite these precautions, unauthorized third parties may copy aspects of our products or obtain information that we regard as proprietary.

We depend ~~provide~~on ~~complete~~development, ~~open~~supply, ~~systems~~marketing, tolicensing ~~the world's leading wireless~~ and ~~wireline~~other ~~network~~relationships ~~operators~~with ~~and~~companies ~~network~~for ~~equipment~~complementary ~~providers.~~technologies ~~These~~necessary ~~systems~~for ~~enable communications~~us ~~service providers~~ to ~~rapidly~~offer ~~create~~a ~~new~~broad ~~services,~~range ~~including~~of ~~voice~~products ~~quality enhancements~~ and ~~voice application systems~~ services. WeThese ~~provide~~relationships ~~system~~are ~~building~~generally ~~blocks~~non-exclusive ~~that enable network equipment manufacturers~~ and ~~solutions~~run ~~developers~~for toa ~~rapidly~~finite ~~develop and deploy new voice communications services in wireless, wireline and enterprise networks~~term.

~~NMS~~We ~~services~~believe ~~include~~that, ~~product~~due ~~evaluation~~to ~~support,~~the ~~systems~~rapid ~~architecture~~pace ~~and~~of ~~engineering~~innovation ~~design~~within ~~and~~the ~~development,~~industry ~~trial~~in ~~and~~which ~~deployment~~we ~~support~~participate, ~~and~~factors ~~post~~such ~~deployment~~as ~~lifecycle~~the ~~management services.~~technological ~~Our Services~~ and ~~Solutions~~creative ~~group~~skills ~~has~~of ~~expertise~~our inpersonnel, aand ~~broad~~ongoing reliable ~~range~~product ofmaintenance ~~communications~~and ~~technologies~~support, ~~and~~are ~~specialization~~more important in ~~the~~establishing ~~areas~~and ofmaintaining ~~wireless~~a ~~video,~~leadership ~~speech~~position ~~applications~~within ~~infrastructure,~~the ~~and specialized~~industry ~~hardware~~than ~~including~~are ~~hardware~~the legal protections for ~~data~~technologies ~~services~~conferred by intellectual property laws.

~~These systems,~~ system building blocks and services facilitate the rapid creation and deployment of enhanced services and applications, including voice, video and data services, while conforming to the high quality, availability, scalability and manageability required in service provider networks. Our products and technologies are compliant with open industry standards to insure interoperability and compatibility, and leverage mass-market components, such as general-purpose servers, microprocessors, digital signal processors and operating system software. Competition

~~STRATEGY~~ Competition in the markets that we target for our services is intense and diverse. Our primary competition comes from other providers of mobile managed services. These can be providers of individual services such as ringback tones or full-track music, or providers of a broader integrated storefront solution which can include multiple service offerings. In addition, we compete against marketing services companies that provide content marketing expertise and content catalogs. In limited cases, we compete against platform technology companies who sell their products to mobile operators that prefer to purchase equipment only, and not services. We believe that the trend for mobile network operators to increasingly outsource their personalization services delivery needs will continue to broaden our market opportunity. We also believe that our key competitive differentiators in this market include: our ability to deliver a complete suite of mobile personalization services through an integrated storefront; our dedicated marketing services to help mobile operators drive service adoption and usage; and our technology platform that provides advanced marketing and offering functionality. Current competitors for our services include: RealNetworks, Inc., Motricity, Inc., Amdocs QPASS, Cellmania, Inc., Ericsson AB, Amazon.com, Inc. and Apple, Inc.

~~Our~~ objective is to be the leading provider of systems to the top telecommunications service providers around the world and the leading supplier of systems and system building blocks to the major network equipment providers and solutions developers. Employees

~~Growth~~As of December 31, 2008, we had 168 full-time employees, consisting of 27 in services and operations, 5 in sales, 34 ~~areas~~in ~~that~~finance, ~~NMS~~business ~~addresses~~operations ~~include:~~and administration, 23 in marketing, and 79 in research and development. None of our employees are represented by a labor union. We have never experienced a work stoppage and consider our relations with our employees to be good.

Discontinued Operations

On December 21, 2007, we sold the Network Infrastructure business to Verso Technologies, Inc. pursuant to an Asset Purchase Agreement (the "Verso Asset Purchase Agreement"). On December 5, 2008, we sold the NMS Communications Platforms business to Dialogic pursuant to an Asset Purchase Agreement (the "CP Asset Purchase Agreement"). In accordance with Statement of Financial Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"

~~The following~~Table ~~are key elements~~ of ~~our strategy:~~ Contents

~~Focus~~("SFAS 144"), the onoperating ~~wireless. The~~results of the Network Infrastructure Business and the NMS Communications Platforms business ~~challenges~~have ~~for~~been ~~wireless~~reclassified ~~network~~as ~~operators~~discontinued ~~include~~operations ~~competition~~in ~~for~~the consolidated ~~subscribers,~~statement ~~retention~~ of ~~subscribers,~~operations and related disclosures included in the ~~need~~notes to ~~increase~~the ~~average~~consolidated ~~revenues~~financial ~~per~~statements, ~~user.~~and Asin a"Management's ~~result,~~Discussion ~~these~~and ~~operators~~Analysis ~~provide~~of ~~innovative~~Financial ~~new~~Condition ~~services.~~and WeResults ~~believe~~of Operations" ~~that~~included ~~our~~elsewhere ~~technologies,~~in ~~products~~this ~~and services~~annual ~~are~~report ~~uniquely~~on ~~suited~~Form 10-K tofor ~~these~~all periods presented. Our description of the business ~~challenges~~focuses on continuing operations.

~~Provide~~ aAdditional complete solution. To insure the commercial success of our products and services, we invest in development of a complete set of capabilities and services required by the end customer. Examples of capabilities which NMS coordinates in its offering to customers include systems, speech, database, network operations, systems integration, supply chain, and other technology and services suppliers. Our investment makes NMS accountable to the end customer for the complete solution. Information

~~Strengthen~~Our common stock has been publicly traded since our initial public offering in 1994, and ~~expand~~currently ~~strategic~~trades ~~partnerships~~on the NASDAQ Global Market under the ticker symbol "LVWR". Our ~~strategic~~principal ~~relationships~~executive ~~with~~offices ~~speech~~are ~~technology~~located at One Monarch Drive, ~~applications~~ Suite 203, Littleton, MA 01460, and ~~technology~~our ~~partners~~main telephone number is 978-742-3100. We maintain a website with the address www.livewiremobile.com. We are ~~essential~~not toincluding the information contained on our ~~complete~~website ~~solutions~~as ~~offering~~a part of, or incorporating it by reference into, this annual report on Form 10-K. We ~~work~~make ~~closely~~available, free of charge, through our website, our proxy statements, ~~with~~registration ~~partners~~statements, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to ~~insure~~those reports ~~that~~filed ~~our~~or ~~customers~~furnished ~~are~~pursuant ~~provided~~to ~~with~~Section 13(d) or 15(d) of the ~~most~~Securities ~~integrated~~and ~~solution~~Exchange ~~comprised~~Act of ~~the~~1934, ~~latest~~as ~~offerings~~amended, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and ~~that~~Exchange ~~there~~Commission is("SEC"). aOur ~~clear~~SEC ~~line~~filings ofare ~~support~~also available over the Internet at the SEC's website at www.sec.gov. You may also read and ~~accountability~~copy any document we file by visiting the SEC's public reference room in Washington, D.C. at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.

~~Extend~~ ~~our~~ ITEM ~~technology leadership~~1A. WeRISK have assembled a team of approximately 300 engineers and technical personnel. Over our 25 years of experience, we have developed significant expertise in voice and media processing, including echo cancellation, background noise suppression, voiceXML technology, speech based applications, global network interface and protocol technologies, digital signal processing software, and specialized silicon for media processing. We intend to continue to invest in our technological expertise through in-house development and strategic acquisitions. FACTORS

~~Support~~The ~~open~~risks ~~architecture~~presented ~~and~~below ~~evolving~~may ~~standards~~not be all of the risks that we may face. We ~~will~~These ~~continue~~are the factors that we believe could cause actual results to ~~support~~be ~~open~~different ~~architectures~~from expected and ~~industry~~ ~~standards~~historical results. WeOther ~~expect~~sections ~~that~~of this ~~will~~report ininclude ~~turn~~additional ~~further~~factors ~~reduce~~that ~~development~~could ~~time~~have ~~for~~an effect on our ~~customers~~business operations and ~~enable~~financial ~~them~~performance. The toindustry ~~take~~in ~~advantage~~which ofwe ~~advances~~operate ~~made~~is invery ~~complementary~~competitive ~~technologies~~and changes rapidly. ~~Our~~Sometimes ~~products are~~new ~~open~~risks emerge, and ~~accessible,~~management ~~allowing~~may ~~our~~not ~~customers~~be able to ~~integrate~~predict all of them, ~~into~~or ~~their~~be ~~environments~~able to predict how they may cause actual results to be different from those contained in any forward-looking statements. WeYou ~~have~~should not rely upon forward-looking statements as a ~~record~~prediction of ~~developing~~future ~~and~~results. ~~promoting~~If ~~open~~any ~~industry~~of ~~standards~~the ~~and~~following risks ~~intend~~or touncertainties ~~continue~~actually occurs, our ~~leadership role~~business, financial condition and operating results would likely suffer.

~~Strengthen~~ ~~and~~RISKS ~~expand~~RELATED ~~relationships~~TO ~~with~~OUR strategic customers. Our strategy is to establish and maintain long term working relationships with, and to sell our products and services to, leading network operators and network equipment providers. We dedicate over 100 sales and technical services personnel to approximately 100 network operators and 40 network equipment providers worldwide. By focusing on leading network operators and network equipment providers, we believe we can reach the largest portion of our market opportunity while minimizing the cost and complexity of our marketing efforts. These customer relationships also provide us with multiple sales opportunities across product lines. We work closely with our customers to design our software and hardware solutions into their offerings and use consulting and support services to facilitate and reinforce these relationships. By working with leading customers early in their product design and development stages, we gain valuable insights into future industry requirements and trends. BUSINESS

~~Expand~~ ~~reach~~Failure ~~and~~to ~~improve~~timely ~~coverage~~or ~~through~~successfully ~~channel~~complete ~~partners. We use indirect channel partners to reach~~ the ~~broader~~transition ~~market,~~of ~~including~~our ~~network~~resources ~~equipment providers, solutions developers, and additional geographies. These channel partners provide sales, marketing, pre- and post-sales support, fulfillment, and credit services~~ to ~~additional~~our ~~customers.~~business Weor ~~plan~~restructure ~~to migrate more of~~ our ~~system~~business ~~building~~may ~~blocks~~have ~~sales~~material ~~through~~adverse ~~these~~consequences ~~indirect~~for ~~channels as we focus on~~ the ~~systems business~~Company.

~~Leverage~~In ~~our~~connection ~~corporate~~with ~~infrastructure.~~ the Asset Sale, we have begun to transition all of the NMS Communications Platform business's ~~sales~~resources to the business and ~~services~~restructure ~~organization~~the ~~comprises~~business, ~~over~~which ~~100~~includes ~~people~~ consolidating our staff and ~~represents~~facilities. ~~our~~If ~~company's~~we ~~product~~are ~~line~~unable to ~~service~~successfully ~~providers,~~and ~~network~~timely ~~operators~~complete this transitioning and restructuring, ~~major~~we ~~telecommunication~~may ~~equipment~~not achieve ~~providers~~meaningful growth and ~~solution~~sustainable ~~developers~~profitability; ~~around~~our ~~the~~remaining ~~world.~~assets ~~Our~~could ~~customers~~lose ~~require~~value; ~~rapid~~we may not be able to retain key employees or key customer relationships; we may not have sufficient ~~availability~~resources ofto successfully manage our ~~products~~business atas a ~~cost~~stand-alone ~~effective~~entity; ~~price~~and we may not be able to perform our obligations under various contracts and commitments. WeAny ~~have~~of ~~made~~these ~~significant~~outcomes ~~investments~~may inhave material ~~systems,~~adverse ~~supplier~~consequences ~~relationships,~~for ~~customer~~us ~~relationships,~~and ~~systems~~substantial ~~integration~~negative ~~partnerships,~~impacts on our business and ~~people~~our stock price.

toTable ~~develop~~of a responsive, cost-effective supply chain that is a strategic asset. NMS' consulting and support services extend from initial product conception and design through implementation, field trial, marketing, and deployment. These service relationships increase our visibility to our customers and provide us with insight into future market requirements. Contents

~~PRODUCTS~~ ~~AND~~We ~~SERVICES~~have a history of net losses in recent years, we may incur net losses in the future and we may not achieve profitability.

~~Our~~We ~~broad~~have ~~range~~incurred ofsignificant ~~products~~losses ~~include~~in ~~voice~~the ~~quality~~past ~~enhancement~~three ~~and~~years, ~~echo~~including ~~cancellation~~net ~~systems~~losses of $38.1 million, ~~voice~~$9.3 million ~~applications~~and $15.8 million ~~systems~~in 2008, ~~systems~~2007 ~~building~~and ~~blocks~~2006, ~~that~~respectively. ~~provide connectivity~~Past tooperating ~~communications~~losses ~~networks,~~have ~~call~~adversely ~~processing~~affected our working capital, total assets and ~~real~~stockholders' equity. We also expect to incur a non-~~time~~GAAP ~~media~~net ~~processing~~loss from continuing operations of approximately $3.0 million in 2009. Our ~~emerging~~current ~~products~~operating plan for 2009 has established a cost structure, the goal of which, based on expected revenue growth, will ~~address~~position ~~packet~~us ~~network~~for ~~infrastructure~~profitability in the future. ~~NMS'~~If ~~consulting~~revenues ~~and~~do ~~support services~~not ~~extend~~improve, ~~from~~or ~~initial~~if ~~product~~expenses ~~conception~~are ~~and~~greater ~~design~~than ~~through~~we ~~implementation~~anticipate, ~~field~~we ~~trial~~may continue to experience losses, ~~marketing~~which could cause us to take actions to reduce operating costs. Accordingly, ~~and~~we ~~deployment~~may not be able to achieve profitability in the future.

~~Our products~~ ~~are~~We ~~developed~~have ~~for~~limited ~~global~~cash ~~markets~~to fund our business and ~~allow~~operations ~~customers~~and may need additional capital in the future to ~~integrate~~sufficiently ~~their~~fund ~~applications~~our ~~and~~operations, ~~systems~~which ~~into~~may ~~existing~~not ~~and~~be ~~future~~available ~~network~~to ~~architectures~~us on favorable terms, or at all. ~~Our~~Failure ~~products~~to ~~are~~obtain ~~compatible with~~any ~~signaling~~required ~~protocols~~financing ~~and~~would ~~are~~harm inour ~~use~~ability into ~~over~~grow 90our ~~countries~~business.

~~Systems~~ Our ~~Products~~ operations may require additional funding, in large part due to continued losses, operating expenses, increases in capital expenditures and contractual obligations for the foreseeable future. In addition, deterioration in the business environment and market conditions could negatively impact operating results and liquidity. We have a limited amount of cash to fund our business and operations. Our cash balances at December 31, 2008 were $19.3 million. As a result of expected payments of lease termination costs, restructuring costs, transaction costs associated with the sale of the NMS Communications Platforms business in 2008, and cash expected to be used in operations in 2009, we estimate our cash balances to be approximately $8.0 million in the fourth quarter of 2009, including anticipated receipt of escrow funds of $3.2 million relating to the sale of the NMS Communications Platforms business. If our cash and cash equivalents balances and any cash generated from operations are not sufficient to meet our cash requirements, we will require additional funding. We expect to finance future cash needs through public or private equity offerings and debt financings, as well as bank borrowings and through interest income earned on the investment of our cash balances. Our ability to raise funds may be adversely impacted by current economic conditions, including the effects of the recent disruptions to the credit and financial markets in the United States and worldwide. As a result of these and other factors, we do not know whether additional financing will be available when needed, or that, if available, we will be able to obtain financing on terms favorable to our stockholders or us. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our growth and operating plans to the extent of available funding, which would harm our ability to maintain or grow our business.

~~Studio~~ ~~Sound~~We ®.currently ispartner ~~a comprehensive software product that runs in conjunction~~ with ~~NMS~~mobile ~~Echo Cancellation~~operators ~~systems~~ to ~~create~~market anand ~~optimal~~distribute ~~listening~~our ~~environment~~services ~~for~~and ~~both~~thus ~~parties~~to ingenerate aour ~~wireless voice call~~revenues. ItThe ~~consists~~loss of ~~five~~or ~~major~~a ~~components:~~change ~~acoustic~~in ~~echo~~any ~~control,~~significant ~~dynamic speech restoration,~~mobile ~~noise~~operator ~~compensation,~~relationships ~~noise~~would ~~reduction,~~cause ~~and~~us ~~automatic gain control, minimizing distractions due~~ to ~~outside~~lose ~~noise,~~access ~~such as traffic. Independent studies have shown that consumers are more likely~~ to ~~make calls~~their insubscribers ~~noisy environments if they know they will still be able to hear clearly,~~ and ~~they~~thus ~~will~~materially ~~stay~~reduce onour ~~the phone longer if it is a more pleasant experience~~revenues.

~~Mercury~~We sell our managed service offerings primarily through our direct sales force. ~~The~~ ~~Mercury~~We ~~Broadband~~also ~~Echo~~sell ~~Cancellation~~our ~~System~~cap-ex ~~removes~~offerings ~~electrical~~through our direct sales force and ~~acoustic~~channel ~~echo~~partners. During 2008, three customers—Ericsson AB, Samsung, and ~~supports~~ ~~DS3~~Sprint Nextel Corporation—represented 24%, ~~STS-1~~18%, ~~OC3~~and 17%, orrespectively, ~~STM-1~~of the ~~interfaces~~Company's intotal arevenues. ~~single~~During ~~package~~2007, three customers—Ericsson AB, Leap Wireless International Inc., ~~Introduced~~and inAcision—represented ~~2001~~59%, ~~Mercury~~22%, ~~provides~~and 17%, respectively of the Company's ~~highest~~total ~~density~~revenues. atOur future success is highly dependent upon maintaining successful relationships with the ~~lowest~~mobile ~~acquisition~~operators with which we currently work and ~~operational~~establishing ~~costs~~new mobile operator relationships. A significant portion of our revenues is derived from a very limited number of mobile operators, including Sprint Nextel Corporation. Our failure to maintain our relationships with, or a significant reduction in

Sonata III. The Sonata III Echo Cancellation system offers a cost-effective, high capacity, and low-power-consumption solution for E1 echo cancellation and voice enhancement. Designed to improve the voice quality of digital cellular and long distance international calls, it also offers a design option for the A-Interface in GSM networks.

Symphony. The Symphony T1 Echo Cancellation System offers a high per-shelf channel capacity, low power consumption, unmatched performance and unique Studio Sound® features, supporting North American networks.

Cadenza II. The Cadenza II Echo Cancellation system provides the benefits of cost effectiveness, high capacity, and low power consumption with exceptional voice quality for long distance communications in North America.

HearSay. Introduced in January 2002, HearSay is a complete reliable, scalable, cost-effective solution that enables wireless operators worldwide to voice-empower communication services. This solution is the first open and comprehensive offering that merges telecom mobility with the content-rich Internet and integrates applications and technology from leading suppliers. This gives wireless operators new and essential capabilities for rapidly and cost-effectively deploying customized, innovative voice-driven services such as: voice-activated dialing (VAD), personalized voice portals, short message service, conferencing applications, and unified communications, all of which can be deployed in today's networks, and operate in the packet-based networks of the future.

~~System~~Table ~~Building~~of ~~Blocks~~ Contents

~~Convergence Generation. The Convergence Generation product family consists of software and hardware~~revenues ~~components~~from, ~~configured~~one ~~specifically~~or ~~for~~more ~~convergence-centric systems and applications. This product family's design includes an Intel StrongARM co-processor and Texas Instruments (TI) C54x family~~ of ~~digital~~these ~~signal~~mobile ~~processors.~~operators ~~The~~would ~~architecture~~materially isreduce ~~extensible~~our torevenues ~~hundreds of ports per slot~~ and ~~capable~~thus ofharm ~~integrating~~our high-density Internet protocol network and public switch telephone network interfaces including T3 and OC-3. This product family offers the best price performance for converged network solutions such as IP telephony gateways and IP media servers. In 2001business, ~~NMS~~operating ~~introduced~~results ~~several new versions, including the CG 6100, high density T1/E1 network interface~~ and ~~resource~~financial ~~hardware~~condition.

~~PowerAccess. Introduced~~ inBecause ~~2001,~~a ~~this~~substantial ~~high~~portion ~~density~~of ~~access~~our ~~gateway~~revenues ~~hardware~~are ~~and~~currently ~~software~~derived isfrom ~~used~~three ~~for VoDSL,~~mobile ~~VoATM~~operators, ~~voice~~if ~~over~~any ~~wireless~~of ~~local~~our ~~loop~~significant ~~(WLL)~~mobile ~~deployments,~~operators ~~and~~are ~~gateways~~unable ~~for~~to ~~emerging~~fulfill ~~network~~its ~~infrastructure. This product family includes the PA HYPER T3 DS3/STS-1 Network Adapter,~~payment ~~the M100 Echo Cancellation and Compression Option (for the PA HYPER T3) and the S-200 high performance asynchronous transfer mode (ATM) interface. Combined~~obligations, ~~these products create a 2-slot, 672-port (T3) access gateway, exploiting~~ our ~~core~~financial ~~application~~condition ~~specific~~and ~~integrated~~results ~~circuit~~of ~~(ASIC)~~operations ~~and~~would ~~ATM technologies~~suffer.

~~Intelligent~~At ~~Networks/SS7. The~~December 31, ~~Intelligent~~2008, ~~Networks/SS7~~two ~~product~~customers—Ericsson ~~family~~AB ~~consists~~and ofSprint ~~software~~Nextel Corporation—represented 39% and 26%, ~~hardware~~respectively, ~~components~~of ~~that~~the ~~provide~~Company's aoutstanding ~~complete~~accounts ~~suite~~receivable balance. Since 65% of ~~Intelligent~~our ~~Networking~~outstanding ~~protocols~~accounts ~~for~~receivable ~~PSTN~~at ~~connectivity~~December 31, 2008 were with these two customers, we have a concentration of credit risk. ~~The~~If ~~product~~any ~~family~~of these customers is ~~designed~~unable ~~for~~to ~~the~~fulfill ~~Motorola~~its ~~68xxx~~payment ~~family~~obligations ofto ~~processors.~~us Itunder ~~allows~~our ~~for~~agreements awith them, our revenues and cash flows could decline significantly and ~~full~~our ~~implementation~~financial ofcondition ~~the~~would ~~SS7~~be ~~protocol~~harmed. ~~stack~~In ~~with~~addition, ~~access~~recent atdisruptions ~~all~~in ~~layers~~national and ~~contains~~international credit markets have lead to a ~~set~~scarcity of ~~switch-specific~~credit, tighter lending standards and ~~high~~higher ~~availability~~interest rates ~~extensions~~on ~~that~~consumer ~~meet~~and ~~service~~business ~~provider~~loans. ~~requirements~~Continued disruptions in credit markets may materially limit consumer credit availability and ~~facilitate~~restrict credit availability of our mobile operators, which may also ~~worldwide~~impact ~~deployment~~their ~~and~~ability ~~interoperability~~to fulfill their payment obligations.

~~Alliance~~ ~~Generation. The~~Our ~~Alliance~~business ~~Generation~~has is a ~~proven~~limited ~~product~~operating ~~family~~history ~~with~~as a ~~field history of over eight years. It consists of software and hardware components configured to meet the needs of enterprise and enhanced services multimedia applications for circuit~~stand-~~switched~~alone ~~environments.~~entity, ~~This~~which ~~product family~~may ismake ~~designed~~it ~~for~~difficult ~~an Intel x86 co-processor and TI C51 or TI C549 families of digital signal processors. The port densities offered range from 2~~ to ~~120~~evaluate ~~ports~~our ~~per slot and the Alliance Generation product line is differentiated from competition due to its unique extensibility~~business. ~~The product family enables systems to maximize resources, thereby reducing costs.~~

~~Natural~~Since ~~Access~~we ~~Software. The~~completed ~~Natural~~the ~~Access~~Asset ~~Software~~Sale ~~suite~~in ~~consists~~December 2008, we have only a limited history of CTgenerating ~~Access~~revenues ~~with~~solely ~~Natural~~from ~~Call~~our managed ~~Control,~~mobile ~~NaturalFax,~~personalization ~~ISDN,~~services ~~Channel~~as ~~Associated~~a ~~Signaling~~stand-alone entity, and ~~high~~the ~~availability~~future ~~extensions.~~revenue ~~This~~potential ~~suite~~of ~~was~~operating ~~designed~~our asbusiness ~~the~~is ~~development~~uncertain. ~~and~~As ~~run-time~~a ~~environment~~result ~~for~~of ~~the~~our ~~Alliance~~short ~~and~~operating history, we have limited financial ~~Convergence~~data ~~Generation~~that ~~product~~can ~~families~~be ~~and~~used ~~provides~~to ~~for~~evaluate ~~the~~our ~~rapid~~business. ~~development~~Any evaluation of ~~high~~our ~~performance,~~business ~~scalable~~and ~~applications.~~our ~~Natural~~prospects ~~Access~~must ~~allows~~be ~~developers,~~considered ~~working~~in ~~with~~light ~~common~~of ~~programming~~the ~~languages~~limited operating history of our business and the risks, uncertainties, expenses and ~~different~~difficulties ~~programming~~encountered ~~models,~~by ~~independent~~companies in our stage of ~~host~~development ~~platforms~~in ~~and~~the ~~operating~~emerging ~~systems,~~mobile toentertainment ~~implement~~industry. ~~applications~~To address these risks and ~~systems~~uncertainties, ~~requiring~~we ~~communications~~must ~~functionality.~~do the following:

•: maintain our current, and develop new, mobile operator relationships;
•: maintain and expand our current, and develop new, relationships with third-party services owners;
•: retain or improve our current revenue-sharing arrangements with mobile operators and third-party branded services owners;
•: maintain and enhance our own brand;
•: continue to develop and upgrade our technology either internally or with third parties;
•: continue to enhance our information processing systems;
•: increase the number of mobile subscribers for our mobile services;
•: execute our business and marketing strategies successfully;
•: respond to competitive developments; and
•: attract, integrate, retain and motivate qualified personnel.

~~Services~~ We may be unable to accomplish one or more of these objectives, which could cause our business to suffer. In addition, accomplishing many of these efforts might be very expensive, or may take a significant amount of time which would adversely impact our operating results and financial condition.

To complement our hardware and software products, we also offer a broad range of services with practices specializing in wireless video, speech application infrastructure, and specialized hardware, including hardware for wireless data services. Services offered include:

Product Evaluation. The first phase of our customer relationships consist of product evaluation. We supply a set of services including training, documentation, telephone, and on-site consultation, to assist the customer in evaluation of our product prior to selection for development or deployment.

Design and Development. We provide telephone and on-site consultation, as well as custom design and engineering services.

~~Trial. We~~Table ~~supply telephone and on-site consultation, as well as on-site operations and integration assistance during the field trail phase~~ of ~~our customers' go to market initiatives.~~ Contents

~~Deployment.~~ Our ~~services~~operating ~~range~~results ~~from~~fluctuate ~~on-site installation~~ and ~~systems~~are ~~integration~~difficult ~~services~~ to ~~24x7~~predict, ~~on-call~~which ~~support.~~could cause our stock price to decline.

~~CORE~~ Our ~~PRODUCT~~revenues ~~ATTRIBUTES~~ and operating results could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition, we may not be able to predict our future revenues or results of operations. We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a large extent fixed. As a result, we may not be able to reduce our costs sufficiently or soon enough to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could disproportionately and adversely affect financial results for that quarter. Individual mobile operator relationships represent meaningful portions of our revenues and net loss in any quarter. In addition, some payments from mobile operators that we recognize as revenue on a cash basis may be delayed unpredictably.

~~All~~In addition ofto ~~our~~other ~~products~~risk ~~contain~~factors ~~Network~~discussed ~~Operator~~in ~~standards~~this ~~and~~item, ~~features~~factors ~~including~~that may contribute to the ~~following~~variability ~~competencies~~of our quarterly results include:

•: timing and market acceptance of new services or enhancements introduced by us or our competitors;
•: timing and level of expenditures for sales, marketing and product and services development;
•: the popularity of new services released in prior periods;
•: changes in prominence of deck placement for our services and those of our competitors;
•: changes in pricing policies by us, our competitors or our mobile operator customers and channel partners;
•: fluctuations in the size and rate of growth of overall subscriber demand for our services;
•: the seasonality of our industry;
•: strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; and
•: general industry trends and market conditions.

~~High availability technology. Our voice enhancement and echo cancellation systems feature 1:1~~In ~~protected network interfaces and system controller~~addition, ~~1:N~~if ~~redundant~~our ECquarterly ~~boards,~~revenue ~~dual~~or ~~-48V~~operating ~~power~~results ~~supplies,~~fall ~~extensive~~below ~~system monitoring and alarms, built-in self test and diagnostics and a Remote Operations Support System (OSS). These have been developed over years of proven operation in~~ the ~~central~~expectations ~~offices and mobile switching centers~~ of ~~100~~investors ~~operators~~or ~~worldwide.~~public ~~We also~~market ~~deliver~~analysts, ~~hot-swap~~our ~~enabled~~common ~~CompactPCI~~stock ~~products~~price ~~and~~may ~~have~~decline ~~established an industry leading software infrastructure to support carrier class deployments~~substantially. ~~We offer systems level software that extends system availability during component failures, system maintenance and upgrades.~~

~~Network~~ ~~Operator~~Our ~~environment~~ability ~~integration. We~~to ~~understand~~utilize ~~the operations, administration, maintenance, and provisioning environments of service providers and~~ our ~~software~~net ~~and~~operating ~~services~~loss ~~facilitate~~carryforwards ~~systems~~may ~~integration~~be ~~into those environments~~limited.

~~Highly~~As ~~scalable~~of ~~systems~~December 31, 2008, we had net operating loss carryforwards of approximately $310. ~~Our~~6 million ~~offerings~~for ~~can~~federal ~~address~~income tax purposes and federal tax credits of approximately $3.6 million, which exclude the ~~needs~~impact ~~ranging~~of ~~from~~any unrecognized tax benefits residing within our subsidiaries. If certain transactions occur with respect to our capital stock, including issuances, redemptions, recapitalizations, exercises of options, conversions of convertible debt, purchases or sales by 5%-or-greater shareholders and similar transactions that result in a ~~handful~~cumulative change of ~~users~~more than 50% of the ownership of capital stock, over a three-year period, as determined under rules prescribed by the U.S. Internal Revenue Code and applicable Treasury regulations, an annual limitation would be imposed with respect to the ability to utilize our net operating loss carryforwards and federal tax ~~millions~~credits. Similar provisions may exist for state tax purposes and vary by jurisdiction. Because substantially all of ~~subscribers~~our net operating loss carryforwards are reserved for by a valuation allowance, we would not expect an annual limitation on the utilization of our net operating loss carryforwards to significantly reduce our net deferred tax asset, although the timing of our cash flows may be impacted to the extent any such annual limitation deferred the utilization of our net operating loss carryforwards to future tax years.

Flexible, high performance communications software and systems architecture. Our high performance software architecture minimizes the computational load on the host processors, freeing system resources for the use of our customers' applications while providing the highest possible capacity on any specific computing platform. The flexibility of our programming interface supports diverse customer software models and simplifies any development efforts.

Cost of acquisition and ownership. Our systems and system building blocks leverage mass-market components and custom silicon, with the objective of price performance leadership. Because of this, we believe our products have the lowest acquisition costs and consume less space and power, and generate less heat than competitive offerings, resulting in the lowest cost of ownership.

Global network interfaces and protocol technology. We offer many of the commonly used digital and analog telephony interfaces as well as Ethernet and T1/E1 WAN data interfaces. Our interface and protocol technology allows us to rapidly obtain interoperability and approvals for new products in all major markets, and to efficiently respond to our customers' requirements for public network connections and approvals in other markets.

Telecommunications switching technology. Our Natural Call Control call management software and our efficient hardware implementation of industry standard CTBus interfaces combine to provide an extremely flexible, scalable and cost-effective platform for telecommunications switching.

Speech and media processing. We have extensive knowledge and experience with voice recognition, text to speech processing, and Voice XML (VXML). These capabilities are embedded in our HearSay applications server, shielding the application developer from the complexities of call management and speech engines. We have extensive knowledge and capabilities for media processing, including voice encoding and decoding on DSPs, including g.729, g.723.1, GSM, g.711, T.38 fax, AMR, and others.

Leverage Open Systems and Industry Standards. Our products are built from merchant silicon (Intel, Texas Instruments); utilize standard processors (Sun, Windows Servers), and standard operating

~~systems~~Table ~~(SPARC Solaris, Windows 2000, Linux). We participate in the development~~ of ~~industry standards (PCIMIG, IEEE, ITEF) and we readily adopt appropriate standards (H.323, SIP, GSM, VXML, SALT). Our offerings are accessible to software developers, and are extended by them.~~ Contents

~~Embedded~~ ~~computing. NMS'~~Our ~~systems~~common ~~building~~stock ~~blocks~~may ~~function~~be asdelisted ~~embedded~~from ~~computers~~The ~~that~~NASDAQ ~~provide~~Global ~~systems level service~~Market, ~~leaving~~which ~~host~~could ~~processors~~negatively ~~available~~impact ~~for~~the ~~other~~price ~~purposes.~~of ~~Our~~our ~~embedded~~common ~~computing~~stock ~~hardware~~and ~~includes:~~our ability to access the capital markets.

~~Digital~~ Our ~~signal~~common ~~processing~~stock ~~software~~is ~~and~~listed ~~related~~on ~~compute~~The ~~engines~~NASDAQ Global Market. WeOn ~~base~~August 20, ~~our~~2008, ~~solutions~~the Company received a letter from The NASDAQ Stock Market LLC (" NASDAQ") advising that for the previous 30 consecutive business days, the bid price of the Company's common stock had closed below the minimum $1.00 per share requirement for continued inclusion on ~~high~~The ~~performance~~NASDAQ ~~commercial~~Global ~~digital~~Market. ~~signal~~NASDAQ ~~processors~~has suspended its rules requiring a minimum bid price of $1.00 until July 20, 2009. If this rule is enforced again beginning on ~~integrated~~July 20, 2009, then we have until November 20, 2009 to regain compliance with ~~proprietary~~the ~~technology~~minimum bid price requirement. If we fail to ~~provide~~comply ~~high~~with ~~density~~this minimum bid price requirement or any other listing standards applicable to issuers listed on The NASDAQ Global Market, ~~scalable~~our ~~signal~~common ~~processing~~stock ~~arrays~~may be delisted from The NASDAQ Global Market. The delisting of our common stock could significantly affect the ability of investors to trade our securities and could significantly negatively affect the value and liquidity of our common stock. In addition, the delisting of our common stock could materially adversely affect our ability to raise capital or make acquisitions using our common stock on terms acceptable to us or at all. Delisting from The NASDAQ Global Market could also have other negative results, including the potential loss of confidence by customers and employees, the loss of institutional investor interest and fewer business development opportunities.

~~Application~~ ~~Specific~~The ~~Integrated~~markets ~~Circuits~~we ~~(ASICs).~~serve ~~Our~~are ~~VoATM~~highly ~~products~~competitive, ~~use~~and ~~the~~we ~~latest~~may ~~silicon~~be ~~technology~~unable to ~~create~~compete ~~high density~~effectively, ~~low~~which ~~cost~~could ~~gateway technology,~~adversely ~~enabling~~affect ~~voice~~demand ~~over~~for ~~packet~~our services, ~~for~~our ~~access~~margins ~~networks.~~and ~~Our~~our ~~Voice Quality Enhancement products utilize custom ASICs that are also marketed to other network equipment providers. Our e256~~market ~~has 8 times the density of competitive offerings~~share.

~~CUSTOMERS~~ The ~~AND~~development, ~~MARKET~~distribution ~~AREAS~~ and sale of mobile services are highly competitive. For mobile subscribers, we compete primarily on the basis of brand, service quality and price. For mobile operators, we compete for deck placement based on these factors, as well as historical performance and perception of sales potential and relationships with licensors of brands and other intellectual property. For services and brand licensors, we compete based on royalty and other economic terms, perceptions of development quality, porting abilities, speed of execution, distribution breadth and relationships with mobile operators. We also compete for experienced and talented employees.

~~Our~~There are ~~customers~~companies ~~are~~currently ~~network~~marketing ~~operators,~~services ~~network~~that ~~equipment~~compete ~~providers~~directly with our services. Moreover, our competitors and ~~solutions~~customers ~~developers.~~may ~~Through~~be ~~Lucent,~~able to develop services that are superior to our mobile ~~network~~personalization ~~operator~~services that achieve greater customer acceptance or that have significantly improved functionality or content as compared to our existing and ~~service~~future ~~provider~~services. ~~customers~~By focusing all ~~include~~of ~~ATT,~~their ~~ATT~~efforts ~~Wireless,~~on ~~Cable~~a ~~and~~specific ~~Wireless,~~niche ~~France~~of ~~Telecom~~the market, ~~Hutchison~~some ~~Telecom,~~of ~~NTT,~~our ~~NTT~~competitors ~~DoCoMo,~~may ~~Telefonica,~~succeed in introducing services that change the competitive dynamic in that market niche and ~~Verizon~~adversely ~~Wireless~~affect demand for our services. Our ~~network~~competitors ~~equipment~~may ~~provider~~be ~~customers~~able ~~include~~to ~~ADC~~negotiate ~~Telecom, Alcatel,~~alliances ~~Avaya,~~with ~~Cisco,~~strategic ~~Comverse,~~partners ~~Ericsson,~~on ~~Fujitsu,~~more ~~Lucent,~~favorable ~~Motorola,~~terms ~~NEC,~~than ~~Nortel~~we are able to negotiate. These competitive factors could render one or more of our services obsolete, ~~and~~which ~~Siemens~~would adversely affect our revenues. ~~Our~~Current ~~solution~~competitors ~~developer~~for ~~customers~~our services include: ~~Aspect~~RealNetworks, Inc., ~~Edify~~Motricity, Inc., Amdocs QPASS, Cellmania, Inc., Ericsson AB, Amazon.com, Inc. and ~~Jetstream~~Apple, Inc.

~~NMS~~If iswe ~~pursuing~~are ~~four~~unable ~~market~~to ~~areas:~~compete ~~wireless~~effectively ~~network~~or ~~operators~~we ~~for~~are ~~voice~~not ~~enhancement~~as ~~systems~~successful as our competitors in our target markets, ~~voice~~our ~~driven~~sales ~~applications~~could decline, ~~and~~our ~~the~~margins ~~next~~could ~~generation~~decline ofand ~~voice~~we ~~infrastructure~~could lose market share, asany ~~well~~of ~~as platforms~~which ~~and~~would ~~services~~materially ~~for~~harm ~~network~~our ~~equipment~~business, ~~providers~~operating results and ~~solutions~~financial ~~developers~~condition.

~~SALES~~ ~~AND~~If ~~MARKETING~~we are unsuccessful in establishing and increasing awareness of our brand and recognition of our managed personalization services or if we incur excessive expenses promoting and maintaining our brand or our mobile personalization services, our potential revenues could be limited, our costs could increase and our operating results and financial condition would be harmed.

WeAlthough ~~focus~~we ~~our~~previously ~~sales~~operated ~~and~~the ~~marketing~~business ~~efforts~~as ona ~~approximately~~division ~~100~~under ~~leading~~the ~~network~~name ~~operators~~LiveWire ~~and service providers~~Mobile, ~~and~~we 40only ~~leading~~recently ~~suppliers~~changed ofour ~~networking~~corporate ~~and~~name ~~communications~~to ~~systems~~LiveWire Mobile, Inc. We ~~utilize~~believe ~~channel~~that ~~partnerships~~establishing ~~to address network operator~~ and ~~equipment customers and prospects.~~

By the end of 2001, our sales and marketing organization consists of 117 employees in 16 offices worldwide, of which 73 are in North America, 28 are in Europe, and 16 are in Asia. During 2001, 37% of our revenues were from sales and services to customers based outside North America.

RESEARCH AND DEVELOPMENT

We believe that the extension and enhancement of existing products, the development of new products and the development of NMS-proprietary technologies in support of future products are critical to our future success. Therefore, we undertake direct research and development, we do joint product development with selected partners and we participate in the development of industry standards where appropriate. During 2001, we spent $37.2 million, or 45.9% of our revenues, on research and development.

~~Our~~Table current research and development is conducted by 281 employees located at our headquarters in Framingham, Massachusetts, and at our offices in Red Bank, New Jersey, Schaumburg, Illinois, Saint Hubert, Quebec, Chaville, France and Bet Shamesh, Israel. Significant research and development activities include, but are not limited to, packetization engines for ATM and IP transport, digital signal processing engines for speech coding, echo cancellation and voice quality enhancement, SS7 signaling, conferencing, efficient and feature rich VoiceXML middleware, integration of speech technologies from partner companies, high density cost optimized platforms, highly available platforms and OAMP interfaces. Our product development investment is focused on bringing these technologies to market both in the form of highly scalable platforms and as complete systems ready for deployment by service providers. Contents

~~MANUFACTURING~~ maintaining our brand is critical to retaining and expanding our existing relationships with mobile operators, as well as developing new relationships. Promotion of the LiveWire Mobile brand will depend on our success in providing high-quality mobile personalization services. Similarly, recognition of our mobile personalization services by mobile subscribers will depend on our ability to develop content-rich, high-quality, engaging services. However, our success will also depend, in part, on the services and efforts of third parties, over which we have little or no control. For instance, if our mobile operators fail to provide high levels of service, their subscribers' ability to access our mobile personalization services may be interrupted, which may adversely affect our results of operations and our brand. If mobile subscribers and mobile operators do not perceive our existing mobile personalization services as high-quality or if we introduce new services that are not favorably received by our mobile subscribers and mobile operators, then we may be unsuccessful in building brand recognition and brand loyalty in the marketplace. In addition, extending our brand and recognition of our mobile personalization services will be costly and will involve extensive management time to execute successfully. If we fail to increase brand awareness and consumer recognition of our mobile personalization services, our potential revenues could be limited, our costs could increase and our business, operating results and financial condition would suffer.

We ~~outsource~~Our ~~the~~growth ~~manufacturing~~strategy ~~and~~relies ~~order~~on ~~fulfillment~~managed ofservices ~~all~~offerings ~~printed~~that ~~circuit~~may ~~board~~not ~~products,~~generate ~~subassemblies~~revenues and ~~wired~~may ~~frame~~negatively ~~equipment~~affect toour ~~ISO~~financial ~~9000 certified electronic manufacturing service providers~~performance.

~~We monitor~~Our ~~quality~~growth ~~control~~strategy ~~and~~relies ~~ensure~~on ~~final~~revenue ~~test~~derived ~~verification~~ from ~~our~~recurring ~~Framingham,~~monthly ~~Massachusetts~~subscription ~~facility~~revenues, ~~for~~and ~~which~~download weor ~~originally~~transaction ~~received~~fees ~~ISO 9002 certification in 1996. Since then, we~~from ~~have~~customers ~~participated~~of inour ~~all~~managed ~~processes~~service ~~and~~offerings. ~~audits~~In ~~required~~the tomanaged ~~maintain~~services ~~this certification~~model, ~~successfully~~we ~~completing~~receive anpayment ~~ISO~~from ~~Quality~~our ~~Systems~~customers ~~re-certification~~based inon ~~October 2000.~~subscriber ~~The~~counts ~~British Approvals~~and ~~Board~~subscriber ~~for~~usage ~~Telecommunications~~of ~~conducted~~our ~~its~~solutions. ~~most~~This ~~recent~~business ~~audit~~model may onprove ~~NMS~~to inbe ~~November 2000~~unsuccessful, ~~and~~adversely ~~found~~affecting noour ~~nonconformity~~revenue streams. ~~All~~If ofwe ~~our~~cannot ~~products~~achieve ~~are~~expected ~~produced~~revenue instreams, ~~accordance~~we ~~with~~will ~~FCC~~likely ~~and~~need ~~UL safety requirements and~~ to ~~IPC-610~~accelerate ~~standards~~the depreciation of ~~assembly~~assets ~~workmanship.~~capitalized ~~Additionally, we maintain a formal product specific structure~~ for managed ~~all~~services, ~~required~~further ~~international~~negatively ~~regulatory~~affecting ~~and~~our ~~compliance testing~~financial performance.

~~We seek~~ toThe ~~use~~success ~~industry~~of ~~standard components for~~ our ~~products.~~business ~~Many~~depends ofupon ~~these~~our ~~components~~ability ~~are~~to ~~generally~~increase ~~available~~subscription ~~from~~revenues ~~multiple suppliers. However, we also use certain custom integrated circuits~~ and ~~other~~transaction ~~devices~~or indownload ~~our products that are sourced from a single supplier~~revenue. ~~Although we believe we could develop other sources for each of these custom devices, the process could take several months.~~

~~COMPETITION~~ Our operating results could be adversely impacted by the loss of subscription revenue and transaction or download revenue. Mobile subscription and revenue share businesses are a relatively new media delivery model and we cannot predict with accuracy our long-term ability to maintain or increase subscription and related revenue. Subscribers may cancel their subscriptions to, or usage of, our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive services generally or as compared to competitive service offerings, or because customer service issues are not satisfactorily resolved.

~~Competition~~ inWe ~~the~~are ~~high~~focusing ~~growth~~our ~~markets~~business ~~that~~on wemanaged ~~target~~services ~~for~~and expect our ~~products~~cap-ex isrevenue ~~intense,~~to ~~and~~decline wein ~~expect~~the itfuture. toIf ~~intensify~~cap-ex asrevenues ~~current~~decline ~~competitors~~more ~~expand~~or ~~their product~~faster ~~offerings~~than anticipated, and ~~new~~our ~~competitors~~managed ~~enter~~services ~~the~~revenues ~~market.~~are ~~Competition~~unable into ~~many~~offset ofthat decline, our ~~markets~~business, isoperating ~~highly~~results ~~fragmented.~~and financial condition would suffer.

~~Our~~As we focus on our managed services business, we expect revenues from our cap-ex business to decline significantly over ~~current~~time. ~~voice~~We ~~enhancement~~offer ~~competitors~~our ~~include~~MyCaller ~~Ditech~~ringback ~~Communications~~platform ~~Corporation~~as bundled products and ~~Tellabs, Inc~~services under cap-ex arrangements. ~~Current~~We ~~voice~~sell ~~application~~our ~~systems~~cap-ex ~~competitors~~offerings ~~include~~through ~~Comverse~~our direct sales force and ~~Technology, Inc~~channel partners., ~~Unisys~~We ~~Corporation,~~have ~~Hewlett-Packard~~notified ~~Company,~~certain ~~IBM,~~of ~~and~~our ~~Intervoice~~cap-~~Brite~~ex channel partners that we do not plan to extend our agreements with them beyond their current terms. Accordingly, ~~Inc~~ we expect revenues from these arrangements to decline over time. ~~These~~If ~~competitors~~revenues ~~have~~from ~~established~~our ~~themselves~~cap-ex asbusiness ~~systems~~decline ~~suppliers~~more toor ~~wireless~~faster ~~operators~~than anticipated and we cannot grow our managed services revenues quickly enough, our ~~target~~revenue ~~customers~~would decline and thus harm our business, operating results and financial condition.

Our current system building blocks competitors include AudioCodes Ltd., RadiSys Corporation, Brooktrout, Inc., Dialogic Corp., a wholly owned subsidiary of Intel Corporation, and the Blue Wave division of Motorola, Inc. Others may enter our markets in the future.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

Our success depends on proprietary technology and know-how. We rely primarily on a combination of copyrights and restrictions on access to our trade secrets to protect our proprietary rights. In addition, we have ten patents issued, we have received a notice of allowance on four additional patents which we expect to issue shortly, and we have applications pending on 49 patents. We distribute our software products under license agreements which grant customers a nonexclusive license to use the software and contain certain terms and conditions prohibiting its unauthorized reproduction or transfer.

We ~~enter into confidentiality agreements with our suppliers and customers when we disclose proprietary information to them. In addition, we enter into confidentiality agreements and assignment of~~ ~~invention~~ Table ~~agreements with our employees and consultants. We believe that our products and technology do not infringe on any existing proprietary rights~~ of ~~others.~~Contents

~~Despite these~~ ~~precautions,~~Contracts itwith ~~may~~our bemobile ~~possible~~operators ~~for~~subject ~~unauthorized~~us ~~third parties~~ to ~~copy~~significant ~~aspects~~risks ~~of our products or to obtain information~~ that wecould ~~regard~~negatively asimpact ~~proprietary. We believe that, due to the rapid pace of innovation within the industry in which we participate, factors such as the technological and creative skills of~~ our ~~personnel~~revenue ~~and~~or ~~ongoing~~otherwise ~~reliable~~harm ~~product maintenance and support are more important in establishing and maintaining a leadership position within the industry than are the various legal protections for~~ our ~~technologies.~~operating results.

We ~~depend~~ onderive ~~development,~~a ~~supply,~~material ~~marketing,~~portion ~~licensing~~of ~~and~~our ~~other~~revenue ~~relationships~~from ~~with~~mobile ~~companies~~operator ~~for~~managed ~~complementary~~services. ~~technologies~~Furthermore, ~~necessary~~many of these contracts do not provide for usguaranteed tominimum ~~offer~~payments aor ~~broad~~usage ~~range~~levels. Because most of ~~products.~~our ~~These relationships~~mobile operator contracts are ~~generally~~non-exclusive, ~~nonexclusive~~it is possible that our mobile operators could purchase similar services from third parties, ~~run~~and ~~for~~cease to use our services in the future. As a ~~finite~~result, ~~term~~our ~~and~~revenue ~~are~~derived ~~renewable~~under ~~with~~these agreements could be substantially reduced depending on the ~~consent~~pricing and usage decisions of our ~~both~~mobile ~~parties~~operators.

~~EMPLOYEES~~ Revenue related to our managed services is, to a large extent, dependent upon the marketing and promotion activities of our mobile operators. The loss of mobile operators or a reduction in marketing or promotion of our applications would likely result in the loss of future revenues from our mobile operator managed services.

As Many of ~~December 31,~~our ~~2001,~~mobile weoperator ~~had~~contracts ~~607~~are ~~full-time~~short ~~employees,~~term ~~including~~and 74allow infor ~~sales,~~early 55termination inby ~~marketing~~the ~~and~~mobile ~~business~~operator ~~development,~~with ~~281~~or inwithout ~~research~~cause. ~~and~~These contracts are therefore subject to renegotiation ~~development,~~of 59pricing inor ~~services,~~other 49key interms ~~operations~~that ~~and~~could 89be inadverse ~~administration~~to our interests, and ~~finance.~~leave ~~None~~us ofvulnerable to non-renewal by the ~~employees~~mobile isoperators. ~~represented~~If byour amobile ~~labor~~operator ~~union.~~contracts Weare ~~have~~terminated, ~~never~~not ~~experienced~~renewed, or renegotiated in a ~~work~~manner ~~stoppage~~less ~~and~~favorable ~~consider~~to us, our ~~relations~~ ~~with~~managed ~~our~~services ~~employees~~revenue towould be negatively ~~good~~impacted.

~~Forward-Looking~~ Finally, a ~~Information~~ certain number of our mobile operator contracts obligate us to indemnify the mobile operator for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. These indemnification terms provide us with certain procedural rights, including, in some cases, the right to control the defense of the indemnified party. Any claims against which we may be obligated to defend our mobile operators could result in paying amounts pursuant to these obligations that could materially harm our operating results.

~~This~~ ~~Form 10-K~~Mobile ~~includes~~operators ~~and~~generally ~~incorporates~~control ~~forward-looking~~the ~~statements~~price ~~that~~charged ~~involve~~for ~~substantial~~our ~~risks~~mobile ~~and~~services ~~uncertainties~~ and ~~are "forward-looking statements" within~~ the ~~meaning~~billing ~~of Section 27A of the Securities Exchange Act of 1933~~ and ~~Section 21E~~collection offor ~~the~~sales ~~Securities Exchange Act~~ of ~~1934. You can identify these forward-looking statements by~~ our ~~use~~mobile ofpersonalization ~~the~~services ~~words "believes," "anticipates," "plans," "expects," "may," "will," "would," "intends," "estimates," "predicts," "potential," "continue"~~ and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could ~~cause~~make ordecisions ~~contribute~~detrimental to ~~such differences include, but are not limited to, those discussed in "Factors That May Affect Future Operating Results" below, as well as other risks and uncertainties referenced in this Form 10-K~~us. ~~We do not assume any obligations to update any of the forward-looking statements after the date of this Form 10-K to conform these statements to actual results.~~

~~Factors~~ Mobile ~~That~~operators ~~May~~generally ~~Affect~~control ~~Future~~the ~~Operating~~price ~~Results~~ charged for our mobile personalization services either by approving or establishing the price of the services charged to their subscribers. Some of our mobile operator agreements also restrict our ability to change prices. In cases where mobile operator approval is required, approvals may not be granted in a timely manner or at all. A failure or delay in obtaining these approvals, the establishment of prices by the mobile operators for our services, or changes in these prices could adversely affect market acceptance of those services. A failure or delay by these mobile operators in adjusting the retail price for our mobile personalization services, could adversely affect sales volume and our revenues for those services.

We ~~have~~Inferior ~~experienced~~mobile ~~recent~~handset ~~operating~~deck ~~losses~~placement would likely adversely impact our revenues and ~~may~~thus ~~not~~our ~~become~~operating ~~profitable~~results and financial condition.

WeMobile ~~experienced~~operators ~~operating~~provide ~~losses~~a inlimited ~~all~~selection ~~four~~of ~~quarters~~services ofthat ~~2001~~are ~~and~~accessible into ~~the~~their ~~first,~~subscribers ~~third~~through ~~and~~a ~~fourth~~deck ~~quarters~~on oftheir ~~2000~~mobile handsets. AsThe inherent limitation on the number of services available on the deck is a ~~result,~~function ~~for~~of the ~~years~~limited ~~ended December 31,~~screen ~~2000~~size ~~and~~of ~~2001,~~handsets weand ~~reported~~mobile ~~operating~~operators' ~~losses~~perceptions of ~~approximately~~the ~~$35.6 million~~depth of menus and numbers ~~$151.6 million,~~of ~~respectively~~choices mobile subscribers will generally utilize. WeMobile ~~expect~~operators totypically ~~continue~~provide toone ~~maintain~~or ~~our~~more ~~levels~~top oflevel ~~research~~menus highlighting services that are recent top sellers, that the mobile operator ~~and~~believes ~~development~~will ~~and~~become ~~sales~~top ~~and~~sellers ~~marketing~~or ~~expenditures~~that the mobile operator otherwise chooses to feature, ~~and~~in ~~therefore~~addition weto ~~can~~a ~~only~~link ~~achieve~~to ~~profitability~~a ifmenu weof ~~can~~additional ~~significantly~~services ~~increase~~sorted ~~our~~by ~~revenues~~genre. IfWe ~~our~~believe ~~revenues~~that dodeck ~~not~~placement ~~meet~~on either the ~~levels~~top ~~that~~level ~~we anticipate~~or featured menu, or iftoward ~~our~~the ~~costs~~top ~~and~~of ~~expenses~~genre-specific ~~exceed~~or ~~our~~other ~~expectations~~menus, werather ~~will~~than ~~again~~lower ~~sustain~~down ~~losses~~or ~~and~~in ~~the~~sub-menus, ~~price~~is oflikely ~~our~~to ~~common~~result ~~stock~~in ~~may~~services ~~decline~~achieving ~~substantially~~a greater degree of commercial success. If mobile operators choose to give our services less favorable deck

WeTable ~~are experiencing the impact~~ of ~~a slowdown in the telecommunications industry.~~ Contents

Weplacement, our ~~are~~services inmay abe ~~broad-based~~less ~~economic~~successful ~~slowdown~~than ~~affecting~~we ~~most technology sectors and communications in particular. As a result~~anticipate, ~~many of~~ our ~~customers~~revenues ~~have~~may ~~aggressively increased~~decline ~~efficiency in their supply chains~~ and ~~reduced inventory levels. This is evident as~~ our ~~customers~~business, ~~continue~~operating toresults ~~order low quantities~~ and, infinancial ~~some~~condition ~~cases,~~could ~~to defer orders into future periods. Because it is difficult to predict how long this slowdown will continue, we may not~~ be ~~able~~materially ~~to meet anticipated revenue levels on a quarterly or annual basis~~harmed.

~~During~~ ~~2001~~If we ~~initiated~~fail ato ~~major~~maintain ~~reorganization~~ and ~~repositioning~~enhance of our ~~business~~capabilities tofor ~~offer~~porting ~~systems~~services asto ~~well~~a asbroad ~~system~~array ~~building blocks, the success~~ of ~~which~~ ismobile ~~dependent upon~~handsets, ~~among other things,~~ our ~~ability~~attractiveness to ~~effect~~mobile ~~major~~operators ~~changes~~and inbranded ~~our~~services owners ~~prior~~may ~~sales~~be impaired, ~~marketing~~ and ~~sourcing~~our ~~strategies~~sales could suffer.

ToOnce ~~accomplish~~developed, our ~~repositioning~~services may be required to be ported to, weor ~~are~~converted ininto ~~the~~separate ~~process~~versions offor, ~~the~~more ~~following~~than ~~initiatives~~1,000 ~~the~~different handset ~~effectiveness~~models, many with different technological requirements. These include handsets with various combinations of ~~which~~underlying ~~will~~technologies, ~~affect~~user interfaces, keypad layouts, screen resolutions, sound capabilities and other mobile operator-specific customizations. If we fail to maintain or enhance our ~~future~~porting ~~operating~~capabilities, ~~results~~our sales could suffer and mobile operators might choose to give our services less desirable deck placement or not to give our services placement on their decks at all.

WeChanges ~~are~~to ~~increasing~~ our ~~dependency~~development onprocesses ato ~~direct~~address ~~sales~~new ~~force~~features toor ~~penetrate~~functions ~~new~~of ~~customers~~handsets ~~for~~or ~~our~~networks ~~systems~~might ~~offerings,~~cause ~~including~~inefficiencies ~~the~~in ~~creation~~our ofporting aprocess ~~sales~~or ~~force~~might toresult ~~penetrate~~in ~~wireless~~more ~~service~~labor ~~providers~~intensive porting processes. WeIn ~~must~~addition, bewe ~~successful~~anticipate that in ~~selling~~the tofuture ~~our~~we ~~customers'~~may ~~laboratories~~be ~~for~~required ~~evaluation~~to port existing and ~~field~~new ~~trial,~~services to ~~their~~a ~~purchasing~~broader ~~decision-makers,~~array ~~and~~of tohandsets. ~~the~~If ~~appropriate~~we ~~network~~utilize ~~operations~~more ~~staff~~labor ~~in order~~intensive toporting ~~achieve~~processes, ~~customer~~our ~~acceptance~~margins ofcould ~~our~~be ~~systems~~significantly ~~products.~~reduced ~~Repeated~~and ~~customer~~it ~~acceptance~~might istake ~~required~~us longer to ~~achieve~~port ~~market~~services ~~acceptance~~to an equivalent number of handsets. This, in turn, could harm our ~~systems~~business, ~~offerings~~operating results and financial condition.

~~In concert~~ ~~with~~If our ~~greater emphasis on systems offerings~~independent, wethird-party ~~are~~suppliers ~~shifting~~cease ~~the~~development ~~primary~~or ~~sales~~provision ~~method~~ of ~~our~~new ~~historical~~services ~~system~~for ~~building~~us ~~blocks~~and towe ~~indirect~~are ~~channels~~unable ~~and~~to ~~original~~find ~~equipment manufacturers.~~comparable ~~In the past~~replacements, we may have ~~sold~~to reduce the number ~~vast majority~~ of ~~these~~services ~~products~~that ~~directly with our own sales force. If~~ we ~~are~~intend ~~successful~~to ~~in this repositioning~~introduce, ~~indirect~~delay ~~channels will be~~ the ~~primary~~introduction ~~outlet for~~of ~~the~~some ~~majority~~services ofor increase our ~~system~~internal ~~building~~development ~~blocks.~~staff, Wewhich ~~will~~would be ~~increasingly~~a ~~reliant~~time-consuming onand ~~the~~potentially ~~effectiveness of our indirect channel partners' sales~~costly process, ~~marketing~~and, ~~and~~as ~~distribution~~a ~~capabilities~~result, toour ~~generate~~competitive ~~and fulfill~~position ~~demand~~would ~~for~~be ~~our~~adversely ~~products~~impacted.

We ~~have~~ ~~begun~~may torely ~~leverage~~on ~~our~~independent ~~existing~~third-party ~~supplier~~developers ~~relationships~~or ~~and~~suppliers to develop aor ~~broader~~provide ~~network~~some elements of ~~suppliers and strategic partners to support~~ our ~~systems~~services, ~~level~~which ~~product~~subjects ~~offerings. We must~~us beto ~~successful in developing strategic relationships with major hardware and software companies, in securing~~ the ~~breadth~~following ~~and~~risks: ~~depth of application partners, and in identifying and completing supply relationships with various providers of outsourced services.~~

•: key developers or suppliers who worked with us in the past may choose to work for or be acquired by our competitors;
•: developers or suppliers currently under contract may try to renegotiate our agreements with them on terms less favorable to us; and
•: our developers or suppliers may be unable or unwilling to allocate sufficient resources to complete our services in a timely or satisfactory manner or at all.

~~There~~If ~~can~~our bedevelopers noor ~~assurance~~suppliers ~~that~~terminate wetheir ~~will~~relationships bewith ~~successful~~us ator ~~implementing~~negotiate ~~these~~agreements ~~changes~~with ~~and~~terms ~~the~~less ~~failure~~favorable to ~~achieve~~us, ~~successfully~~we ~~one~~may orhave ~~more~~to ofreduce ~~these~~the ~~initiatives~~number ~~could~~of ~~result~~services inthat ~~reduced~~we intend ~~revenues~~to ~~and/or~~introduce, ~~increased~~delay ~~expenses.~~the Inintroduction ~~addition,~~of ~~there~~some ~~can~~services beor noincrease ~~assurance~~our ~~that~~internal ~~our~~development ~~repositioning~~staff, ~~even~~which ifwould ~~fully~~be ~~implemented,~~a ~~will~~time-consuming ~~have~~and apotentially ~~positive~~costly ~~effect~~process, onand, ~~our~~as ~~financial~~a ~~results~~result, our business, ~~operations~~operating ~~or our~~results ~~market~~and ~~share~~financial condition would be harmed.

~~Our~~ ~~operating~~If ~~results~~one ~~fluctuate~~or ~~and~~more ~~are~~of ~~difficult~~our services were found to ~~predict~~contain hidden, ~~which~~objectionable ~~could~~services, ~~cause~~ our ~~stock~~reputation ~~price~~and tooperating ~~decline~~results could suffer.

~~Our~~Hidden services may be included in our services by an employee who was not authorized to do so or by an outside developer or supplier ~~revenues~~without our knowledge. These hidden services and ~~net~~features ~~income,~~may ifcontain ~~any,~~profanity inand ~~any~~sexually ~~particular~~explicit ~~period~~or ~~may~~otherwise beobjectionable ~~lower~~material. ~~than~~Our ~~revenues~~design and ~~net~~porting ~~income,~~process ifand ~~any~~the constraints on the file size of our services reduce the possibility of hidden, inobjectionable aservices ~~preceding~~appearing orin ~~comparable~~the ~~period.~~services ~~Factors~~we ~~contributing~~publish. toNonetheless, these processes and constraints may not prevent this content from ~~fluctuations,~~being ~~some~~included ofin ~~which~~our ~~are~~services. ~~beyond~~If our ~~control,~~services ~~include:~~were found to contain

~~In addition,~~Table ~~we have historically operated with less than one quarter's worth~~ of backlog and a customer order pattern that is skewed toward the later weeks of the quarter. Any significant deferral of orders for our products would cause a shortfall in revenue for the quarter. If our quarterly revenue or operating results fall below the expectations of investors or public market analysts, our common stock price may decline substantially. Contents

~~Larger~~hidden, ~~average~~objectionable ~~selling~~services, ~~prices of~~ our ~~products~~customers ~~stemming~~could ~~from~~refuse ~~our~~to ~~offering~~sell ofit ~~systems~~and ~~may~~consumers ~~result~~could inrefuse ~~sharper~~to ~~fluctuations~~buy init ~~our~~or ~~results~~demand ina ~~any~~refund ~~particular quarter as the delay~~ of ~~any~~their ~~given sale~~money. ~~will~~This could have a ~~greater~~materially negative impact on our business, ~~revenue~~operating ~~period~~results toand ~~period~~financial condition. WeIn ~~may~~addition, ~~receive~~our ~~one~~reputation orcould ~~more~~be ~~large~~harmed, ~~orders~~which incould ~~one~~impact ~~quarter~~sales ~~from~~of aother ~~customer~~services we sell and ~~then~~our ~~receive~~attractiveness noto ~~orders~~mobile ~~from~~operators ~~that~~or ~~customer~~other customers inof ~~the~~our ~~next quarter~~services. AsIf aany ~~result~~of these consequences were to occur, our ~~revenue~~business, ~~may~~operating ~~vary~~results ~~significantly~~and ~~from~~financial ~~quarter~~condition tocould ~~quarter~~be significantly harmed.

We ~~may~~If bewireless ~~unable~~subscribers todo ~~integrate~~not ~~successfully~~continue ~~with~~to ~~our~~use ~~business~~their ~~the~~mobile ~~echo~~handsets ~~cancellation~~to ~~business~~access ~~acquired~~our ~~from~~services, ~~Lucent~~our ~~Technologies~~business growth and ~~our~~future ~~financial performance~~revenues ~~may~~would ~~suffer~~be adversely affected.

~~The~~We ~~process~~operate ofin ~~integrating~~a ~~our~~developing ~~acquisition~~industry. ofOur ~~the~~success ~~assets,~~depends ~~technology~~on ~~and~~growth ~~business~~in ~~comprising~~the ~~Lucent's~~number ~~echo~~of ~~cancellation~~wireless ~~business~~subscribers ~~may~~who ~~produce~~use ~~unforeseen~~their ~~operating~~handsets to ~~difficulties~~access ~~and~~data ~~expenditures~~services and, ~~may~~in ~~absorb~~particular, ~~significant~~entertainment ~~attention~~services of ~~our~~the ~~management~~type ~~that~~we ~~would~~develop ~~otherwise~~and bedistribute. ~~available~~New ~~for~~or ~~the~~different ~~ongoing~~mobile ~~development~~services ofdeveloped by our ~~business~~current ~~and~~or ~~repositioning.~~future ~~The~~competitors ~~integration~~may be preferred ~~and~~by ~~exploitation~~subscribers ofto ~~this~~our ~~acquired~~services. ~~business~~If isthe ~~important~~market for our services does not continue to grow or we are unable to acquire new mobile subscribers, our business growth and future ~~financial~~revenues ~~performance~~would ~~and~~be ~~failure~~adversely affected. toIf ~~achieve~~mobile asubscribers ~~successful~~switch ~~integration~~their ~~will~~entertainment spending away from our services, our revenues would likely ~~cause~~decline and our business, operating results toand financial condition would suffer.

We ~~expect~~Mobile ~~that~~subscriber ~~nearly~~tastes ~~all~~are ofcontinually ~~our~~changing ~~revenue~~and ~~for~~are ~~our~~often ~~voice~~unpredictable; ~~enhancement~~if ~~systems~~we infail ~~the next one~~ to ~~two~~develop ~~years~~new ~~will~~services ~~come~~that ~~from~~achieve ~~Lucent~~market ~~Technologies~~acceptance, ~~Inc. through~~ ~~Lucent's purchases under a three year supply agreement signed with Lucent at the time of~~ our ~~acquisition~~sales ofwould ~~this business from Lucent~~suffer.

AsOur ~~part~~business ofdepends ~~our~~on ~~acquisition~~services ofthat ~~Lucent's~~mobile ~~echo~~operators ~~cancellation~~will ~~business~~offer and mobile subscribers will buy. We must continue to invest significant resources in licensing efforts, ~~now~~research ~~comprising~~and ~~most~~development ofand marketing to enhance our ~~voice~~offering ~~enhancement~~of ~~systems~~mobile ~~business~~personalization services and introduce new services, and we ~~entered~~must ~~into~~make adecisions about ~~three~~these ~~year~~matters well in advance of service ~~supply~~release ~~agreement~~in ~~with~~order ~~Lucent~~to implement them in ~~which~~a ~~Lucent~~timely ~~agreed~~manner. toOur ~~purchase~~success ~~from~~depends, usin part, on anunpredictable ~~exclusive~~and ~~basis,~~volatile ~~any~~factors ofbeyond our ~~products~~control, ~~that~~including ~~Lucent~~end-user ~~requires~~preferences, ~~which~~competing services ~~incorporate~~and the ~~recently~~availability ~~purchased~~of ~~voice~~other ~~enhancement products~~entertainment activities. WeIf ~~expect~~our ~~such~~services ~~sales~~are tonot ~~Lucent~~responsive to ~~generate~~the ~~most~~requirements of our ~~near~~mobile ~~term~~operator ~~revenue~~customers, ~~for~~or ~~such~~the ~~products.~~preferences ~~Accordingly~~of mobile subscribers, ~~any~~or they ~~delays~~are not brought to market in a timely and effective manner, ~~reductions~~our business, operating results and financial condition would be harmed. Even if our services are successfully introduced and initially adopted, a subsequent shift in our mobile operator customers or ~~other~~the ~~disruptions~~preferences of ~~Lucent's~~mobile ~~purchasing~~subscribers ~~volume~~could ~~would~~cause ~~have~~ a ~~significant~~decline ~~and~~in ~~material~~popularity ~~adverse~~that ~~effect~~could onmaterially reduce our revenues and harm our business, operating results and financial condition.

~~The~~ ~~markets~~Acquisitions weand ~~serve~~potential ~~are~~future ~~highly~~acquisitions ~~competitive~~could be difficult to integrate, ~~and~~divert wethe ~~may~~attention beof ~~unable~~key topersonnel, ~~compete~~disrupt ~~effectively~~our business, dilute stockholder value and impair our financial results.

~~Competition~~As inpart ~~the~~of ~~high~~our ~~growth~~business ~~markets~~strategy, ~~that~~ we ~~target~~acquired ~~for~~Groove ~~our~~Mobile ~~products~~and isintend ~~intense~~to consider additional acquisitions of companies, technologies and services that we ~~expect~~believe itcould toaccelerate ~~intensify~~our asability ~~current~~to ~~competitors~~compete ~~expand~~in ~~their~~our ~~product offerings~~core ~~and~~markets ~~new~~or ~~competitors~~allow us to enter ~~the~~new ~~market~~markets. ~~Competition~~Acquisitions ininvolve ~~many~~numerous risks, any of ~~our~~which ~~markets~~could isharm ~~highly~~our ~~fragmented.~~business, including:

•: difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the target company and realizing the anticipated synergies of the combined businesses;
•: difficulties in supporting and transitioning customers, if any, of the target company;
•: diversion of financial and management resources from existing operations;
•: the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

Our current voice enhancement competitors include Ditech Communications Corporation and Tellabs, Inc. Current voice application systems competitors include Comverse Technology, Inc., Unisys Corporation, Hewlett-Packard Company, IBM, and Intervoice-Brite, Inc. These competitors have established themselves as systems suppliers to wireless operators, our target customers.

~~Our competitors~~Table and customers may be able to develop products and services that are superior to our products and services, that achieve greater customer acceptance or that have significantly improved functionality as compared to our existing and future products and services. In particular, by focusing all of their efforts on a specific niche of the market, some of our competitors may succeed in introducing products that change the competitive dynamic in that market niche and adversely affect demand for our products. Certain of our competitors may be able to negotiate alliances with strategic partners on more favorable terms than we are able to negotiate. Many of our competitors have well-established relationships with our existing and prospective customers, including those on which we have focused significant sales and marketing efforts. Contents

•: risks of entering new markets in which we have limited or no experience;
•: potential loss of key employees, customers and strategic alliances from either our current business or the target company's business;
•: assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company's services; and
•: inability to generate sufficient revenue to offset acquisition costs.

We Acquisitions also ~~rely~~frequently onresult ~~third~~in ~~parties~~the torecording ~~assemble,~~of goodwill and other intangible assets which are subject to potential impairments in ~~certain~~the ~~cases~~future that could harm our financial results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could lower the market price of our common stock. As a result, if we fail to ~~ship~~properly evaluate acquisitions or investments, ~~distribute~~we may not achieve the anticipated benefits of any such acquisitions, and ~~install~~we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our ~~products~~business and financial results.

We dowill ~~not~~ have ~~in-house~~continuing ~~manufacturing~~obligations ~~capabilities and currently rely on several third-party contract manufacturer partners~~ to ~~assemble~~indemnify ~~our~~Dialogic ~~printed circuit~~Corporation boards and other product offerings. Our manufacturing capabilities are concentrated on these manufacturers, some of which are the sole source for the products such partner manufactures for us. In addition, some of these manufacturers ship our products directly from their fabrication facility, and provide distribution and installation services. This reliance could subject us to product shortages or quality assurance problems, which, in ~~turn, could lead to an increase in the cost of manufacturing or assembling our products. Any problems that occur and persist in~~ connection with the ~~delivery,~~ ~~quality~~Asset ~~or cost of the assembly of our products could affect our ability to ship product and recognize revenue, harm our relationship with our customers and harm our business~~Sale.

We In ~~depend~~connection onwith ~~sole~~the ~~source~~Asset ~~suppliers~~Sale, we have agreed to indemnify Dialogic until December 5, 2009 for ~~certain~~a ~~components~~number ~~used~~of specified matters including the breach of our representations, warranties and covenants contained in the asset purchase agreement, and in some cases until the expiration of the applicable statute of limitations following the closing of the asset sale. Under our agreement ~~products~~with Dialogic, $2. 8 million of the total upfront cash payment was deposited into an escrow account to secure our indemnification obligations to Dialogic following the closing. We cannot predict the liabilities that may arise as a result of the Asset Sale. Any liability claims related to the Asset Sale or any indemnification claims made by Dialogic could materially and adversely affect our financial condition.

We ~~rely~~Indemnity onprovisions vendors to supply components for our products, and we rely on sole source suppliers for certain custom integrated circuits and other devices that are components of one or more of our products. In particular, Texas Instruments is our sole source for the digital signal processors used in ~~many~~various ofagreements ~~our~~potentially ~~products~~expose ~~and~~us ~~customarily requires order lead times of 12~~ to 14substantial ~~weeks~~liability ~~or more to insure delivery in desired quantities. In addition, Agere Systems, Inc. is our sole source supplier~~ for ~~integrated~~intellectual ~~circuit~~property ~~components used in many of our products and customarily requires order lead times of 13 weeks or more. An interruption in supply from either Texas Instruments or Agere would disrupt production~~infringement, ~~thereby~~damages ~~adversely~~caused ~~affecting~~by ~~our~~malicious ~~ability~~software ~~to deliver products to our customers. Converting to an alternative source for key components could require a large investment in capital~~ and ~~manpower resources and might cause significant delays in introducing replacement products.~~ ~~Although~~other ~~we believe we could identify alternative sources for all of our components, that process could take several months, and any interruption in our supplies could harm our business~~losses.

We In dothe ~~not~~ordinary ~~obtain~~course ~~binding~~of ~~purchase~~our ~~commitments~~business, ~~from~~most of our ~~customers~~agreements ~~and~~with ~~rely~~mobile onoperators ~~projections~~include ~~prepared~~indemnification byprovisions. ~~our~~In ~~customers~~these provisions, we agree to indemnify them for losses suffered or incurred in ~~assessing~~connection with our products or services, including as a result of intellectual property infringement and damages caused by viruses, worms and other malicious software. The term of these indemnity provisions could be perpetual after execution of the corresponding license or service agreement, and the maximum potential amount of future ~~demand~~payments ~~for~~we could be required to make under these indemnification provisions may be unlimited. Large future indemnity payments would harm our business, operating results and financial ~~products~~condition.

~~Our~~ ~~volume~~Changes ~~purchase~~in ~~agreements~~foreign ~~with~~exchange ~~network~~rates ~~equipment providers~~ and ~~our~~limitations supply agreements with service providers are not supported by purchase obligations. Therefore, there can be no assurance that these agreements will result in purchase orders for our products. After we begin receiving initial orders for a product from a customer, we rely heavily on ~~the~~ ~~customer's projections as to future needs for our product, without having any binding commitment from~~ the ~~customer~~convertibility ~~as to future orders. Because our expenses are based on forecasting~~ of ~~future orders,~~foreign acurrencies ~~substantial~~could ~~reduction~~adversely oraffect ~~delay in orders for~~ our ~~products~~business ~~from~~and ~~our~~operating ~~customers could harm our business~~results.

We currently transact a majority of our business in U.S. Dollars. We also transact a small portion of our business in other currencies, primarily Euros, Indian Rupees, British Pounds and Canadian Dollars. We also maintain intercompany accounts with our foreign subsidiaries that expose us to revaluation risk. Conducting business in currencies other than U.S. Dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. Dollar relative to other currencies impact our revenues, cost of revenues, gross margins and operating expenses and result in foreign currency transaction gains and losses. To date, we have not engaged in exchange rate hedging activities. Even if we were to implement

~~Our~~Table ~~products~~of ~~typically have long sales cycles, causing us to expend significant resources before achieving agreements or "design wins" and recognizing revenue.~~ Contents

~~The~~hedging strategies ~~length of our sales cycle typically ranges from six~~ to ~~eighteen~~mitigate ~~months~~this ~~and~~risk, ~~varies~~these ~~substantially~~strategies ~~from~~might ~~customer~~not toeliminate ~~customer.~~our ~~Prospective~~exposure ~~customers generally must commit significant resources~~ to ~~test~~foreign ~~and~~exchange ~~evaluate~~rate ~~our~~fluctuations ~~products~~ and ~~integrate~~would ~~them~~involve ~~into~~costs ~~their operating environment or product offering. This evaluation period is often prolonged due to delays associated with approval processes that typically accompany the design~~ and ~~testing~~risks of ~~new~~their ~~communications equipment by our customers. In addition~~own, ~~the~~such ~~rapidly~~as ~~emerging and evolving nature of the~~ongoing ~~markets~~management intime ~~which we~~ and ~~our~~expertise, ~~customers~~external ~~compete~~costs ~~may cause prospective customers~~ to ~~delay their purchase decisions as they evaluate new technologies and develop and~~ implement ~~new systems. During~~ the ~~period~~ instrategies ~~which our customers are evaluating whether to place an order with us, we often incur substantial sales~~ and ~~marketing~~potential ~~expenses,~~accounting ~~without any assurance of future orders or their timing~~implications. ~~Even after~~There ~~we achieve an agreement or "design win" and our product~~ is ~~expected~~also toadditional berisk ~~utilized~~if ~~in a product or service offering being developed by our customer,~~ the ~~timing~~currency ~~of the development, introduction and implementation of those products~~ is controlled by, and can vary significantly with the needs of, our customers and may exceed several months. This complicates our planning processes and reduces the predictability of our earnings. If sales forecasted from a specific customer for a particular quarter are not ~~realized~~freely inor ~~that~~actively ~~quarter, we may fail to achieve our revenue goals~~traded.

~~The~~ ~~average~~Internal ~~selling~~development ~~prices~~efforts ofby ~~our~~mobile ~~products~~operators may ~~decrease, which could~~ adversely affect ~~gross~~demand ~~margins~~for ~~and~~our ~~revenues~~services.

~~Competitive~~Some ~~pressures~~mobile operators may have the technical and ~~rapid~~financial ~~technological~~ability ~~change~~to ~~may~~design ~~cause~~and ~~erosion~~produce ofcomponents ~~the~~replicating ~~average~~or ~~selling~~improving ~~prices~~on the functionality of ~~our~~most ~~products~~of ~~and~~our services. InThese ~~addition,~~organizations asmay ~~many~~consider in-house development of ~~our target~~technologies ~~customers~~and ~~are~~services ~~network~~as ~~equipment~~an ~~providers~~alternative ~~and~~to ~~service~~doing ~~providers~~business with ~~significant~~us. ~~market~~We ~~power~~cannot be certain that these mobile operators will choose to work with us, werather ~~may~~than ~~face~~attempting ~~pressure~~to ~~from~~develop ~~them~~similar ~~for~~technology ~~steep~~and ~~volume-based~~services ~~discounts~~internally inor ~~our~~to ~~pricing~~obtain them through acquisition. ~~Any~~If ~~significant~~mobile operators choose ~~erosion~~to inproduce ~~our~~internally ~~average~~rather ~~selling~~than ~~prices~~purchase ~~could~~from ~~impact~~us, ~~our~~it ~~gross~~will ~~margins~~decrease ~~and~~the ~~harm~~size of the market for our ~~business~~services.

Our ~~revenue~~network ~~growth~~is ~~depends~~subject ~~significantly~~to onsecurity ~~the~~risks ~~timely~~that ~~development~~could ~~and~~harm ~~launch~~our ofbusiness ~~new products~~ and ~~product~~reputation ~~enhancements,~~ and weexpose ~~cannot~~us beto ~~sure~~litigation ~~that~~or ~~our new products will gain wide market acceptance~~liability.

~~The communications~~Our ~~equipment~~business ~~and~~depends ~~services~~on ~~market~~the isability ~~characterized~~to bytransmit ~~rapid~~confidential ~~technological~~information ~~change,~~and ~~which~~license ~~requires~~intellectual ~~continual~~property ~~development~~securely ~~and~~over ~~introduction~~private ofand public ~~new~~networks. ~~products~~Any ~~and~~compromise ~~product enhancements~~of ~~that~~our ~~respond~~ability to ~~evolving~~transmit ~~market needs~~ and ~~industry~~store ~~standards~~such oninformation ~~a timely~~ and ~~cost-effective~~data ~~basis.~~securely, ~~Successfully~~and ~~developing~~any ~~new~~costs ~~products~~associated ~~requires~~with uspreventing toor ~~accurately~~eliminating ~~anticipate technological~~such ~~evolution~~problems, incould ~~the~~hurt ~~communications~~customer demand ~~industry~~for asour ~~well~~products ~~as the technical~~ and ~~design~~services, ~~needs~~hurt of our ~~customers.~~ability Into ~~addition,~~distribute ~~new~~products ~~product development~~ and ~~launch~~services ~~require significant commitments of capital~~ and ~~personnel.~~collect Werevenue, ~~are~~threaten ~~continuing~~the toproprietary ~~invest~~or ~~significant~~confidential ~~research~~nature ~~and~~of ~~development~~our ~~resources into new product categories~~technology, ~~including~~harm ~~voice~~our ~~applications and packet infrastructure~~reputation, and ~~supporting technologies,~~expose ~~the~~us ~~market~~to ~~acceptance~~litigation ~~and~~or ~~commercial~~liability. ~~viability~~We ofalso ~~which~~may ~~has~~be ~~not~~required ~~been~~to ~~proven.~~expend ~~Failure~~significant tocapital ~~successfully~~or ~~update~~other ~~and~~resources ~~enhance~~to ~~current~~alleviate ~~products~~problems ~~and~~caused toby ~~develop~~such ~~and~~breaches ~~launch~~or ~~new~~attacks, ~~products~~which ~~would~~expenditures ~~harm~~could adversely affect our ~~business~~operating results.

We ~~have~~ ~~experienced, and~~ may innot ~~the~~be ~~future~~able ~~experience,~~to ~~delays~~adequately inprotect ~~developing~~our ~~and~~intellectual ~~releasing new products and product enhancements. These delays have led to~~property, ~~and~~which may infacilitate the ~~future lead to, delayed sales, increased expenses and lower quarterly revenue than anticipated. During the~~ development of ~~our~~competing ~~products,~~services weby ~~have also experienced delays in the prototyping of our digital signal processing chips, which in turn have led to delays in product introductions~~others. ~~Our failure to timely introduce a new product or product enhancement could harm our reputation with our customers or reduce demand for that product, which could harm our business.~~

We rely on a combination of trade secret and copyright laws, restrictions on disclosure, and patents to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, third parties may copy or otherwise obtain and use our services or technology. The laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. If we fail to adequately protect our intellectual property rights, it will be easier for our competitors to sell competing services.

Our services may infringe on the intellectual property rights of third parties, which may result in lawsuits and prohibit us from selling our services or subject us to litigation costs and monetary damages.

There is a risk that third parties have filed or will file applications for, or have received or will receive, patents or obtain additional intellectual property rights relating to materials or processes that we use or propose to use. As a result, from time to time, third parties may assert patent or other intellectual property rights to technologies that are used in our services or are otherwise important to us. In addition, third parties may assert claims or initiate litigation against us or our manufacturers, suppliers, customers or partners with respect to existing or future services or other proprietary rights. We generally undertake to indemnify our customers and partners against intellectual property infringement claims asserted against them with respect to the services we sell to, or distribute through, them. Any claims against us or customers or partners that we indemnify against intellectual property claims, with or without merit, may be time-consuming, result in costly litigation or monetary damages and diversion of technical and management personnel, or require us to develop non-infringing technology. If a claim is successful, we may be required to obtain a license from the parties claiming

WeTable ~~may~~of ~~acquire other businesses or technologies; if we do, we may be unable to integrate them with our business or our financial performance may suffer.~~ Contents

the infringement. If ~~appropriate opportunities present themselves,~~ we ~~may acquire businesses, technologies, services or products that we believe~~ are ~~strategic.~~unable ~~We may not be able~~ to ~~identify,~~obtain ~~negotiate or finance any future acquisition successfully. Even if we do succeed in acquiring~~ a ~~business~~license, ~~technology,~~we ~~service or product, the process of integration~~ may ~~produce~~be ~~unforeseen operating~~unable ~~difficulties~~to ~~and~~market ~~expenditures and may absorb significant attention of~~ our ~~management~~affected ~~that~~services. ~~would~~Limitations ~~otherwise~~on ~~be available for the ongoing development of~~ our ~~business.~~ability ~~If we make future acquisitions, we may issue shares of stock that dilute other stockholders, incur debt, assume contingent liabilities or create additional expenses related~~ to ~~amortizing~~market ~~intangible assets, any of which might harm~~ our ~~financial~~services ~~results~~ and ~~cause~~delays ~~our~~and ~~stock~~costs ~~price~~associated towith monetary ~~decline.~~damages ~~Any~~and ~~financing~~redesigns ~~that~~in wecompliance ~~might~~with ~~need~~an ~~for~~adverse ~~future~~judgment ~~acquisitions may only be available to us on terms that restrict our business~~ or ~~that impose~~settlement onwould usharm ~~costs that reduce~~ our ~~net income~~business.

~~Internal~~ ~~development~~Growth ~~efforts by our customers~~ may ~~adversely~~place ~~affect~~significant ~~demand~~demands ~~for~~on our ~~system~~management ~~building~~and ~~blocks~~our infrastructure.

~~Many~~We ofhave ~~our~~significantly ~~customers,~~reduced ~~including~~ the ~~large~~size ~~equipment manufacturers on which we focus a significant portion~~ of our ~~sales~~operations ~~and~~in ~~marketing~~connection ~~efforts,~~with ~~have~~ the ~~technical and~~Asset ~~financial~~Sale, ~~ability to design~~ and ~~produce~~may ~~components~~experience ~~replicating~~growth orin ~~improving on the functionality of most of~~ our ~~products.~~business through ~~These~~internal ~~organizations~~growth ~~often consider in-house development of technologies~~ and ~~products~~acquisitions. asGrowth ~~an alternative~~ to ~~doing~~our business ~~with~~and ~~us.~~operations Wecould ~~cannot~~place besignificant ~~certain~~demands ~~that~~on ~~these~~our ~~customers~~management ~~will~~and ~~resolve~~our ~~these~~operational ~~"make-buy"~~and ~~decisions~~financial ininfrastructure, ~~favor~~and ofcould ~~working~~strain ~~with us, rather~~our ~~than~~ability ~~attempting~~ to: ~~develop similar technology and products internally or obtaining them through acquisition.~~

•: develop and improve our operational, financial and management controls;
•: enhance our reporting systems and procedures;
•: recruit, train and retain highly skilled personnel;
•: maintain our quality standards; and
•: maintain branded services owner, mobile operator and end-user satisfaction.

We Managing our ~~may~~growth bewill ~~unable~~require tosignificant ~~attract~~expenditures and ~~retain~~allocation ~~management~~of ~~and~~valuable ~~other~~management ~~key~~resources. ~~personnel~~If we ~~need~~fail to ~~succeed~~achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.

~~The loss~~ ofIf ~~any~~we ofare ~~our~~unable ~~senior~~to ~~management~~attract orand ~~other~~retain ~~key~~additional ~~research,~~skilled ~~development, sales and marketing~~ personnel, ~~particularly~~we ifmay ~~lost~~be unable to ~~competitors,~~grow ~~could harm~~ our business. ~~Our future success will depend in large part on our ability to attract, retain and motivate highly skilled employees.~~

We Our ~~may~~future ~~not~~success bedepends, ~~able~~in part, on our ability to ~~adequately~~attract, ~~protect~~hire, integrate and retain key personnel, including the continued contributions of our ~~intellectual~~executive ~~property~~officers and other key personnel, ~~which~~each of whom may ~~facilitate~~be difficult to replace. The loss of services of any of these executive officers or other key personnel or the inability ~~development~~to continue to attract qualified personnel could have a material adverse effect on our business. The replacement of ~~competing~~any ~~products~~of bythese ~~others~~executive officers or key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

WeTo ~~rely~~execute onour agrowth ~~combination~~plan, ofwe ~~copyright~~must attract and ~~trade~~retain ~~secret laws~~additional, ~~restrictions~~highly-qualified onpersonnel. ~~disclosure~~Competition ~~and~~for ~~patents~~hiring tothese ~~protect~~employees ~~our~~is ~~intellectual~~intense. ~~property~~Many ~~rights~~of the companies with which we compete for hiring experienced employees have greater resources than we have. ~~Despite~~In ~~our~~addition, ~~efforts~~in tomaking ~~protect~~employment ~~our proprietary~~decisions, ~~rights~~particularly in the mobile communication industry, ~~unauthorized~~job ~~parties~~candidates ~~may~~often consider ~~attempt~~the value of the equity they are to ~~copy~~receive orin ~~otherwise~~connection ~~obtain~~with ~~and~~their ~~use~~employment. Therefore, significant volatility in the price of our ~~products~~stock or ~~technology.~~limitation ~~The~~on ~~laws~~the number of ~~some~~equity ~~foreign~~based ~~countries~~awards we docan ~~not~~make ~~protect~~under our ~~proprietary~~equity ~~rights~~plans may adversely affect our ability to ~~as great~~attract anor ~~extent~~retain astechnical ~~the~~personnel. ~~laws~~Furthermore, ofchanges to accounting principles generally accepted in the United States relating to the expensing of stock options may discourage us from granting the sizes or types of stock options that job candidates may require to accept our offer of employment. If we fail to ~~adequately~~attract ~~protect~~new ~~our~~technical ~~intellectual~~personnel ~~property~~or fail ~~rights,~~to itretain ~~will~~and bemotivate ~~easier~~our ~~for~~current employees, our ~~competitors~~business toand ~~sell~~future ~~competing~~growth ~~products~~prospects could be severely harmed.

~~Our~~ ~~products~~Economic ~~may~~conditions ~~infringe~~and onany ~~the~~associated ~~intellectual~~impact ~~property~~on ~~rights~~consumer ofspending ~~third~~could ~~parties,~~have ~~which~~a ~~may~~material ~~result~~adverse ineffect ~~lawsuits~~on ~~and~~our ~~prohibit~~business, usresults ~~from~~of ~~selling~~operations ~~our~~and ~~products~~financial condition.

~~There~~We isare asubject ~~risk that third parties have filed, or will file applications for, or have received or will receive, patents or obtain additional intellectual property rights relating~~ to ~~materials~~macroeconomic orfluctuations ~~processes~~in ~~that~~the weUnited ~~use~~States orand ~~propose~~worldwide ~~to use. As a result~~economy, ~~from~~including ~~time~~those ~~to time, third parties may assert exclusive patent or other intellectual property rights to technologies~~ that ~~are~~impact ~~important to us. In addition, third parties may assert claims or initiate litigation against us or our manufacturers, suppliers or customers with respect to existing or future products or~~discretionary ~~other~~consumer ~~proprietary rights~~spending. ~~Any~~Continued ~~claims~~economic ~~against~~uncertainty usand orreductions ~~customers~~in ~~that~~discretionary weconsumer ~~indemnify~~spending ~~against intellectual property claims, with or without merit,~~ may ~~be time-consuming,~~ result in ~~costly litigation~~reductions ~~and~~in ~~diversion~~sales of ~~technical~~our ~~and~~mobile ~~management personnel or require us to develop non-infringing technology. If a claim is successful, we may be required to obtain a license or royalty~~

~~agreement~~Table ~~under the intellectual property rights~~ of those parties claiming the infringement. If we are unable to obtain the license, we may be unable to market our affected products. Limitations on our ability to market our products and delays and costs associated with monetary damages and redesigns in compliance with an adverse judgment or settlement could harm our business. Contents

~~Our~~personalization services, ~~products~~which ~~depend~~would ~~upon~~adversely affect our business, results of operations and our financial condition. If these issues persist, or if the ~~continued~~economy ~~availability~~continues this prolonged period of decelerating ~~licensed~~growth ~~technology~~or ~~from~~recession, ~~third~~our ~~parties~~results of operations may be harmed.

We ~~currently~~International ~~license~~conditions and will continue to license certain technology integral to our products and services, such as protocols, from third parties. While we believe that much of this technology is available from multiple sources, any difficulties in acquiring third-party technology licenses, or in integrating the related third-party technology into our products, could ~~result~~interrupt ininternational ~~delays in product development or upgrade until equivalent technology can be identified~~operations, ~~licensed~~exposing ~~and~~us ~~integrated. We may require new licenses in the future as our business grows and technology evolves. We cannot assure you that these licenses will continue~~ to besignificant ~~available to us on commercially reasonable terms, if at all~~costs.

~~The~~ We ~~ongoing~~maintain ~~evolution~~offshore development operations in India. International operations expose us to potential operational disruptions as a result of ~~industry~~currency ~~standards~~valuations, political turmoil and labor issues. Any such disruptions may ~~adversely~~have ~~affect~~a ~~demand~~negative ~~for~~effect on our operations, on customer satisfaction and on our ability to timely develop our products and ~~increase~~services on our ~~costs~~ability to attract or maintain customers.

~~Our~~ ~~success~~Maintaining ~~depends on both the evolution of industry standards for new technologies~~ and ~~our~~improving products' compatibility with multiple industry standards. Many technological developments occur prior to the adoption of the related industry standard. The absence of an industry standard related to a specific technology may prevent market acceptance of products using that technology, or may result in the development of products not compatible with ultimately adopted standards, which would limit demand for our ~~products.~~financial Wecontrols ~~intend to develop products compatible with other technological advancements~~ and ~~may develop these products prior to~~ the ~~adoption~~requirements of ~~industry~~being ~~standards related to these technologies. As~~ a ~~result,~~public wecompany may ~~incur~~strain ~~significant expenses~~our ~~and losses due to lack of customer demand~~resources, ~~unusable~~divert ~~purchased~~management's ~~components~~attention ~~for these products~~ and ~~the~~affect ~~diversion of~~ our ~~engineers from future product development efforts. Further, we may develop~~ ~~products that do not comply with the eventual industry standard, which could limit our~~ ability to ~~sell~~attract ~~these products. If the industry develops new standards, we may not be able to design~~ and ~~manufacture~~ ~~new~~retain ~~products~~qualified inmembers afor ~~timely fashion that meet these new standards. Even after the adoption of industry standards, the future success of~~ our ~~products~~board ~~depends on widespread market acceptance~~ of ~~their~~ ~~underlying technologies~~directors.

~~Defects~~ As ina ~~our~~public ~~products~~company, orwe ~~problems~~are ~~arising~~subject ~~from~~to the ~~use~~reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), and the rules and regulations of The NASDAQ Global Market. The requirements of these rules and regulations increases our ~~products~~legal, ~~together~~accounting ~~with~~and ~~other~~financial ~~vendors'~~compliance ~~products~~costs, makes some activities more difficult, time-consuming and costly and may ~~seriously~~also ~~harm~~place undue strain on our ~~business~~personnel, systems and ~~reputation~~ resources.

~~Products as complex as ours may contain known and undetected errors or performance problems. Defects are frequently found during the period immediately following~~The ~~introduction~~Sarbanes-Oxley ~~and~~Act ~~initial~~requires, ~~implementation~~among ofother ~~new~~things, ~~products or enhancements to existing products. Although we attempt to resolve all errors~~ that we ~~believe~~maintain ~~would~~effective bedisclosure ~~considered~~controls ~~serious~~and byprocedures ~~our~~and ~~customers before~~internal ~~implementation,~~control ~~our~~over ~~products~~financial ~~are not error-free~~reporting. ~~These~~This ~~errors~~can ~~or performance problems could result in lost revenues or customer relationships and could~~ be ~~detrimental~~difficult to ~~our~~ ~~business~~do. ~~and~~For ~~reputation~~example, ~~generally.~~we ~~Additionally,~~depend ~~reduced~~on ~~market~~the ~~acceptance~~reports of ~~our~~mobile ~~services~~operators ~~due~~for toinformation ~~errors~~regarding orthe ~~defects~~amount inof ~~our~~sales ~~technology~~of ~~would harm~~ our ~~business~~music byand ~~reducing~~related ~~our~~offerings ~~revenues~~ and ~~damaging~~to ~~our reputation.~~determine Inthe ~~some~~amount of ~~our~~royalties ~~contracts,~~ we ~~have~~owe ~~agreed to indemnify our customers against certain liabilities arising from defects in our products, but we do not carry insurance policies covering this~~branded ~~type~~services oflicensors ~~liability. In addition, our customers generally use our products together with their own products~~ and ~~products from other vendors. As a result, when problems occur in~~ the ~~network,~~amount ~~it may be difficult to identify the source~~ of ~~the~~our ~~problem~~revenues. These ~~problems~~reports may ~~cause~~not usbe ~~to incur significant warranty and repair costs~~timely, ~~divert the attention of our engineering personnel from our product development efforts~~ and ~~cause~~may ~~significant~~contain ~~customer relations problems~~errors. ~~To date, defects in our products or those of other vendors' products with which ours are used~~

19 In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expend significant resources and provide significant management oversight to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their operation. As a result, management's attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts also involve substantial accounting-related costs. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Global Market.

The bySarbanes-Oxley ~~our~~Act ~~customers~~and ~~have~~the ~~not~~rules ~~had~~and aregulations ~~material~~of ~~negative~~The ~~effect~~NASDAQ onGlobal ~~our~~Market ~~business.~~make ~~However~~it more difficult and more expensive for us to maintain directors' and officers' liability insurance, and we ~~cannot~~may be ~~certain~~required ~~that~~to aaccept ~~material~~reduced ~~negative~~coverage ~~effect~~or ~~will~~incur ~~not~~substantially ~~occur~~higher incosts ~~the~~to ~~future~~maintain coverage. If we are unable to maintain adequate directors' and officers' insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered independent for purposes of The NASDAQ Global Market rules, and officers will be significantly curtailed.

Because we derive a significant portion of our revenues from international sales, we are susceptible to currency fluctuations and other risks.

Sales to customers outside North America accounted for approximately 37% of our revenues in 2001, and we believe a material portion of our domestic sales results in the use of our products outside North America. Since customers generally evaluate our purchase price as expressed in their own currency, changes in foreign currency exchange rates may hurt our sales in other countries. In addition, some of our sales transactions are denominated in local currency and we do not mitigate the currency risk by engaging in currency-hedging transactions. An increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive on a price basis in international markets or adversely impact the U.S. dollar yield from sales transactions denominated in local currency.

Other risks arising from our international business include political instability or recessions in other countries, the imposition of trade and tariff regulations by foreign governments and the difficulties in managing operations across disparate geographic areas. These or other factors may limit our ability to sell our products and services in other countries.

The markets we target may not develop as rapidly as we anticipate.

We currently operate in four areas of the communications market: echo cancellation systems, voice application systems including speech access to network content, network infrastructure and system building blocks. Although we expect growth in these areas, each of these market areas is characterized by emerging product categories and rapid technological change, and we may fail to generate demand for our products at the levels we anticipate, which could limit our future revenues and harm our business.

Future regulation or legislation could restrict our business or increase our costs.

We are unable to predict the impact, if any, that future legislation, legal decisions or regulations relating to our target markets may have on our business, financial condition and results of operations. Regulation may focus on, among other things, assessing access or settlement charges, or imposing tariffs or regulations based on the characteristics and quality of products and services, either of which could restrict our business or increase our cost of doing business.

Anti-takeover provisions in Delaware law and our corporate documents may affect the value of our common stock.

Provisions of Delaware law and our corporate documents may make it difficult and expensive for a third party to remove our board of directors or management or to acquire us. For example, our certificate of incorporation provides for the election of members to our board of directors for staggered three-year terms~~, we have adopted a shareholder rights plan, and under the indenture related to our notes, a third party is prevented from acquiring us without the consent of the debt holders~~. The existence of these anti-takeover provisions may substantially impede the ability of a third party to acquire control of us or accumulate large blocks of our common stock, which may adversely affect our stock price.

~~Item 2. Properties~~ 19

WeTable ~~lease~~of ~~two facilities totaling approximately 145,000 square feet for our corporate headquarters in Framingham, Massachusetts. The leases on these facilities expire in May 2012.~~ Contents

RISKS RELATED TO OUR INDUSTRY

Wireless communications technologies are changing rapidly, and we may not be successful in working with these new technologies.

Wireless network and mobile handset technologies are undergoing rapid innovation. New handsets with more advanced processors and supporting advanced programming languages continue to be introduced. In addition, networks that enable enhanced features, such as multiplayer technology, are being developed and deployed. We have no control over the demand for, or success of, these services or technologies. The development of new, technologically advanced mobile services to match the advancements in handset technology is a complex process requiring significant research and development expense, as well as the accurate anticipation of technological and market trends. If we fail to anticipate and adapt to these and other technological changes, the available channels for our mobile personalization services may be limited and our market share and our operating results may suffer. Our future success will depend on our ability to adapt to rapidly changing technologies, develop mobile personalization services to accommodate evolving industry standards and improve the performance and reliability of our services. In addition, the widespread adoption of networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our mobile personalization services.

Technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our mobile personalization competitive in the market. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly and effectively than we can. In either case, our services may be technologically inferior to those of our competitors, less appealing to mobile subscribers or both. If we cannot achieve our technology goals within the original development schedule of our services, then we may delay their release until these technology goals can be achieved, which may delay or reduce our revenues, increase our development expenses and harm our reputation. Alternatively, we may increase the resources employed in research and development in an attempt either to preserve our product launch schedule or to keep up with our competition, which would increase our development expenses. In either case, our business, operating results and financial condition could be materially harmed.

Future mobile handsets may significantly reduce or eliminate mobile operators' control over delivery of our services and force us to rely further on alternative sales channels, which, if not successful, could require us to increase our sales and marketing expenses significantly.

Substantially all our services are currently sold through mobile operators' branded e-commerce services. We have invested significant resources developing this sales channel. However, a growing number of handset models currently available allow wireless subscribers to browse the Internet and, in some cases, download services from sources other than a mobile operator's branded e-commerce service such as Amazon.com, Inc. or iTunes (i.e. off-portal or e-commerce access). In addition, the development of other application delivery mechanisms such as premium-SMS may enable subscribers to download services without having to access a mobile operator's branded e-commerce service. Increased use by subscribers of open operating system handsets or premium-SMS delivery systems that allow off-portal or e-commerce access will enable them to bypass mobile operators' branded e-commerce services and could reduce the market power of mobile operators. This would force us to rely further on alternative sales channels where we may not be successful selling our services, and would likely require us to increase our sales and marketing expenses significantly. This would harm our business, operating results and financial condition.

~~We also~~Table ~~lease~~of facilities in Red Bank, New Jersey, Schaumburg, Illinois, Saint-Hubert, Quebec, Chaville, France and Bet Shamesh, Israel, in which we conduct design and engineering operations. The Chaville office also serves as our European sales and service headquarters. Contents

~~In addition,~~ weThe ~~have~~complexity ~~short-term~~of ~~leases~~and ~~for~~incompatibilities ~~15 sales~~among ~~offices~~mobile ~~throughout~~handsets ~~North~~may ~~America,~~require ~~Europe~~us ~~and~~to ~~Asia.~~use Weadditional ~~believe~~resources ~~our~~for ~~facilities~~the ~~are~~development ~~adequate~~of ~~for~~ our ~~current~~mobile ~~needs~~personalization ~~and that we will be able to secure suitable space as needed in the future~~services.

~~Item~~ To 3reach large numbers of wireless subscribers, mobile service providers like us must support numerous mobile handsets and technologies. ~~Legal~~ ~~Proceedings~~ However, keeping pace with the rapid innovation of handset technologies together with the continuous introduction of new, and often incompatible, handset models by mobile operators requires us to make significant investments in research and development, including personnel, technologies and equipment. In the future, we may be required to make substantial investments in our development if the number of different types of handset models continues to proliferate.

~~From~~ ~~time~~If ~~to time,~~ we ~~are~~fail ~~a party~~ to ~~various~~deliver ~~legal~~our ~~proceedings~~services ~~incidental~~at tothe ~~our~~same ~~business.~~time Weas ~~have~~new nomobile ~~material~~handset ~~legal~~models ~~proceedings~~are ~~currently~~commercially ~~pending~~introduced, ~~except~~our ~~as described~~sales ~~below:~~may suffer.

~~We are~~Our ~~the~~business ~~defendant~~is dependent, in anpart, ~~action~~on bythe ~~Connectel~~commercial introduction of new handset models with enhanced features, ~~LLC~~including ~~initially~~larger, higher ~~filed~~resolution incolor ~~August 2000~~screens, inimproved ~~the~~audio Uquality, and greater processing power, memory, battery life and storage.S. ~~District~~We ~~Court~~do ~~for~~not control the ~~Eastern~~timing ~~District~~ of ~~Virginia~~these handset launches. ~~This~~Some ~~action~~new ~~has~~handsets ~~been~~are ~~transferred~~sold by ~~court~~mobile ~~order~~operators towith ~~the~~one ~~U.S.~~or ~~District~~more ~~Court~~services ~~for~~or other applications pre-loaded, and many mobile subscribers who download our services do so after they purchase their new handsets to experience the ~~District~~new features of ~~Massachusetts~~those handsets. ~~The~~Some ~~plaintiff~~handset ~~alleges~~manufacturers ~~that~~give us access to their handsets prior to commercial release. If one or more major handset manufacturers were to cease to provide us access to new handset models prior to commercial release, we might be unable to introduce compatible versions of our ~~products~~services ~~infringe~~for ~~upon~~those handsets in coordination with their commercial release, and we might not be able to make compatible versions for a ~~United~~substantial ~~States~~period ~~patent~~following ~~owned~~their bycommercial itrelease. ~~and~~If, because of new service-launch or upgrade delays, we miss or are not ~~seeks~~provided ~~injunctive~~the ~~relief~~opportunity ~~and~~to ~~damages~~sell inservices anwhen ~~unspecified~~new ~~amount.~~handsets ~~The~~are ~~patent~~shipped, ~~relates~~or our mobile subscribers upgrade to a ~~specific~~new ~~routing~~handset, ~~protocol.~~or ~~The~~if ~~action~~we ismiss ina key selling period, either because the ~~discovery~~introduction of a ~~phase.~~new Wehandset ~~have~~is ~~reviewed~~delayed ~~the~~or ~~allegations~~we ~~with~~do not deploy our ~~patent~~services ~~counsel~~in ~~and~~time, ~~believe~~our ~~that~~revenues ~~none~~would oflikely ~~our~~decline ~~products~~and ~~infringe~~our ~~upon~~business, ~~the~~operating ~~patent.~~results Weand ~~are~~financial ~~defending~~condition ~~the~~would ~~claim~~likely ~~vigorously~~suffer.

~~Item~~ ~~4. Submission~~Our ofindustry ~~Matters~~is subject to arisks ~~Vote~~generally associated with the entertainment industry, any of ~~Securities~~which ~~Holders~~could significantly harm our operating results.

~~None~~Our ~~during~~business is subject to risks that are generally associated with the ~~fourth~~entertainment ~~quarter~~industry, many of ~~2001~~which are beyond our control. These risks could negatively impact our operating results and include: the popularity and timing of release of music and the mobile handsets on which they are played; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

System or network failures could reduce our sales, increase costs or result in a loss of mobile subscribers of our services.

Mobile services providers rely on mobile operators' networks to deliver services to mobile subscribers and on their or other third parties' billing systems to track and account for the downloading of their services. In certain circumstances, mobile services providers may also rely on their own servers to deliver services on demand to mobile subscribers through their mobile operators' networks. Any failure of, or technical problem with, mobile operators', third parties' or our billing systems, delivery systems, information systems or communications networks could result in the inability of mobile subscribers to download our services, prevent the completion of, or result in errors related to, billing, or interfere with access to some aspects of our services. If any of these systems fail or if there is an interruption in the supply of power, an earthquake, fire, flood or other natural disaster, or an act of war or terrorism, mobile subscribers might be unable to access our services. For example, from time to

Table of ~~PART II~~ Contents

~~Item~~time, our 5mobile operators have experienced failures with their billing and delivery systems and communication networks, including gateway failures that reduced the provisioning capacity of their branded e-commerce system. ~~Market~~ ~~for~~Any ~~Registrant~~failure of, or technical problem with, the mobile operators's, ~~Common~~other ~~Equity~~third parties' or our systems could cause us to lose mobile subscribers or revenues, or incur substantial repair costs or damages, and ~~Related~~distract ~~Stockholder~~management ~~Matters~~from operating our business. This, in turn, could harm our business, operating results and financial condition.

~~PRICE~~ ~~RANGE~~A OFshift ~~COMMON~~of ~~STOCK~~technology platform by mobile operators and mobile handset manufacturers could lengthen the development period for our services, increase our costs and cause our services to be of lower quality or to be launched later than anticipated.

~~Our~~Mobile ~~common~~subscribers ~~stock~~must ishave ~~quoted~~a onmobile ~~the~~handset ~~Nasdaq~~with ~~National~~multimedia ~~Market~~capabilities ~~under~~enabled ~~the~~by ~~symbol~~technologies ~~"NMSS~~capable of running third-party services and related applications such as ours." ~~The~~If ~~table~~one ~~below~~or ~~shows~~more ~~the~~of ~~high~~these technologies fall out of favor with handset manufacturers and ~~low~~mobile ~~closing~~operators ~~sale~~and ~~prices~~there ~~per~~is ~~share~~a ofrapid ~~our~~shift to a technology ~~common~~platform ~~stock,~~such as ~~reported~~Adobe onFlash ~~the~~Lite, ~~Nasdaq~~iPod, ~~National~~iPhone ~~Market~~or Google Android or a new technology where we do not have development experience or resources, the development period for our services may be lengthened, increasing our costs, and the ~~periods~~resulting ~~indicated.~~services ~~These~~may ~~prices~~be ~~have~~of ~~been~~lower ~~restated~~quality, toand ~~reflect~~may abe ~~two-for-one~~launched ~~stock~~later ~~split~~than onanticipated. ~~August 7~~In such an event, our reputation, business, operating results and ~~2000~~financial condition could suffer.

Year Ended December 31, 2000	High		Low
First Quarter	$	42.88	$	16.13
Second Quarter		56.22		22.50
Third Quarter		76.88		45.31
Fourth Quarter		57.25		6.03

We may experience fluctuations in revenue due to seasonality.

Year Ended December 31, 2001
First Quarter	$	11.94	$7.56
Second Quarter		8.13	4.94
Third Quarter		6.59	1.56
Fourth Quarter		5.18	1.56

We may experience seasonality in our business as we expect sales to follow typical consumer buying patterns of mobile handsets as well as impacts from mobile operator customer advertising campaigns. These factors may result in increasing seasonality in our business and we cannot predict with accuracy how these factors will impact our quarterly financial results.

~~As of~~ ~~December 31,~~Our ~~2001,~~business wedepends ~~had~~on ~~approximately~~the ~~243~~growth ~~stockholders~~and ofmaintenance ~~record~~ of ~~our~~wireless ~~common~~communications ~~stock~~infrastructure.

~~DIVIDEND~~ Our ~~POLICY~~ success will depend on the continued growth and maintenance of wireless communications infrastructure in the United States and internationally. This includes deployment and maintenance of reliable next-generation digital networks with the speed, data capacity and security necessary to provide reliable wireless communications services. Wireless communications infrastructure may be unable to support the demands placed on it if the number of subscribers continues to increase, or if existing or future subscribers increase their bandwidth requirements. Wireless communications have experienced a variety of outages and other delays as a result of infrastructure and equipment failures, and could face outages and delays in the future. These outages and delays could reduce the level of wireless communications usage as well as our ability to distribute our services successfully. In addition, changes by a mobile operator to network infrastructure may interfere with downloads of our services and may cause subscribers to lose functionality in services that they have already downloaded. This could harm our business, operating results and financial condition.

We ~~have~~If ~~never~~wireless ~~declared~~subscribers ~~or paid any dividends on our common stock. We~~ do not ~~anticipate~~continue ~~paying~~to ~~any~~use ~~cash~~their ~~dividends~~mobile inhandsets ~~the foreseeable future. We currently intend~~ to ~~retain~~ ~~future~~access ~~earnings~~services ~~to fund the development~~ and ~~growth~~other ofapplications, our business. Ingrowth ~~addition, our credit agreement with a bank~~ and ~~our~~future ~~indenture~~revenues ~~governing~~would ~~our~~be ~~convertible subordinated notes contain~~adversely ~~covenants which prohibit us from paying cash dividends~~affected.

~~ISSUANCE~~ We OFoperate ~~UNREGISTERED~~in ~~SECURITIES~~ a developing industry. Our success depends on growth in the number of wireless subscribers who use their handsets to access data services and, in particular, entertainment applications of the type we develop and distribute. New or different mobile entertainment applications, such as streaming video or music applications, developed by our current or future competitors may be preferred by subscribers to our services. In addition, other mobile platforms such as the iPod, iPhone and the Google Android platform, may become more widespread, and mobile subscribers may choose to switch to these platforms. If the market for our services does not continue to grow or we are unable to acquire new mobile subscribers, our business growth and future revenues would be adversely

We acquired Inno Media Logic (I.M.L.) Inc. ("IML") of St. Hubert, Quebec in July 2000 for a combination of cash and stock. We and our wholly owned Canadian subsidiaries issued to the stockholders of IML 982,296 shares of our common stock and shares exchangeable into an additional 1,653,004 shares of our common stock. As of December 31, 2001, an aggregate of 160,096 additional shares of our common stock had been issued in exchange for exchangeable shares. The shares of our common stock and the exchangeable shares were issued, as to acquirers in the United States, in reliance on the exemption set forth in Section 4 (2) of the Securities Act of 1933 (the "Act") and, as to acquirers outside the United States, pursuant to Regulation S under the Act. We registered on form S-3 under the Act, effective August 25, 2000, for public sale in the United States, all the shares of our common stock which were or are to be issued to the former shareholders of IML.

~~Item~~Table ~~6. Selected~~of ~~Financial Data.~~ Contents

~~Components~~affected. If ofmobile ~~selected~~subscribers ~~financial~~switch ~~information~~their ~~consist~~entertainment ofspending away from the ~~following:~~services and related applications that we publish or distribution where we do not have comparative strengths, our revenues would likely decline and our business, operating results and financial condition would suffer.

~~SELECTED~~ ~~FINANCIAL~~Actual ~~INFORMATION~~or perceived security vulnerabilities in mobile handsets or wireless networks could adversely affect our revenues.

		Year Ended December 31,
		1997		1998			1999			2000			2001
		(in thousands except per share data)
Revenues		$	75,363	$	76,529		$	79,476		$	134,612		$	80,984
Gross profit			50,065		48,411			47,956			78,798			39,630
Operating income (loss)			7,319		(10,057	)		(17,869	)		(35,555	)		(151,601	)
Income (loss) before income taxes and extraordinary item			8,517		(8,993	)		(17,688	)		(26,871	)		(160,149	)
Income tax expense (benefit)			4,758		(2,868	)		1,000			780			(6,164	)
Gain on early extinguishment of debt, net of tax			—		—			—			—			11,327
Net income (loss)			3,759		(6,125	)		(18,688	)		(27,651	)		(142,658	)
Net income (loss) per share:
	Basic	$	0.18	$	(0.28	)	$	(0.81	)	$	(0.83	)	$	(3.90	)
	Diluted	$	0.17	$	(0.28	)	$	(0.81	)	$	(0.83	)	$	(3.90	)
Weighted average common shares used in computing net income (loss) per share:
	Basic		20,962		21,847			22,965			33,147			36,551
	Diluted		22,358		21,847			22,965			33,147			36,551

Maintaining the security of mobile handsets and wireless networks is critical for our business. There are individuals and groups who develop and deploy viruses, worms and other illicit code or malicious software programs that may attack wireless networks and handsets. Security experts have identified computer "worm" programs, such as "Cabir" and "Commwarrior.A," and viruses, such as "Lasco.A," that target handsets running on the Symbian operating system. Although these worms have not been widely released and do not present an immediate risk to our business, we believe future threats could lead some mobile subscribers to seek to return our services, reduce or delay future purchases of our services or reduce or delay the use of their handsets. Mobile operators and handset manufacturers may also increase their expenditures on protecting their wireless networks and mobile phone services from attack, which could delay adoption of new handset models. Any of these activities could adversely affect our revenues and this could harm our business, operating results and financial condition.

		December 31,
		1997		1998		1999		2000		2001
Total assets		$	81,693	$	78,950	$	70,709	$	498,778	$	319,105
Long-term debt,
	less current portion		243		260		306		175,000		128,432

Changes in government regulation of the media and wireless communications industries may adversely affect our business.

~~Item~~ It 7is possible that a number of laws and regulations may be adopted in the United States and elsewhere that could restrict the media and wireless communications industries, including laws and regulations regarding customer privacy, taxation, services suitability, copyright, distribution and antitrust. ~~Management's~~ ~~Discussion~~Furthermore, the growth and development ~~Analysis~~of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through mobile operators. We anticipate that regulation of ~~Financial~~our ~~Condition~~industry will increase and ~~Results~~that we will be required to devote legal and other resources to address this regulation. Changes in current laws or regulations or the imposition of ~~Operations~~new laws and regulations in the United States or elsewhere regarding the media and wireless communications industries may lessen the growth of wireless communications services and may materially reduce our ability to increase or maintain sales of our services.

~~OVERVIEW~~ A number of studies have examined the health effects of mobile phone use, and the results of some of the studies have been interpreted as evidence that mobile phone use causes adverse health effects. The establishment of a link between the use of mobile phone services and health problems, or any media reports suggesting such a link, could increase government regulation of, and reduce demand for, mobile phones and, accordingly, the demand for our services, and this could harm our business, operating results and financial condition.

We design, deliver and support technology-leading systems and system building blocks for innovative voice, video and data services on wireless and wireline networks. Our products and services are built on open technologies and strategic relationships with application and technology suppliers and leverage best-in-class supply chain and integration partnerships. Because of this, our customers, all of the world's top communications equipment suppliers, and many of the world's top solution developers and service providers, are able to enhance their competitive position and bring their applications and services to market faster and at lower costs.

During 2001 we initiated a major reorganization and repositioning of our business to offer systems as well as system building blocks to our customers. The success of this reorganization and repositioning is dependent upon, among other things, our ability to effect major changes in our prior sales, marketing and sourcing strategies. To accomplish our repositioning, we are in the process of several initiatives, the effectiveness of which will affect our future operating results. We are increasing our dependence on a direct sales force to penetrate new customers for our systems offerings, including the creation of a sales force to penetrate wireless service providers. In concert with our greater emphasis on systems offerings, we are shifting the primary sales method of our historical system building blocks to indirect channels and original equipment manufacturers. We have also begun to leverage our existing supplier

~~relationships~~Table ~~and to develop a broader network~~ of ~~suppliers~~Contents and strategic partners to support our systems level product offerings. There can be no assurance that we will be successful at implementing these changes and the failure to achieve successfully one or more of these initiatives could result in reduced revenues and/or increased expenses. In addition, there can be no assurance that our repositioning, even if fully implemented, will have a positive effect on our financial results or operations.

~~We achieved~~ ~~sequential increases in revenue over the prior quarter of 16% in the second quarter and 26% in the third quarter of 2000. In the quarter ended September 30, 2000, we~~ ~~achieved~~ ITEM ~~record revenues of $40~~1B.~~5 million~~ UNRESOLVED ~~representing~~STAFF a 100% increase over the same period in the prior year. Revenues of $34.2 million for the fourth quarter of 2000 decreased sequentially over the prior quarter by 16% as we began to experience the effects of the broad-based, worldwide economic slowdown affecting most technology sectors and communications in particular. Revenue continued to decline sequentially over prior quarters in the first, second and third quarters of 2001 by 22%, 37% and 4%, respectively. In the fourth quarter of 2001 we achieved a sequential increase over prior quarter revenue of 35%, primarily due to the revenue generated by the voice enhancement and echo cancellation business acquired from Lucent. As we continue to be in a broad-based economic slowdown affecting most technology sectors and communications in particular, the levels of revenue we will be able to achieve going forward will depend to a great extent upon how long this slowdown will continue. COMMENTS

~~Effective April 10, 2001, we acquired Mobilee, Inc~~None. ("Mobilee"), a privately held Massachusetts company, for a total cost of $13.3 million, including transaction costs of approximately $150,000. In connection with the acquisition, we paid net aggregate cash consideration of $11.2 million to the founders and shareholders of Mobilee. An additional $1.0 million was placed in escrow and will be released to the founders of Mobilee on April 10, 2002, less any potential losses we incur that are allowed to be off-set against the escrow per the escrow agreement. This amount was recorded as deferred compensation and is being amortized as compensation expense ratably over the one-year escrow period. We also will issue stock valued at approximately $300,000 to a founder of Mobilee in four equal quarterly installments beginning July 31, 2001, provided that this individual is still employed by us at the time each respective stock issuance is to be made. This amount was recorded as deferred compensation and is being amortized as compensation expense ratably over the one-year period. We have accounted for the acquisition as a purchase business combination.

~~On November 30,~~ ~~2001, we acquired the voice enhancement and echo cancellation business ("VES") of Lucent. Under the terms of the agreement, we paid cash totaling~~ ~~$60 million~~ ITEM ~~for all assets of VES~~2. We also entered into a multi-year agreement to serve as the exclusive supplier of stand-alone voice enhancement and echo cancellation systems for Lucent, as Lucent continues to supply these systems to its global service provider customers. This agreement allows us to expand our market reach by establishing new alliances with other communications equipment suppliers and service providers. We also received a perpetual license from Lucent for a substantial portfolio of complementary intellectual property to support the development efforts and growth of the acquired business. We have accounted for the acquisition as a purchase business combination. PROPERTIES

~~During 2001,~~We welease ~~recorded~~one ~~restructuring~~facility ~~and~~totaling ~~other~~approximately ~~special~~32,000 ~~charges~~square offeet ~~approximately~~for ~~$11~~our corporate headquarters in Littleton, Massachusetts.~~5 million.~~ ~~These~~The ~~charges~~lease on ~~consist~~this offacility ~~approximately~~expires ~~$2.3~~in June ~~million~~2013. ~~for~~We ~~the~~also ~~closing~~lease 72,256 square feet of ~~the IP~~our ~~Services~~former ~~Management~~corporate ~~operation~~headquarters at 200 Crossing Boulevard in ~~Tustin~~Framingham, ~~California~~Massachusetts. The lease for 46,256 square ~~approximately~~feet ~~$2.6 million~~at ~~related~~200 toCrossing aBoulevard ~~long-term~~expires ~~lease~~in ~~obligation~~May 2012 with the remaining 26,000 ~~and~~square ~~approximately~~feet ~~$6.6 million~~expiring ~~related~~in toApril 2009. ~~our strategic~~We ~~repositioning~~sublease all of the ~~Company.~~space ~~The~~at 200 ~~details~~Crossing ofBoulevard ~~these~~to ~~charges~~several ~~are~~third ~~explained~~parties. ~~further~~We inpreviously ~~management's~~used ~~discussion~~the ~~and~~subleased ~~analysis~~office ofspace ~~2001~~as ~~compared~~supplementary toconference, ~~2000~~training and corporate office space.

~~During~~We ~~2001,~~lease wefacilities ~~wrote~~in ~~down~~Bangalore, ~~approximately~~India ~~$56.0 million~~(primarily ofused ~~impaired~~for ~~long-lived~~our ~~assets~~research ~~related to the goodwill associated with the IML acquisition~~ and ~~the~~development ~~goodwill~~ and ~~acquired~~ ~~technology~~marketing ~~associated~~activities) ~~with the ViaDSP acquisition. Based on the declining historical~~ and ~~forecasted~~Montréal, ~~operating~~Quebec, ~~results~~Canada of(primarily ~~IML~~for ~~as they related to earlier estimates and the economic condition of~~our ~~the~~technical ~~telecommunications~~support ~~industry~~activities). ~~as a~~

We believe our facilities are adequate for our current needs and that we will be able to secure suitable space as needed in the future on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are a party to various legal proceedings incidental to our business. However, we have no material legal proceedings currently pending.

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

On November 19, 2008, we held a Special Meeting of Stockholders to consider matters related to the Asset Sale and other corporate matters. The matters considered at the meeting consisted of the following:

1. Approval of the sale of substantially all of the Company's assets under Delaware law through the sale of the NMS Communications Platforms business to Dialogic Corporation pursuant to the Asset Purchase Agreement by and between the Company and Dialogic Corporation, dated as of September 12, 2008:

FOR			ABSTAIN			AGAINST			BROKER NON VOTES

	35,716,565			124,957			7,435,772			6,632,033

2. Approval of an amendment to the Company's Fourth Amended and Restated Certificate of Incorporation to change the Company's name to LiveWire Mobile, Inc. upon the closing of the Asset Sale:

FOR			ABSTAIN			AGAINST			BROKER NON VOTES

	41,968,492			215,704			1,093,098			0

3. Approval of an amendment to the Company's Fourth Amended and Restated Certificate of Incorporation to allow the Board of Directors to effect a reverse stock split, at a maximum of 1-for-10, of the Company's outstanding common stock, par value per share $0.01:

FOR			ABSTAIN			AGAINST			BROKER NON VOTES

	41,268,767			307,436			1,701,091			0

~~whole,~~Table ~~the estimated value~~ of ~~IML's~~Contents and ViaDSP's goodwill had decreased. Furthermore, based on the uncertain future utilization of the acquired technology, the estimated value of ViaDSP's acquired technology had decreased. As a result, these assets were written-down to their fair value.

~~During 2001,~~ ~~we paid $27.1 million to extinguish $46.6 million face value of convertible debt. As a result, we recorded a related extraordinary gain of~~ ~~$11.3 million,~~ ~~net of tax expense of $7.6 million. It is reasonably possible that we will record further extraordinary gains or losses related to early debt extinguishment in future~~ ~~reporting~~ PART ~~periods.~~ II

~~In October 2001,~~ ~~the Board of Directors approved a stock repurchase program authorizing us to repurchase up to 2,500,000 shares of our outstanding common stock for an aggregate~~ ~~purchase~~ ITEM ~~price not to exceed $~~5.~~0 million.~~ MARKET AsFOR ofREGISTRANT'S ~~December 31,~~COMMON ~~2001~~EQUITY, weRELATED ~~have~~STOCKHOLDER ~~repurchased~~MATTERS ~~400,000~~AND ~~shares~~ISSUER ~~for~~PURCHASES anOF ~~aggregate~~EQUITY ~~purchase price of $1.9 million.~~ SECURITIES

~~CRITICAL~~ ~~ACCOUNTING~~Price ~~POLICIES~~Range of Common Stock

Our ~~discussion~~common ~~and~~stock ~~analysis~~is ofquoted ~~our~~on ~~financial~~The ~~condition~~NASDAQ ~~and~~Global ~~results~~Market ofunder ~~operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in~~ the ~~United~~symbol ~~States of America~~"LVWR." The ~~preparation~~table ofbelow ~~these~~shows ~~financial~~the ~~statements~~high ~~requires us to make estimates~~ and ~~judgements~~low ~~that~~sale ~~affect~~prices ~~the~~per ~~reported~~share ~~amounts~~ of ~~assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate~~ our ~~estimates,~~common ~~including those related to revenue recognition~~stock, ~~accounts~~as ~~receivable,~~reported ~~inventories, investments, intangible assets, income taxes, restructuring and other special charges, and accounting for acquisitions. We base our estimates~~ on ~~historical~~The ~~experience~~NASDAQ ~~and~~Global ~~on various other assumptions that are believed to be reasonable under the circumstances~~Market, ~~the results of which form the basis~~ for ~~making judgements about~~ the ~~carrying~~ ~~values~~periods ~~of assets and liabilities that are not readily apparent from other sources~~indicated. ~~Actual results may differ from these estimates under different assumptions or conditions.~~

We believe the following critical accounting policies affect our more significant judgements and estimates used in the preparation of our consolidated financial statements:

Year Ended December 31, 2007	High		Low

First Quarter	$	2.25	$	1.63
Second Quarter		1.97		1.62
Third Quarter		1.86		1.20
Fourth Quarter		1.78		1.25

Our products are generally a bundled hardware and software solution that are shipped together. We offer a warranty on all of our products that generally provides for us to repair or replace any defective product within eighteen to twenty-four months of the invoice date. Based upon historical experience and expectation of future conditions, we reserve for the estimated costs to fulfill customer warranty and other contractual obligations upon the recognition of the related revenue. To the extent we may experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty reserve may need to be increased, resulting in decreased gross profit.

Year Ended December 31, 2008	High		Low

First Quarter	$	1.69	$	1.20
Second Quarter		1.49		1.05
Third Quarter		1.19		0.31
Fourth Quarter		0.41		0.06

~~Shipping~~ As ~~and~~of ~~handling fees~~March 13, ~~if any~~2009, ~~billed~~we tohad ~~customers~~approximately ~~are~~205 ~~recognized~~stockholders asof ~~revenue.~~record ~~The~~of ~~related~~our ~~costs~~common ~~are recognized in cost of revenues~~stock.

Dividend Policy

We have never declared or paid any dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings to fund the development and growth of our business.

~~Our service~~Table ~~revenue represents 8.4%, 5.8% and 6.5%~~ of our revenue for the years ended December 31, 2001, 2000 and 1999, respectively. Service revenue is primarily comprised of consulting services and technical support services. Consulting services consist of hardware and/or software customization projects provided to our customers through consulting contracts. We recognize revenue for consulting services based on the percentage-of-completion method for fixed fee contracts and as the services are performed for time and materials contracts. Under the percentage-of-completion method, we rely on estimates of total expected contract costs as a factor in determining the timing of when revenue is recorded. In future periods, if revised cost estimates and actual costs incurred differ from our original estimates, we would be required to decrease or increase our profit margin in the appropriate future reporting period. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full in the current period. Technical support services, which we sell separately from our products, consist of on-site support, telephone support, system hosting and training. We recognize revenue for technical support services ratably over the contractual period or as services are provided, based on the nature of the service. We do not provide maintenance service or rights to upgrades or enhancements on any of our products. Contents

~~Revenue results~~ ~~are~~Comparison ~~difficult~~of toCumulative ~~predict,~~Stockholder ~~and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter.~~ Return

The following performance graph assumes an investment of $100 on December 31, 2003 and compares the change to December 31, 2008 in the market price of the Common Stock with a broad market index (S&P 500) and an industry index (S&P Communications Equipment). The Company paid no dividends during the periods shown. The performance of the indices is shown on a total return (dividend reinvestment basis). The graph lines merely connect the prices on the dates indicated and do not reflect fluctuations between those dates.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LIVEWIRE MOBILE, INC.,
S&P 500 INDEX AND S&P GROUP INDEX

ASSUMES $100 INVESTED ON DEC. 31, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008

	Cumulative Total Return ($)

	12/03		12/04		12/05		12/06		12/07		12/08
LIVEWIRE MOBILE, INC.		100.00		101.12		55.93		32.85		25.96		1.52
S&P 500 INDEX		100.00		110.88		116.33		134.70		142.10		89.53
S&P COMMUNICATIONS EQUIPMENT		100.00		103.01		105.20		121.51		124.00		74.18

THE COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN ABOVE SHALL NOT BE DEEMED "SOLICITING MATERIAL" OR INCORPORATED BY REFERENCE INTO ANY OF THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

~~trigger an~~Table ~~impairment review include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner~~ of our use of the acquired assets or the strategy for our overall business; significant negative industry or economic trends; significant decline in our stock price for a sustained period; and our market capitalization relative to net book value. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow model. Contents

Issuance of Unregistered Securities

We acquired Inno Media Logic Company (IML) of St. Hubert, Quebec in July 2000 (the "IML Closing") for a combination of cash and stock. At the time of the IML Closing, we and our wholly-owned Canadian subsidiaries issued to the stockholders of IML 982,296 shares of our common stock. In addition, the stockholders of IML had the right to exchange for an additional 1,653,004 shares of our common stock that were not exchanged at the IML Closing. For the year ended December 31, 2008, we issued 97,970 shares of our common stock in exchange for such exchangeable shares. As of December 31, 2008, an aggregate of 1,653,004 shares of our common stock had been issued in exchange for these exchangeable shares. The shares of our common stock and the exchangeable shares were issued, as to acquirers in the United States, in reliance on the exemption set forth in Section 4(2) of the Securities Act of 1933 (the "Act") and, as to acquirers outside the United States, pursuant to Regulation S under the Act. We registered on Form S-3 under the Act, effective August 25, 2000, for public sale in the United States, all the shares of our common stock which were or are to be issued to the former shareholders of IML.

Equity Compensation Plans

See Part III, Item 12 for information regarding securities authorized for issuance under existing equity compensation plans.

Issuer Repurchase of Equity Securities

We did not make any repurchases of our securities during the year ended December 31, 2008.

~~RESULTS~~ Table OFof ~~OPERATIONS~~ Contents

~~The~~ ~~following~~ ITEM ~~table sets forth, for the periods indicated, certain items from the Company's consolidated statements of operations as a percentage of revenues~~6. SELECTED FINANCIAL DATA

			Year Ended December 31,
			1999		2000		2001
Revenues			100.0	%	100.0	%	100.0	%
Cost of revenues			39.7		41.5		51.1
	Gross profit		60.3		58.5		48.9
Operating expenses
	Selling, general and administrative		50.3		59.3		108.0
	Research and development		31.0		23.2		45.9
	Purchased in-process research and development		—		2.4		—
	Impairment charges		—		—		68.6
	Merger related expenses		1.6		—		—
	Restructuring and other special charges		(0.1	)	—		13.6
		Total operating expenses	82.8		84.9		236.1
Operating loss			(22.5	)	(26.4	)	(187.2	)
	Other income (loss), net		0.2		6.5		(10.6	)
Loss before income taxes			(22.3	)	(19.9	)	(197.8	)
	Income tax expense (benefit)		1.2		0.6		(7.6	)
Net loss before extraordinary item			(23.5	)	(20.5	)	(190.2	)
	Gain on early extinguishment of debt, net of tax expense		—		—		14.0
Net loss			(23.5	)%	(20.5	)%	(176.2	)%

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, the related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial data included elsewhere in this annual report on Form 10-K. The selected consolidated statement of operations data for 2008, 2007 and 2006 and balance sheet data for 2008 and 2007 are derived from the audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

~~Year~~Consolidated Statement ~~Ended~~of ~~December 31,~~Operations ~~2001~~Data(1) ~~Compared to Year Ended December 31, 2000~~

REVENUES

	Year Ended December 31,

	2008			2007			2006			2005			2004
	(In thousands, except per share data)
Revenues	$	15,616		$	13,223		$	8,896		$	6,769		$	370
Gross profit (loss)		4,139			2,998			3,287			1,998			(562	)
Restructuring and other related charges		7,871			—			5,469			—			—
Impairment of intangible assets and other long-lived assets		11,616			—			—			—			—
Impairment of goodwill		11,048			—			—			—			—
Operating loss		(58,376	)		(27,856	)		(37,376	)		(21,240	)		(18,827	)
Loss from continuing operations before income taxes		(59,728	)		(27,312	)		(36,432	)		(19,885	)		(20,459	)
Loss from continuing operations		(59,936	)		(27,473	)		(36,523	)		(19,979	)		(20,476	)
Net income (loss)		(38,150	)		(9,310	)		(15,751	)		4,972			4,102
Loss per common share from continuing operations—basic	$	(1.32	)	$	(0.63	)	$	(0.75	)	$	(0.42	)	$	(0.46	)
Loss per common share from continuing operations—diluted	$	(1.32	)	$	(0.63	)	$	(0.75	)	$	(0.41	)	$	(0.44	)
Net income (loss) per common share—basic	$	(0.84	)	$	(0.21	)	$	(0.33	)	$	0.10		$	0.09
Net income (loss) per common share—diluted	$	(0.84	)	$	(0.21	)	$	(0.33	)	$	0.10		$	0.09

~~Our revenues consist primarily of product sales and, to a lesser extent, services provided to our customers. Revenues decreased to $81.0 million for the~~Consolidated ~~year~~Balance ~~ended~~Sheet ~~December 31,~~Data(2) 2001 from $134.6 million for the year ended December 31, 2000, representing a decrease of 39.8%. The decrease from 2000 to 2001 is attributable to the broad-based, worldwide economic slowdown affecting most technology sectors, and communications in particular, which has had a negative impact across all of our product families. This decrease was partially offset by the revenue generated by VES, which we acquired on November 30, 2001. The levels of revenue we will be able to achieve in the future will depend to a great extent upon how long this slowdown will continue. Future revenues will also depend on the success of our reorganization and repositioning.

Revenues from sales to customers located outside North America were 36.9% of sales, or $29.9 million, and 28.3% of sales, or $38.1 million, in 2001 and 2000, respectively. The dollar decrease from 2000 to 2001 is due to the broad-based economic slowdown affecting most technology sectors reaching beyond North America.

	December 31,

	2008		2007		2006		2005		2004
	(In thousands)
Total assets	$	32,428	$	67,740	$	69,330	$	93,303	$	108,427
Long-term debt		360		—		—		—		—

(1): As a result of the disposition of the NMS Communications Platforms business and the NI Business in the fourth quarters of 2008 and 2007, respectively, we are reporting these businesses as discontinued operations for all periods presented. See "Note 18, Discontinued Operations" in the Notes to the Consolidated Financial Statements for further discussion of the disposition of the NMS Communications Platforms business and NI Business. On March 17, 2008, we acquired Groove Mobile, Inc. The acquisition of Groove Mobile was accounted for as a purchase business combination and, accordingly, the results of the operations of Groove Mobile were included with those of the Company for periods subsequent to the date of the acquisition. Effective January 1, 2007, we adopted the provisions of FIN 48. On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"), which requires us to record compensation expense for employee stock awards at fair value at time of grant.
(2): As a result of our adoption of SFAS 123R, our stock-based compensation expense increased in 2006, causing our loss from continuing operations and net loss to decrease. For the years ended December 31, 2008, 2007 and 2006, stock-based compensation included in loss from continuing operations was $3.2 million, $4.5 million and $4.4 million, respectively. For the years ended December 31, 2008, 2007 and 2006, stock-based compensation included in net loss was $4.1 million, $5.1 million and $4.8 million, respectively.

No single customer accounted for more than 10% of revenues in 2001 or 2000.

GROSS PROFIT

Our cost of revenues consist primarily of product cost, cost of services provided to our customers and the overhead associated with testing and fulfillment operations. Gross profit decreased 49.7% to

~~$39.6 million~~Table ~~in 2001 from $78.8 million in 2000, and represented 48.9% and 58.5%~~ of ~~revenues~~Contents for 2001 and 2000, respectively. The decrease in gross profit is primarily due to an increase in per unit allocated overhead costs that resulted from lower sales volume and increased spending intended to create efficiencies, such as out-sourced manufacturing and order fulfillment, in our supply chain operation. Included in cost of revenues for 2001 are $2.1 million of completed technology amortization related to the VES, Mobilee, IML and ViaDSP acquisitions, a $1.5 million inventory fair value adjustment related to the VES acquisition, $388,000 for the impairment of completed technology from the ViaDSP acquisition, and a $516,000 restructuring charge related to the write-down of IP Services Management inventory. Excluding these costs from cost of revenues would yield a gross profit percentage of 54.5% for the year ended December 31, 2001. Included in cost of revenues for 2000 are $1.1 million of completed technology amortization related to the IML and ViaDSP acquisitions, as well as a $5.1 million inventory fair value adjustment related to the IML acquisition. Excluding these costs from cost of revenues would yield a gross profit percentage of 63.1% for the year ended December 31, 2000.

~~SELLING,~~ ~~GENERAL~~ ITEM 7. MANAGEMENT'S DISCUSSION AND ~~ADMINISTRATIVE~~ ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

~~Selling,~~ general and administrative expenses consist primarily of salaries, commissions and related personnel expenses for those engaged in our sales, marketing, promotional, public relations, executive, accounting and administrative activities and other general corporate expenses. Selling, general and administrative expense increased to $87.4 million for 2001 from $79.8 million for 2000, representing an increase of 9.5%. Included in selling, general and administrative expense for 2001 are $21.3 million of amortization of goodwill and other intangibles related to the VES, Mobilee, IML, ViaDSP and Teknique acquisitions, $14.8 million of non-cash compensation expense related to the Mobilee and IML acquisitions, $1.1 million of amortization of debt issuance costs and the reversal of a $4.7 million accrual related to additional compensation that would not be paid to the employees of IML. This accrual was originally established during the third and fourth quarters of 2000 when it appeared probable that IML would achieve the financial results outlined in the merger agreement that would entitle certain individuals to additional compensation. During the first quarter of 2001, when it became known that these financial results would not be met, the accrual was reversed. Included in selling, general and administrative expense for 2000 are $14.1 million of amortization of goodwill and other intangibles related to the IML, ViaDSP and Teknique acquisitions, $8.7 million of non-cash compensation expense related to the IML acquisition and a $4.7 million accrual for additional compensation related to the IML merger agreement. As we continue to reposition our business and integrate VES, we expect selling, general and administrative expenses to remain relatively flat as cost savings realized as a result of the restructuring and repositioning will be offset by VES expenses. Overview

~~RESEARCH~~ We ~~AND~~operate ~~DEVELOPMENT~~ in the large and rapidly evolving mobile telecommunications industry. We are a provider of managed personalization services for mobile operators and mobile subscribers. Our integrated managed services offerings include ringback tones, ringtones, full track downloads and other applications, as well as dedicated content and service marketing, integrated storefront management and merchandising. We sell these offerings as a managed service to mobile operators who then offer these services to their subscribers as a la carte purchases and through monthly subscriptions. We sell our products and services through our direct sales force and our channel partners. We sell our products and services predominantly in North America but also have established relationships in South America (with North America, collectively the "Americas"), Europe, the Middle East, Africa (collectively, "EMEA") and Asia. Our research and development activities focus primarily on enhancing our existing offerings as well as opportunities relating to emerging technologies.

~~Research~~We previously ~~and~~operated ~~development~~as ~~expenses~~one ~~consist primarily~~ of ~~salaries,~~three ~~personnel~~separate ~~expenses~~operating ~~and~~business ~~prototype~~units ~~fees~~which ~~related~~also toincluded ~~the design, development, testing and enhancement of~~ our ~~products.~~NMS ~~These~~Communications ~~costs~~Platforms ~~are~~business ~~expensed as incurred. Research~~ and ~~development~~Network ~~expense~~Infrastructure ~~increased~~Business ~~to $37~~("NI").~~2 million~~ ~~for~~In ~~2001 from $31.2 million for 2000, representing~~ an ~~increase of~~ ~~19.1%.~~effort ~~The increase in expense was due~~ to ~~increased~~focus ~~development~~our ~~project~~efforts ~~related~~on ~~costs~~our ~~associated~~managed ~~with~~personalization ~~the~~services ~~CG6100, PowerAccess, HearSay and PacketMedia product lines. As we continue~~ to ~~reposition~~mobile ~~our business~~operators and ~~integrate~~mobile ~~VES~~subscribers, we ~~expect~~undertook ~~research and development expenses to remain relatively flat as cost savings realized as a result of~~ the ~~restructuring~~following: ~~and repositioning will be offset by VES expenses.~~

•: On December 21, 2007, we sold our NI Business to Verso. During the year ended December 31, 2008, we incurred additional severance costs and transaction costs related to the disposition of the NI Business. Loss from discontinued operations was $0.4 million (net of income tax benefit of zero), $2.4 million (net of income tax benefit of $0.1 million) and $7.7 million (net of income tax benefit of $0.1 million) for the years ended December 31, 2008, 2007 and 2006, respectively. We recognized a $1.6 million gain (net of income tax expense of $6,000) on the disposal for the year ended December 31, 2007. During the first quarter of 2008, we recorded an other-than-temporary impairment of the Verso common stock that had been issued to us by Verso in connection with the sale of our NI Business totaling $1.9 million related to Verso's announced bankruptcy in April 2008.
•: In March 2008, to contribute to the growth strategy of our business, we acquired Groove Mobile for a total purchase price of $15.9 million, including total transaction costs and facility exit costs of approximately $1.4 million. Groove Mobile provided mobile music solutions. We believe the acquisition has enabled us to expand our ability to offer a portfolio of managed services, including ringback tones, ringtones, and full track music and other applications delivered through an integrated storefront.
•: On December 5, 2008, we sold our NMS Communications Platforms business to Dialogic for cash consideration of $28.0 million, $2.8 million of which was placed into an escrow account to settle certain claims for indemnification which can be made by Dialogic following the closing of the Asset Sale and $0.4 million of which was placed in escrow to settle certain contingencies that may arise related to levels of working capital. Income from discontinued operations was $5.9 million (net of income tax provision of $0.6 million), $18.9 million (net of income tax provision of $0.1 million) and $28.4 million (net of income tax provision of $0.1 million) for the years ended December 31, 2008, 2007 and 2006, respectively. We recognized a $16.3 million gain (net of income tax provision of zero) on disposal for the year ended December 31, 2008.

~~RESTRUCTURING~~ The consummation ~~AND~~of ~~OTHER~~the ~~SPECIAL~~Asset ~~CHARGES~~ Sale, and the subsequent restructuring of the Company to focus exclusively on our mobile personalization services business, has provided us with additional resources to pursue the growing mobile personalization services market. Today, the business operates as one reporting segment.

During 2001, we recorded restructuring and other special charges of approximately $11.5 million. These charges consist of approximately $2.3 million for the closing of the IP Services Management

~~operation~~Table ~~in Tustin, California, approximately $2.6 million related to a long-term lease obligation, and approximately $6.6 million related to our strategic repositioning~~ of ~~our~~ Company. For this total charge of $11.5 million, approximately $516,000 related to the write-down of IP Services Management inventory and is included in the statement of operations classification, "cost of revenues." The remaining $11.0 million is included in the statement of operations classification, "restructuring and other special charges." The details of each of these items are outlined below. Contents

For the IPyear ~~Services~~ended ~~Management~~December 31, ~~Charges~~ 2008, we incurred a net loss from continuing operations of $59.9 million. Our net loss from continuing operations increased $32.4 million from $27.5 million for the year ended December 31, 2007. Our net loss increased primarily due to impairments of our goodwill of $11.0 million and our other long-lived assets including intangibles of $11.6 million, $7.9 million in restructuring charges and a $1.7 million increase in research and development expenses primarily related to the acquisition of Groove Mobile in March 2008, partially offset by growth in our gross profit of $1.1 million, based on revenue growth of $2.4 million.

During the ~~2001,~~year weended ~~announced~~December 31, ~~a plan to close our IP Services Management operation~~2008, ~~which~~management ~~resulted~~took inseveral restructuring ~~and~~actions ~~other~~to ~~special~~reduce ~~charges~~our ofcost $2structure.~~3 million. As~~ ~~part~~These ofactions ~~this~~included ~~plan,~~workforce ~~all 30 employees of the IP Services Management operation were terminated. The charge consisted of approximately $616~~reductions,~~000~~ ofexiting ~~involuntary severance related costs, approximately $650,000 of fixed asset write-downs, approximately~~office ~~$516,000~~space of(including ~~inventory write-downs, approximately $406,000 of lease termination costs and approximately $139,000 of other administrative closing costs. At December 31, 2001,~~ the ~~remaining accrued~~office ~~balance~~previously ~~for~~used ~~this~~as ~~charge~~our ~~was~~former ~~approximately~~corporate ~~$536,000~~headquarters) and ~~is included in~~ the ~~consolidated~~impairment ~~balance sheet classification, "accrued expenses and other liabilities." We expect to utilize the majority~~ of ~~the~~assets ~~remaining~~associated ~~accrued~~with ~~balance~~these ~~during~~exited ~~2002~~spaces.

In response ~~Long-Term~~to ~~Lease~~weak ~~Obligation~~market ~~Charges~~ conditions, in the second half of 2006, management took restructuring actions to reduce our cost structure. These actions included the closure of our New Jersey facility, workforce reductions and the sublease of a portion of our prior corporate headquarters office space. Management continually monitors the activities of our competitors and analyzes the future of our industry to appropriately align our business focus.

WeAt December 31, ~~lease a facility in Schaumburg~~2008, ~~Illinois~~we ~~that~~performed isour ~~not~~annual ~~currently~~goodwill ~~being~~impairment ~~occupied~~analysis ~~by us~~ and ~~will~~we ~~not~~also bedetermined ~~occupied~~that bydue ~~us in the future. This facility was sub-leased by us~~ to aan ~~third~~expected ~~party~~goodwill ~~tenant~~impairment ~~for~~brought ~~a sub-lease term equivalent to the original lease term, which ends~~ on ~~September 30,~~by ~~2008.~~indicators ~~In April 2001~~described below, we ~~were notified~~also determined that ~~the~~a ~~tenant~~triggering event had ~~filed~~occurred ~~for~~requiring ~~bankruptcy~~an ~~protection~~assessment ~~and we would be required to resume primary responsibility~~ for ~~the~~impairment ~~lease~~of ~~payments~~other ~~on this facility. We are currently working with a real estate agent to find another sub~~long-~~lease~~lived ~~tenant~~assets ~~for~~including ~~this facility~~intangibles. WeThe ~~have~~indicators ~~estimated~~ that ~~the~~caused management ~~difference~~to ~~between~~make the ~~committed~~determination ~~lease~~was ~~payments~~a ~~over~~decline in the ~~life~~price of ~~the~~our ~~lease~~common ~~and~~stock ~~the sub-lease~~to ~~rental~~a ~~income~~price ~~will~~that ~~approximate~~was ~~$2.6 million,~~below ~~and~~our ~~this~~carrying ~~amount~~value isfor ~~included~~a asperiod ~~restructuring~~of ~~and~~time ~~other~~during ~~special~~the ~~charges~~fourth ~~in 2001~~quarter. AtAs ~~December 31,~~a ~~2001,~~result ~~the~~of ~~remaining~~this ~~accrued~~analysis, ~~balance~~we ~~for~~recorded ~~this~~an ~~charge~~impairment ~~was~~of ~~approximately~~goodwill of $211.20 million and isan ~~included~~impairment inof ~~the~~intangible ~~consolidated balance sheet classification, "accrued expenses~~ and ~~other~~certain ~~liabilities." Due to the~~ long-~~term~~lived ~~nature~~assets of ~~this liability, we expect to utilize the remaining accrued balance over the next five years~~$11.6 million.

During the ~~Strategic~~year ~~Repositioning~~ended ~~Charges~~ December 31, 2008, we utilized $15.2 million of cash to support operations. Relating to the sale of our NMS Communications Platforms business, we, (i) received approximately $22.0 million in cash from Dialogic, net of deal costs, (ii) paid $2.8 million funded into an escrow account to support any indemnification claims, (iii) paid $0.4 million which is being be held in escrow to settle certain contingencies that may arise related to levels of working capital, and (iv) subsequent to the consummation of the Asset Sale on December 5, 2008, entered into a Receivables Purchase Agreement with Dialogic to purchase $4.0 million of certain billed accounts receivables owned by Dialogic for $3.8 million in cash. Additionally, we paid approximately $13.6 million in connection with the acquisition of Groove Mobile, net of cash acquired. As of December 31, 2008, we borrowed $2.6 million under the Amended Credit Facility as defined below. As of December 31, 2008, we had $19.3 million in cash and cash equivalents. We have used, and will use, our cash for general corporate purposes, which may include working capital and capital expenditures.

~~During 2001, we announced a major restructuring and repositioning of our business. As a result of this repositioning, we will have eliminated approximately 160~~We ~~positions~~believe ~~at our facilities in~~ the ~~United~~Company ~~States,~~has ~~Canada,~~sufficient ~~Europe~~cash ~~and~~available ~~Asia. These terminations consist primarily of engineering positions, but also include manufacturing, sales and administrative positions. Severance costs related~~ to ~~these~~execute ~~terminations~~its ofbusiness ~~approximately~~objectives ~~$2.8 million have been recorded as restructuring and other special charges during 2001. At December 31, 2001, the remaining accrued balance~~ for ~~this~~at ~~charge~~least ~~was approximately $1.6 million and is included in~~ the ~~consolidated~~next ~~balance~~twelve ~~sheet classification, "accrued expenses and other liabilities~~months." ~~We expect to utilize the remaining accrued balance during 2002.~~

~~Due to~~ ~~this~~Critical ~~strategic~~Accounting repositioning, certain facilities and fixed assets were no longer being utilized by us and will not be utilized by us in the future. We are currently working with real estate agents in an attempt to sub-lease the idle facilities that are located in the United States, Canada and throughout Europe. We have estimated that the difference between the committed lease payments over the lives of the leases and the sub-lease rental income will approximate $702,000, and this amount is included as restructuring and other special charges in 2001. At December 31, 2001, the remaining accrued balance for this charge was approximately $702,000 and is included in the consolidated balance sheet classification, "accrued expenses and other liabilities." We expect to utilize the majority of the Policies

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation, revenue recognition, allowances for doubtful accounts, write-downs for excess and obsolete inventories, possible impairment of long-lived assets and goodwill, income taxes, restructuring and other related

~~remaining~~Table ~~accrued balance during 2002. We are also in the process~~ of disposing of the fixed assets that are no longer being utilized. These fixed assets consist primarily of leasehold improvements on the idle leased facilities and computer equipment, furniture and fixtures and machinery and equipment that were used in connection with activities that have been discontinued. The total charge for the fixed assets that is included as restructuring and other special charges in 2001 is $2.4 million. At December 31, 2001, there is no accrual balance related to this charge. Contents

~~Additional~~charges, ~~costs~~and ofaccounting ~~approximately~~for ~~$670,000~~acquisitions ~~related~~and todispositions. ~~the~~We ~~strategic~~base ~~repositioning~~our ~~have~~estimates ~~been~~on ~~charged~~historical toexperience ~~restructuring~~ and on various other ~~special~~assumptions ~~charges.~~that ~~These~~we ~~costs~~believe ~~consist~~to ~~primarily~~be ofreasonable ~~contract~~under the circumstances, the ~~termination~~results ~~charges~~of ~~and~~which ~~legal~~form ~~fees.~~the Atbasis ~~December 31,~~for ~~2001,~~making judgments about the ~~remaining~~carrying ~~accrued~~values ~~balance~~of ~~for~~assets ~~this~~and ~~charge~~liabilities ~~was~~that ~~approximately~~are ~~$520,000~~not ~~and~~readily isapparent ~~included~~from other sources. We have noted that our estimates used in the past ~~consolidated~~have ~~balance~~been ~~sheet classification,~~consistent ~~"accrued~~with ~~expenses~~actual results. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of how these estimates and other ~~liabilities."~~factors Wemay affect ~~expect~~our tobusiness, ~~utilize~~see also our discussion under the ~~remaining~~heading ~~accrued~~"Risk ~~balance~~Factors" ~~during~~in ~~2002~~this annual report on Form 10-K.

We believe the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition. We derive revenues from two sources: (i) services, including managed services, maintenance and support services and professional services, and (ii) sales of products, including hardware and software licenses. Managed services consist of supplying, outsourcing and/or maintaining mobile personalization systems for the benefit of customers. The systems related to these services may be Company-owned pursuant to a managed services arrangement or customer-owned. Maintenance and support services consist of on-site support, bug-fixes, telephone and online support, and training. Professional services projects may consist of multiple elements including hardware and/or software installation, configuration, integration and customization services provided to customers.

We sell our services and products through our direct sales force and through channel partners. For products that are not software or software related, we recognize revenue pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition. When the software is more than incidental and is essential to the functionality of the hardware, we recognize revenue in accordance with the provisions of the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2, Software Revenue Recognition ("SOP 97-2"), and related interpretations. We recognize revenue from the sale of products when persuasive evidence of an arrangement exists; delivery has occurred; the fee is fixed or determinable; and collection is considered probable. For all sales, we use a binding contract and/or a purchase order as evidence of an arrangement with the customer or channel partner. Sales to our channel partners are evidenced by a master agreement governing the relationship, together with binding purchase orders for individual transactions. We consider delivery to occur when we ship the product so long as title and risk of loss have passed to the customer. At the time of a transaction, we assess whether the sale amount is fixed or determinable based upon the terms of the documented agreement. If we determine the fee is not fixed or determinable, we recognize revenue when the fee is fixed. We assess if collection is probable based on a number of factors, including past transaction history and the creditworthiness of the customer. If we determine that collection is not probable, we do not record revenue until such time as collection becomes probable, which is generally upon the receipt of cash or when payments become due.

For arrangements with customers that include acceptance provisions, we recognize revenue upon the customer's acceptance of the product, which occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period. In some circumstances we recognize revenue on arrangements that contain certain acceptance provisions when we have historical experience that the acceptance provision is perfunctory.

When an arrangement involves multiple elements, such as hardware and software products that are more than incidental, maintenance and/or professional services, we allocate the entire sale price to each respective element based on vendor specific objective evidence ("VSOE") of fair value for each undelivered element. When arrangements contain multiple elements and VSOE of fair value exists only for all undelivered elements, we recognize revenue for the delivered elements using the residual method in accordance with the provisions of the AICPA SOP 98-9, Modification of SOP 97-2, Software

~~IMPAIRMENT~~Table ~~CHARGE~~ of Contents

We ~~review~~Revenue ~~long-lived assets~~Recognition, ~~including~~With ~~goodwill,~~Respect ~~for~~to ~~impairment~~Certain ~~whenever~~Transactions ~~events~~("SOP 98-9"). orThe ~~changes~~residual inmethod ~~business~~requires ~~circumstances indicate~~ that the ~~carrying~~portion ~~amount~~ of the ~~assets~~total ~~may~~arrangement ~~not~~fee attributable beto ~~fully~~undelivered ~~recoverable~~elements, oras ~~that~~indicated ~~the~~by ~~useful~~VSOE ~~lives~~ of ~~these assets are no longer appropriate. If an impairment is indicated, the asset is written down to its estimated~~ fair value~~. During 2001~~, webe ~~wrote~~deferred ~~down~~and ~~approximately~~subsequently ~~$56.0 million~~recognized ofwhen ~~impaired~~delivered. ~~long-lived~~We ~~assets~~establish ~~which~~VSOE ~~consisted~~ of ~~approximately~~fair ~~$55.3 million~~value ~~related~~for toundelivered ~~the~~elements ~~goodwill~~based ~~associated with the IML acquisition and approximately $638,000 related to the goodwill and acquired technology associated with the ViaDSP acquisition. Based~~ on ~~the declining historical and forecasted operating~~ ~~results~~either ofsubstantial ~~IML~~renewal asrates ~~they related to earlier estimates and the economic condition~~ of ~~the~~maintenance ~~telecommunications industry as a whole, the estimated value of IML's~~ and ~~ViaDSP's~~support ~~goodwill had decreased. Furthermore~~agreements, ~~based on~~ the ~~uncertain~~price ~~future~~we ~~utilization~~charge ofwhen the ~~acquired~~same ~~technology,~~element ~~the~~is ~~estimated~~sold ~~value of ViaDSP's acquired technology had decreased~~separately. AsFor aarrangements ~~result,~~containing ~~these~~multiple ~~assets~~elements ~~were written-down~~where toVSOE ~~their~~of fair value. ~~The~~does ~~charge~~not ofexist ~~approximately~~for ~~$55.6 million~~all ~~related~~undelivered toelements, ~~the~~we ~~write-down~~defer ofrevenue ~~goodwill~~for ~~is included in~~ the ~~statement~~delivered ofand ~~operations classification~~undelivered ~~"impairment~~elements ~~charges"~~until ~~while~~VSOE ~~the charge~~ of ~~approximately~~fair ~~$388,000~~value ~~related~~exists tofor ~~acquired~~all ~~technology~~undelivered iselements ~~included~~or inall ~~the~~elements ~~statement~~have ~~of operations classification "cost of revenues~~been delivered."

ItFor isrevenue ~~reasonably~~attributable ~~possible~~to ~~that~~the NMS Communications Platforms business sold in December 2008, we ~~may~~reduced ~~incur~~revenue ~~additional~~by ~~impairment~~provisions ~~charges~~for estimated sales returns associated with rights offered to a limited number of channel partners. These rights allowed the channel partner to exchange a percentage of its inventory based on the volume of its prior purchases. We provided for ~~long-lived~~these ~~assets,~~return rights ~~including~~each ~~goodwill~~quarter in an amount equal to estimated returns. On a quarterly basis, we reviewed our estimates and compared them to our actual returns experience. Our actual results have been in ~~future~~line with ~~reporting~~our ~~periods~~expectations. An increase in our allowance for sales returns would reduce our revenue in the period for which the increase is recorded.

~~OTHER~~ We evaluate ~~INCOME~~our revenue recognition policies based on the specific facts and circumstances related to each of our channel partners. When selling to resellers and distributors, we generally do not recognize revenue upon shipment, unless a credit history has been established, since many of these customers are thinly capitalized and their ability to pay is, in substance, contingent upon their resale of our product. In these cases, we defer revenue until collection is deemed probable. When revenue is deferred, if reliable reporting from the reseller or distributor exists, we will recognize revenue when the reseller or distributor sells the product to an end-user (~~LOSS~~"sell through"). When reliable reporting does not exist, ~~NET~~ revenue will be recognized upon our receipt of payment, or in limited circumstances upon receipt of a letter of credit or similar arrangement. We further monitor the payment history of our resellers and distributors and overall days of sales outstanding ("DSO"). We believe this revenue recognition policy minimizes the risk that product is shipped in excess of end-user demand and allows us to reasonably and reliably estimate any sales returns.

~~Other~~Services revenue ~~income~~is ~~and~~primarily ~~expense,~~comprised ~~reflecting~~of ~~net~~managed ~~interest income~~services, ~~one~~maintenance ~~time gains or losses~~ and ~~foreign~~support ~~exchange~~services ~~gains~~ and ~~losses,~~professional ~~decreased~~services. toWe ~~($8.5 million)~~recognize ~~for 2001~~revenue from ~~$8.7 million~~professional ~~for~~services ~~2000.~~as ~~Included in other income and expense for 2001 is a $4.7 million foreign currency translation loss generated on~~ the ~~intercompany debt related to the IML~~services ~~transaction,~~are ~~a $7~~performed.~~0 million~~ ~~write-down~~We torecognize ~~fair~~revenue ~~market~~from ~~value~~managed ofservices aas ~~minority investment, $8.3 million of interest expense related to~~ the ~~convertible~~services ~~notes~~are ~~and~~delivered aor ~~$174,000~~performed ~~gain~~or ~~on the~~as ~~sale~~reported ofby a ~~minority~~customer ~~investment.~~if ~~Included~~its inreporting ~~other income and expense for 2000~~ is ~~a $2~~used.~~3 million~~ foreign currency translation loss generated on the intercompany debt related to the IML transaction, $2.0 million of interest expense related to the convertible notes and a $2.2 million gain on the sale of minority investments.

~~INCOME~~ We provide ~~TAX~~managed ~~(BENEFIT)~~services ~~EXPENSE~~ under long term arrangements, typically two to three years. The arrangements may contain provisions requiring customer acceptance of the set-up activities, including installation and implementation activities, prior to the commencement of the ongoing services arrangement. Maintenance and support services, which are typically sold separately from products, consist of on-site support, telephone and on-line support and training. We defer maintenance and support services revenue, whether sold separately or as part of a multiple element arrangement, and recognize it ratably over the term of the maintenance contract, generally twelve months.

~~Income~~When there ~~tax~~are ~~(benefit)~~shipping ~~expense was ($6.2 million)~~ and ~~$780,000~~handling ~~for 2001 and 2000~~fees, ~~respectively.~~we ~~Our~~invoice ~~effective~~customers ~~tax~~for ~~rate~~such ~~decreased in 2001 to (3~~fees.~~8%)~~ ~~from~~We ~~2.9% in~~recognize ~~2000. In 2001,~~ the ~~primary~~invoiced ~~component~~amounts ofas ~~the~~revenue ~~effective~~and ~~tax rate is~~ the ~~maintenance~~related ofcosts ~~the full valuation allowance on the deferred tax asset. In 2000, the primary components of the effective tax rate~~ are ~~the~~recognized ~~non-deductible~~as ~~amortization~~a ofcost ~~intangible assets and the maintenance~~ of ~~the full valuation allowance on the deferred tax asset~~revenue.

~~EXTRAORDINARY~~ Capitalization ~~GAIN~~ of Managed Services Costs. We may capitalize certain costs associated with the set-up activities of a managed services arrangement. These costs represent incremental external or internal costs that are directly related to the set-up, enhancement or expansion of certain managed services offerings. The types of costs that are capitalized may include labor and related fringe benefits, subcontractor costs, consulting costs, travel costs, inventory costs and third party product costs. We begin to capitalize costs in the period when there is existence of an arrangement. Managed services arrangements may also require the procurement of equipment, development of internally developed

During 2001, we paid $27.1 million to extinguish $46.6 million face value of convertible debt. As a result, we recorded a related extraordinary gain of $11.3 million, net of tax expense of $7.6 million. It is reasonably possible that we will record further extraordinary gains or losses related to early debt extinguishment in future reporting periods.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

REVENUES

Our revenues consist primarily of product sales and, to a lesser extent, services provided to our customers. Revenues increased to $134.6 million for the year ended December 31, 2000 from

~~$79.5 million~~Table ~~for the year ended December 31, 1999, representing an increase~~ of 69.4%. The increase is attributable to increased volume of product sales in North America, Asia and Europe, the 50.1% growth of our services sector and $4.7 million of revenue from IML. Revenues from sales to customers located outside North America were 28.3%, or $38.1 million, and 27.4%, or $21.8 million, in 2000 and 1999, respectively. No single customer accounted for more than 10% of revenues in 2000 or 1999. Contents

~~GROSS~~software and ~~PROFIT~~ consulting services related to system enhancements and expansions. These costs may also be capitalized. We amortize these capitalized costs upon acceptance or commercial launch of the initial set-up, enhancement or expansion of the service over the expected relationship period or the expected economic useful life, as appropriate, using the straight-line method. Expenses incurred to maintain and sustain the service delivery after the initial setup, enhancement or expansion of a managed services arrangement are expensed as incurred. We evaluate the lives and realizability of the capitalized costs on a periodic basis or as needed.

~~Our~~In the ~~cost~~event ofindications ~~revenues~~exist ~~consist~~that ~~primarily~~capitalized ofmanaged ~~product~~service cost, ~~cost~~balances ofmay ~~services~~be ~~provided~~impaired, toundiscounted ~~our~~estimated ~~customers~~cash ~~and~~flows of the ~~overhead~~contract ~~associated~~or ~~with~~series ~~testing~~of ~~and~~contracts ~~fulfillment operations.~~are ~~Gross~~projected ~~profit~~over the ~~increased~~remaining toterm, ~~$78.8 million~~and ~~for~~compared ~~2000~~to ~~from~~the ~~$48.0 million~~unamortized ~~for~~managed ~~1999,~~services ~~representing~~cost ~~an increase of 64~~balance.~~3%.~~ ~~The~~If ~~increase~~the inprojected ~~gross~~cash ~~profit~~flows ~~is directly~~are ~~related~~not adequate to recover the ~~additional~~unamortized ~~revenue~~cost ~~growth.~~balance, ~~Gross~~the ~~profit~~balance aswould abe ~~percentage~~adjusted to ofequal ~~revenue~~the ~~was~~fair ~~58.5%~~value in ~~2000,~~the ~~compared~~period tosuch ~~60.3%~~determination inis ~~1999, representing a decrease of 3~~made.~~0%.~~ ~~This~~The ~~decrease~~primary ~~was~~indicator ~~due~~used to ~~a $3.7 million~~determine ~~increase~~when inimpairment ~~cost~~testing ofshould ~~revenues~~be ~~related~~performed tois ~~the~~when ~~purchase~~a ~~accounting~~material ~~write-up~~contract ofis ~~IML~~materially underperforming, ~~inventory~~or is expected to ~~fair~~materially ~~value~~under-perform atin the ~~date of acquisition~~future, aas ~~$1.3 million~~compared ~~increase in cost of revenues related~~ to the ~~establishment~~financial ofmodel athat ~~reserve~~was todeveloped ~~write-down~~as ~~IML~~part ~~inventory~~of to the ~~lower~~original ofproposal ~~cost~~process orand ~~market~~subsequent ~~value~~annual ~~at December 31~~budgets, or ~~2000 and a $741,000 increase~~ in ~~cost of revenues related to~~ the ~~amortization~~event of ~~the~~non-renewal ~~current~~or ~~technology~~loss ~~acquired~~of ina ~~the~~major ~~IML~~managed ~~transaction~~service customer.

~~SELLING~~ In accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard no. 144, ~~GENERAL~~"Accounting ~~AND~~for ~~ADMINISTRATIVE~~ the Impairment or Disposal of Long-Lived Assets", ("SFAS 144"), we evaluated the carrying value of these long-lived assets as of December 31, 2008. SFAS 144 first requires an assessment of whether circumstances currently exist which suggest the carrying value of long-lived assets may not be recoverable. At December 31, 2008, we believed such conditions existed related to specific long-lived assets that we believed had no third party liquidation value, including managed service assets. We performed our assessment at the asset group level which represented the lowest level of cash flows that are largely independent of cash flows of other assets and liabilities. For LiveWire Mobile, this asset grouping is at the reporting unit level and consists of acquired technology and customer relationships, which were recorded as a result of the acquisitions of Groove Mobile and Openera, as well as our property and equipment and long term deposits on leased space. When performing this test at the reporting unit level, goodwill is included in the carrying value of the asset group. We assessed the recoverability of the carrying value of our long-lived assets based on estimated undiscounted cash flows to be generated from such assets. In assessing the recoverability of these assets, we projected estimated enterprise-level flows based on expected future revenues. We performed a discounted cash flow analysis using a risk-adjusted discount rate of 30% based on our projected losses, early operating stage, and broader market risks in the current economic environment. Given the fair value of the Company's enterprise value as compared to the fair value of its tangible assets to its enterprise value, we determined that the intangible assets had no fair value and were fully impaired as of December 31, 2008. As a result, we recorded an impairment charge of $2.0 million, including $1.1 million of managed service assets, $0.8 million of property, plant and equipment and $0.1 million of other long-lived assets.

~~Selling,~~ Allowance ~~general~~for ~~and~~Doubtful ~~administrative~~Accounts. We ~~expenses~~maintain ~~consist~~an ~~primarily~~allowance offor ~~salaries,~~doubtful ~~commissions~~accounts based upon our historical experience and ~~related~~any specifically ~~personnel~~identified customer ~~expenses~~collection ~~for~~issues. ~~those~~We ~~engaged~~monitor inand ~~our~~analyze ~~sales,~~accounts ~~marketing, promotional,~~receivable ~~public~~and ~~relations,~~the ~~executive~~composition of the accounts receivable aging, ~~accounting~~historical bad debts, and ~~administrative~~current ~~activities~~economic ~~and~~trends, regional factors and other ~~general~~known ~~corporate~~factors ~~expenses.~~when ~~Selling,~~evaluating ~~general~~the ~~and~~adequacy ~~administrative~~of ~~expense~~the ~~increased~~allowance tofor ~~$79~~doubtful accounts.~~8 million for~~ ~~2000~~Based ~~from~~upon ~~$40.0 million~~the ~~for~~analysis ~~1999,~~and ~~representing~~estimates anof ~~increase~~the uncollectibility of ~~99.7%.~~our ~~The~~accounts ~~increase~~receivable, inwe ~~expenses~~record ~~was~~an allowance ~~primarily~~for ~~due~~doubtful toaccounts ~~$12.8 million~~when ofthe ~~amortization~~prospect of ~~goodwill~~collecting ~~and~~a ~~other~~specific ~~intangibles~~account ~~and $13~~receivable becomes doubtful.~~4 million~~ ofActual ~~compensation~~results ~~expense~~could ~~related~~differ tofrom the ~~acquisition~~allowances for doubtful accounts of $0.1 million ~~IML~~recorded as of December 31, ~~which~~2008, ~~occurred~~and inthis ~~2000.~~difference ~~The~~may ~~additional~~have ~~increase~~a ~~was~~material ~~due~~effect toon ~~costs~~our ~~associated~~financial ~~with~~position ~~increased~~and ~~selling~~results ~~activity~~of operations.

~~RESEARCH~~ Write-down ~~AND~~of ~~DEVELOPMENT~~ Excess and Obsolete Inventories. We value our inventories at the lower of cost (first-in, first-out method) or market. We regularly review our inventories and record charges for excess

Research and development expenses consist primarily of salaries, personnel expenses and prototype fees related to the design, development, testing and enhancement of our products. These costs are expensed as incurred. Research and development expense increased to $34.5 million for 2000 from $24.7 million for 1999, representing an increase of 39.7%. The increase in expense was due to the write-off of $3.3 million of in-process research and development expense related to the IML acquisition, $1.0 million expense related to the execution of a funded research and development agreement acquired in the IML transaction, and increased personnel and project development costs associated with the CG6000, PowerBlade, PowerAccess, HearSay and PacketMedia product lines and development of PolicyPoint.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

In-process research and development charge for the year ended December 31, 2000 is the result of the immediate expensing of the value allocated to the in-process research and development efforts associated with IML's interface technology. We assigned a value of $3.3 million to in-process research and development based upon the utilization of a modified discounted cash flow model.

The in-process research and development is comprised of a category of products that provide interface technology consisting of high capacity line interfaces that convert telephony signals into computer data. These products are used in media access gateway products to interface aggregate DSL

orTable ~~wireless traffic to the PSTN or IP based data networks. At the date~~ of ~~acquisition, these products were estimated to be 58% complete.~~ Contents

Aand ~~significant~~obsolete ~~amount~~inventory ofbased ~~uncertainty~~primarily ~~existed~~on ~~surrounding~~our ~~the~~estimated ~~successful~~forecast ~~development and completion~~ of ~~the~~product ~~research~~demand and ~~development~~production ~~acquired.~~requirements ~~Significant~~for ~~risks exist because we are unsure of~~ the ~~obstacles~~next wetwelve ~~will~~months. ~~encounter~~Actual inexcess ~~the form of time~~ and ~~cost~~obsolete ~~necessary~~inventory tocould ~~produce~~differ ~~technologically feasible products. Should these products fail to become viable, it is unlikely that we would be able to realize any value~~ from the write-down ~~sale~~ of ~~the~~excess ~~technology~~and toobsolete ~~another~~inventories ~~party~~of $0.7 million ~~The~~recorded ~~work performed~~ as of ~~the~~December 31, ~~acquisition date on these in-process products is very specific to the tasks and markets for which it is intended~~2008. ~~There are no alternative uses for the in-process work in the event that the products are not feasible.~~

~~We based~~ Intangible ~~the~~and ~~cash~~Other ~~flow projections for revenue on the projected incremental increase in revenue that we expected to receive from the completed acquired in~~Long-~~process~~Lived ~~research~~ Assets and ~~development~~Goodwill. We ~~IML~~review ~~expected~~long-lived ~~revenue to commence with each product's release date~~assets, ~~which~~including ~~occur~~definite-lived intangible ~~on various dates in the fourth quarter of 2000 and the first half of 2001~~assets, ~~and~~to ~~continue~~determine ~~throughout~~if ~~each product's~~any ~~economic~~adverse ~~life,~~conditions ~~which~~exist ~~range~~that ~~from~~would ~~three~~indicate ~~to six years~~impairment. WeSFAS 144 ~~deducted~~requires ~~estimated~~impairment ~~operating~~losses ~~expenses from estimated revenue~~ to ~~arrive~~be atrecorded ~~estimated~~on ~~pre~~long-~~tax~~lived ~~cash~~assets ~~flows.~~used ~~Projected operating~~in ~~expenses~~operations ~~included~~when ~~cost~~indicators of ~~goods~~impairment ~~sold,~~are ~~selling,~~present ~~general~~ and ~~administrative~~the ~~expense,~~projected ~~and~~undiscounted ~~research~~cash ~~and~~flows ~~development expense. We~~ estimated ~~operating~~to ~~expenses~~be asgenerated aby ~~percent~~those ofassets ~~revenue~~are ~~based~~less ~~on IML's~~than ~~historical results for~~ the ~~years~~long-lived ~~ended~~assets' ~~March 31, 1999 to 2000~~carrying value. ~~Projected~~We ~~results~~assess ~~for~~ the ~~fiscal~~recoverability ~~years~~of ~~ended~~long-lived ~~March 31,~~assets ~~2001~~based toon ~~2005~~the ~~were~~projected ~~also~~undiscounted ~~used~~future incash ~~combination~~flows ~~with past~~over ~~operating~~the ~~results~~asset's ~~and~~remaining ~~industry averages~~life. WeThe ~~also~~amount ~~deducted~~of ~~capital charges~~impairment, orif ~~cash flow attributable to other assets such as working capital~~any, ~~customer list and assembled workforce, from~~is ~~pre-tax~~measured ~~operating~~based ~~income~~on ~~to isolate~~ the ~~cash~~excess ~~flow~~of ~~solely attributable to~~ the ~~in-process~~carrying ~~research~~value ~~and~~over ~~development~~fair value. ~~Income~~Fair ~~taxes~~value ~~were~~is ~~then~~generally ~~deducted~~calculated toas ~~arrive~~the ~~at after-tax~~present ~~cash~~value ~~flows.~~of Weestimated ~~discounted~~future ~~the after-tax~~ cash ~~flow~~flows ~~projections~~ using a risk-adjusted discount rate, ofwhich ~~return~~requires ofsignificant ~~23%.~~management Injudgment ~~using~~with ~~the~~respect ~~discounted model, we excluded the costs~~ to ~~complete~~revenue ~~the in-process technology from the research~~ and ~~development~~ expense ~~for~~growth ~~2000~~rates, and ~~we reflected~~ the ~~percentage~~selection ~~completion of the in-process research~~ and ~~development~~ inuse ~~each~~of ~~year's~~an ~~projected~~appropriate ~~cash~~discount ~~flow~~rate.

~~OTHER~~ We performed ~~INCOME~~an assessment as of December 31, ~~NET~~ 2008, and determined that a triggering event had occurred. The continued marked decline of our common stock during the fourth quarter of 2008 (a 75% decline during the fourth quarter of 2008), along with an anticipated impairment of goodwill, were indicators that the carrying value of our long-lived assets might not be recoverable. We performed our assessment at the asset group level which represented the lowest level of cash flows that are largely independent of cash flows of other assets and liabilities. For LiveWire Mobile, this asset grouping is at the reporting unit level and consists of acquired technology and customer relationships (which were recorded as a result of the acquisitions of Groove Mobile and Openera), property and equipment, managed service assets, and long term deposits on leased space. When performing this test at the reporting unit level, goodwill is included in the carrying value of the asset group. We assessed the recoverability of the carrying value of our long-lived assets based on estimated undiscounted cash flows to be generated from such assets. The carrying value of the reporting unit, including goodwill (prior to the goodwill impairment charge described below), was greater than the undiscounted cash flows, indicating an impairment. We performed step two of the impairment test and determined there was a full impairment of our intangible assets and a partial impairment of the property and equipment and deposits, reducing those assets to their fair value. The fair value was determined based on the price that a willing buyer would pay in an orderly liquidation of those assets. As a result, we recorded an impairment charge of $9.6 million related to the intangible assets and $2.0 million related to other long-lived assets, including managed service assets of $1.1 million, property and equipment of $0.8 million and other long-lived assets of $0.1 million. We also reassessed the depreciation method and remaining depreciation period for the property and equipment, and determined that no changes to the depreciation period or method were necessary.

~~Other~~Goodwill represents ~~income~~the ~~and~~excess ~~expense,~~purchase ~~reflecting~~price ~~net~~over ~~interest~~the ~~income,~~fair ~~one~~value ~~time~~of ~~gains~~the ornet ~~losses~~tangible and ~~foreign~~intangible ~~exchange~~assets ~~gains~~acquired. ~~and~~We ~~losses~~review goodwill for impairment annually as of the fiscal year end date, ~~increased~~and tomore $8frequently if certain indicators are present.~~7 million~~ ~~for 2000~~When ~~from~~conducting ~~$181~~our impairment evaluation,~~000~~ ~~for~~we ~~1999.~~compare ~~The~~the ~~increase~~carrying isvalue ~~primarily~~of ~~due~~the reporting unit to ~~gains~~the fair value of $2the reporting unit.~~2 million~~ ~~realized~~We have ondetermined that the ~~sale~~reporting ofunit ~~minority~~is ~~investments~~the ~~and~~Company ~~interest~~as ~~income~~a onwhole. ~~cash~~If ~~received~~the ~~from~~carrying amount of the ~~common~~reporting ~~stock~~unit exceeds its fair value, then the carrying value of that reporting unit's goodwill is ~~offering~~compared ~~completed~~to inthe ~~March 2000~~implied ~~and~~fair value of the ~~debt~~goodwill ~~offering~~and ~~completed~~an impairment loss is recorded in ~~October 2000.~~an ~~This~~amount ~~was~~equal ~~off-set~~to bythat aexcess, $2if any.~~3 million~~ ~~foreign~~Fair ~~currency~~value ~~translation~~is ~~loss~~calculated ~~generated~~using onwidely accepted valuation techniques, including the present value of estimated future ~~intercompany~~cash ~~debt~~flows ~~related~~using toa ~~the~~risk-adjusted ~~IML~~discount ~~transaction~~rate and ~~interest~~market-multiple ~~expense~~analyses. ~~related~~These totypes ~~the~~of ~~notes~~analyses require significant judgments by management.

INCOME TAX EXPENSE

Income tax expense was $780,000 and $1.0 million for 2000 and 1999, respectively. Our effective tax rate decreased in 2000 to 2.9% from 5.7% in 1999. In 2000, the primary components of the effect tax rate are the non-deductible amortization of intangible assets and the maintenance of the full valuation allowance on the deferred tax asset. In 1999, the primary component of the effective tax rate was the establishment of a full valuation allowance against the deferred tax asset as we concluded that a full valuation allowance against our net deferred tax asset was required, under applicable accounting standards, due to uncertainties surrounding its realization. This was partially offset by 1999 operating loss carrybacks and a reduction in the income tax reserve for probable loss contingencies.

~~Liquidity~~ ~~and~~ Table ~~Capital~~of ~~Resources~~ Contents

AsConditions ofthat ~~December 31,~~could ~~2001,~~trigger ~~our principal sources of liquidity included cash and cash equivalents of $84.0 million and marketable securities of $77.2 million. We also have access to~~ a ~~$7.5 million~~more ~~bank~~frequent ~~line~~impairment ofassessment ~~credit for working capital purposes that was established in May 1999 and amended on August 30~~include, ~~2001. Borrowings~~but ~~under~~are ~~our~~not ~~line~~limited ~~of credit bear interest at the bank's floating rate of prime plus one percent. This interest rate will be reduced~~ to, ~~the bank's floating rate of prime upon completion of~~ a ~~common~~ ~~stock~~significant ~~offering~~adverse bychange ~~us.~~in ~~We are subject to~~ certain ~~covenants under the agreement. The most significant of these covenants require the maintenance of equity and liquidity ratios~~agreements, ~~timely financial~~an ~~reporting~~economic todownturn ~~the bank and the maintenance of depository and operating accounts with the bank. As of December 31, 2001 we were~~ in ~~compliance~~our ~~with~~customers' ~~all of those covenants~~industries, ~~and~~increased ~~there were no amounts outstanding. This credit agreement is subject to renewal on May 13~~competition, ~~2002.~~or Weother doinformation ~~not~~regarding ~~have~~our ~~any~~market ~~off-balance sheet financing arrangements~~value, ~~other~~such ~~than~~as ~~property~~a ~~operating~~reduction ~~leases that are disclosed~~ in ~~the contractual obligations table below and in~~ our ~~consolidated~~stock ~~financial~~price. ~~statements, nor do we have any transactions, arrangements or other relationships with any special purpose entities~~

~~Cash~~Our ~~provided~~assessment byfor ~~(used~~impairment was conducted in) ~~operations~~accordance ~~for~~with ~~the~~FASB ~~years~~Statement ~~ended~~of ~~December~~Financial Accounting Standard No. 31142, ~~2001,~~"Goodwill ~~2000~~ and ~~1999~~Other ~~was~~Intangible Assets" (~~$35.4~~"SFAS ~~million~~142"), which ~~$14.6 million~~required ~~and~~us ~~$7.6 million,~~to ~~respectively~~determine the fair value of the Company as a whole since it is considered the reporting unit to which all goodwill is allocated. We estimated the fair value of the reporting unit ~~The~~utilizing ~~following~~industry ~~table~~accepted ~~provides~~valuation techniques that included the present value of estimated future cash flows using a ~~reconciliation~~risk-adjusted discount rate of 30%, and a market-multiple approach, which considered our ~~net~~market ~~loss~~capitalization toadjusted ~~cash~~for ~~provided~~a control premium. These valuation techniques require significant judgments by ~~(used~~management, ~~in)~~including ~~operations~~estimates ~~for~~and ~~the~~assumptions ~~years~~about ~~ended~~our projected ~~December 31~~future operating results, ~~2001~~discount rates, ~~2000~~and long-term growth rates. Our forecasts of future revenue were based on expected future growth from new as well as existing customers and ~~1999:~~historical trends. In addition, we considered the expected gross margins attainable in the future and the required level of operating expenses needed to conduct our business.

			2001			2000			1999
Net loss			$	(142,658	)	$	(27,651	)	$	(18,688	)
Non-cash adjustments:
	Depreciation and amortization (1)			47,172			35,476			6,691
	Loss on impairment of fixed assets			3,069			—			—
	Loss on impairment of goodwill and other intangibles			55,985			—			—
	Foreign exchange translation loss on intercompany debt			4,688			2,291			—
	Loss on minority investment			7,000			—			—
	Purchased in-process research and development			—			3,300			—
	Write off of debt issuance costs			1,222			—			—
	Amortization of bond issuance costs			1,074			237			—
	Deferred taxes			—			—			4,820
	Tax benefit from stock option exercises			—			—			2,165
		Total non-cash adjustments	$	120,210		$	41,304		$	13,676
Cash adjustments:
	Gain on minority investment			—			(2,228	)		—
	Gain on repurchase of convertible notes			(18,878	)		—			—
	Change in working capital			5,807			3,746			12,448
	Other			101			(605	)		163
		Total cash adjustments	$	(12,970	)	$	913		$	12,611
Cash provided by (used in) operating activities			$	(35,418	)	$	14,566		$	7,599

The Company performed its annual impairment assessment of its goodwill at December 31, 2008. Step one of this assessment resulted in the carrying value of the reporting unit exceeding the fair value. In step two of the impairment analysis, the Company compared the implied fair value of goodwill to its carrying value. The implied fair value of goodwill was determined to be zero. Consequently, we determined that goodwill was fully impaired resulting in an impairment charge of $11.0 million for the year ended December 31, 2008.

~~The~~ Stock-based Compensation Expense. On January 1, 2006, we implemented the provisions of SFAS No. 123 (revised 2004), ~~change~~Share-Based inPayment ~~working~~("SFAS 123R") ~~capital~~and inrelated ~~2001~~interpretations. ~~was~~SFAS 123R ~~primarily~~requires ~~due~~that all share-based payments to ~~the~~employees, ~~changes~~including grants inof ~~accounts~~stock ~~receivable~~options, ~~inventory~~be ~~and~~recognized ~~accrued~~in ~~expenses~~the ~~and~~financial ~~other~~statements ~~liabilities~~based on their fair value. ~~Accounts~~We ~~receivable~~selected ~~decreased~~the ~~from~~modified prospective transition method for implementing SFAS 123R and began ~~$18.8~~recognizing compensation expense for stock-based awards granted on or after January ~~million~~1, in2006, ~~2000~~plus any unvested awards granted prior to ~~$12.5~~January ~~million~~1, in2006. ~~2001~~Under this transition method, prior periods have not been restated. ~~This~~Stock-based ~~decrease~~compensation ~~was~~expense ~~the~~for ~~result~~awards ofgranted on or after January 1, 2006, is based on the ~~decrease~~grant date fair value calculated in ~~revenue~~accordance ~~for~~with ~~2001~~the provisions ~~compared~~of SFAS 123R. Stock-based compensation related to ~~2000.~~any ~~Inventory~~unvested ~~increased~~awards ~~from~~granted ~~$7.8~~prior to January ~~million~~1, 2006, is based on the grant date fair value calculated in ~~2000~~accordance towith the ~~$11~~original provisions of SFAS No.1 ~~million~~123, inAccounting ~~2001~~for Stock-Based Compensation. The ~~increase~~fair value of our stock-based awards, less estimated forfeitures, is amortized over the awards' vesting periods on a straight-line basis.

The fair value of each option award on the grant date is estimated using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield, expected stock price volatility, weighted average risk-free interest rate and weighted average expected life of the options. Under SFAS 123R, we establish the volatility assumption based exclusively on historical volatility, and the expected life assumption is established based upon an analysis of historical option exercise behavior. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating our expected term assumptions. We have never declared or paid any cash dividends on our common stock and have no current plans to pay cash dividends on our common stock. The payment of any future cash dividends will be determined by our board of directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions, tax laws, certain corporate law requirements and various other factors.

inTable ~~inventory resulted from the acquisition~~ of $8.2 million of inventory in connection with the VES acquisition, offset by a decrease in inventory that resulted from a declined demand for our products in 2001 as compared to 2000. Accrued expenses and other liabilities decreased from $25.2 million to $21.2 million due to the reversal of a $4.7 million accrual related to additional consideration that was to be paid to the former shareholders of IML. This accrual was established in 2000 when it appeared that IML would achieve the financial targets needed to earn the additional consideration. We reversed this accrual in 2001 when it became known that these financial targets would not be met by IML. Contents

The ~~change~~choice inof ~~working~~a ~~capital~~valuation intechnique, ~~2000~~and ~~was~~the ~~primarily~~approach ~~due~~utilized to develop the ~~changes~~underlying inassumptions ~~accounts~~for ~~receivable~~that ~~and~~technique, ~~accrued~~involve ~~expenses~~significant ~~and other liabilities~~judgments. ~~Accounts~~These ~~receivable~~judgments ~~increased~~reflect ~~from~~our ~~$11.6 million~~assessment inof ~~1999~~the tomost ~~$18.8 million~~accurate inmethod ~~2000.~~of ~~This~~valuing ~~increase~~the ~~was~~stock ~~the~~options ~~result~~we ofissue, ~~the~~based ~~increase~~on inhistorical ~~revenue~~experience, ~~for~~knowledge ~~2000~~of ~~compared~~current toconditions ~~1999.~~and ~~Accrued~~beliefs ~~expenses~~of ~~increased~~what ~~from~~could ~~$9.8 million~~occur in ~~1999~~ tothe ~~$25.2 million~~future ingiven available ~~2000~~information. ~~The~~Our ~~increase~~judgments incould ~~accrued~~change ~~expenses~~over ~~and~~time ~~other~~as ~~liabilities~~additional isinformation ~~primarily~~becomes ~~due~~available, toor the ~~accrual~~facts ofunderlying ~~interest~~the toassumptions bechange ~~paid~~over ontime. ~~the~~Any ~~convertible~~change ~~notes~~in ~~and~~judgments ~~the~~could ~~accrual~~have ofa $4material impact on our financial statements.~~7 million~~ ofWe ~~additional~~believe ~~consideration~~that tothese beestimates ~~paid~~incorporate toall ~~the~~relevant ~~former~~information ~~shareholders~~and ofrepresent a ~~IML~~reasonable ~~based~~approximation onin light of the ~~achievement~~difficulties ofinvolved ~~certain~~in ~~financial~~valuing ~~targets~~non-traded stock options.

~~The change~~ Stock inOption ~~working~~Acceleration. As ~~capital~~a inresult ~~1999~~of ~~was~~the ~~primarily~~sale ~~due~~of to the ~~changes~~NMS inCommunications ~~accounts~~Platforms ~~receivable~~business, ~~and~~we ~~inventory.~~accelerated ~~Accounts~~options ~~receivable~~to ~~decreased~~purchase 747,966 ~~from~~shares ~~$17.2 million in 1998 to~~of ~~$11.6 million~~our incommon ~~1999~~stock. ~~This~~The ~~decrease~~acceleration ~~was~~occurred ~~the~~as a result of ~~more~~certain ~~timely~~employees ~~cash~~having ~~collections~~a ~~and~~change anof ~~increase~~control clause in ~~the~~each ~~allowance~~of ~~for~~their ~~doubtful~~stock ~~accounts.~~option ~~Inventory~~or ~~decreased~~other ~~from $9~~agreements.~~8 million~~ inAccordingly, ~~1998 to~~the ~~$5.4 million~~unvested inportion ~~1999.~~of the ~~The~~related ~~decrease~~stock inoption ~~inventory~~grants was ~~due~~accelerated toand awe ~~successful~~recognized ~~effort~~expenses bytotaling ~~management~~$0.6 million toduring ~~reduce~~the ~~inventory~~year ~~levels~~ended December 31, 2008.

~~Cash used~~Stock inOption ~~investing~~Modification. During ~~activities~~the inyear ~~2001~~ended December 31, ~~2000~~2008, ~~and~~we ~~1999~~canceled ~~was $133.6 million~~300, ~~$99.1~~000 ~~million~~shares ~~and~~of ~~$7.7 million,~~restricted ~~respectively.~~stock ~~Cash~~that was granted to an executive of ~~$254.5 million~~the Company in 2007, ~~$672.8 million~~ ~~and~~in ~~$17.3 million~~exchange ~~was~~for ~~used~~a tobonus ~~purchase~~payout ~~marketable~~contingent ~~securities,~~upon ~~with~~a ~~cash~~change in control of ~~$206~~the Company.0 Pursuant to FAS ~~million~~123R, ~~$650.6 million~~we ~~and~~consider ~~$16.4 million~~a ~~provided~~modification ~~from~~of ~~maturities~~the terms or conditions of ~~marketable~~an ~~securities~~existing ~~for~~equity ~~2001,~~award ~~2000~~as ~~and~~an ~~1999,~~exchange ~~respectively.~~of ~~Capital~~the ~~expenditures~~original ~~were~~award ~~$12.8 million,~~for ~~$10.5 million~~a ~~and~~new $6award.~~2 million~~ ~~for~~We ~~2001,~~determined ~~2000~~that ~~and~~the ~~1999,~~original ~~respectively.~~equity ~~In 2001~~based weaward ~~spent~~was modified to a ~~total~~liability-based award due to the nature of ~~$73~~the bonus arrangement.8 Accordingly, upon change of control of the Company in December ~~million~~2008 in connection with the sale of the NMS Communications Platforms business to ~~acquire~~Dialogic, ~~VES~~we recorded ~~and~~a ~~Mobilee~~stock ~~and~~compensation liability in ~~2000~~the weamount ~~spent~~of $650.84 million toand ~~acquire~~expensed ~~IML~~the amount of unrecognized compensation expense to date. WeThe ~~expect~~difference ~~capital~~between ~~expenditures~~the inoriginal ~~2002~~fair ~~will~~value ~~approximate~~of the ~~$19~~restricted stock award and the actual amount paid was recognized as stock compensation expense.~~4 million,~~ ~~principally~~The ~~for~~Company ~~testing~~paid ~~equipment,~~the ~~development~~stock ~~equipment~~compensation ~~and~~liability ~~computer~~of ~~hardware~~$0.4 million ~~and~~in ~~software~~December 2008.

~~Cash provided~~ Restructuring ~~by (used in) financing activities in 2001, 2000~~ and ~~1999~~Other ~~was~~Related ~~($27~~Charges.~~5 million),~~ We ~~$349.2 million~~continually ~~and~~evaluate ~~$4.2 million,~~our ~~respectively.~~staffing Inlevels ~~2001, we used cash of $27.1 million~~ to ~~extinguish~~meet ~~$46.6 million~~our ~~face~~business ~~value~~objectives ~~of convertible debt~~ and ~~$1.9 million~~our strategies to ~~purchase~~reduce ~~400,000 shares of common stock through~~ our costs ~~repurchase plan, while cash~~ of $1 operations.~~7 million~~ ~~was~~Severance ~~provided~~costs byare ~~the~~reviewed ~~exercise~~periodically ofto ~~stock~~determine ~~options~~whether ~~and~~a ~~the~~severance ~~purchase~~charge ofis ~~stock~~required ~~through~~to ~~our~~be ~~employee~~recorded ~~stock~~in ~~purchase~~accordance ~~plan.~~with InSFAS ~~2000, cash of $349~~No.9 ~~million~~112, Employers' ~~was~~Accounting ~~provided~~for ~~by the~~Post-employment ~~offerings~~Benefits ~~of our common stock and convertible notes~~("SFAS 112"). InThe ~~1999,~~provisions ~~cash was provided primarily by the exercise~~ of ~~stock~~SFAS 112 ~~options~~require ~~and~~us ~~issuance of debt used~~ to ~~fund~~accrue post-employment ~~QWES~~benefits ~~operations.~~if ~~This~~certain ~~was~~specified ~~partially~~criteria ~~offset by~~are ~~our purchase for $1~~met.~~1 million~~ ofPost-employment ~~100,000~~benefits ~~shares~~include ofsalary ~~common stock through our repurchase plan~~continuation, ~~which~~severance ~~our~~benefits ~~board~~and continuation of ~~directors~~benefits ~~authorized~~such inas health ~~July 1999~~ and ~~subsequently~~life ~~rescinded~~insurance.

~~The~~From ~~following~~time ~~table~~to ~~details~~time, ~~our~~we ~~future~~announce ~~payments~~reorganization ~~due~~plans ~~under~~that ~~contractual~~may ~~obligations~~include eliminating employee positions or exiting facilities. WeEach ~~currently~~plan dois ~~not~~reviewed ~~have~~to determine whether a restructuring charge is required to be recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). The provisions of SFAS 146 require us to record an estimate of the fair value of any ~~commercial~~termination ~~commitments~~costs based on certain facts, circumstances and assumptions, including specific provisions included in the underlying reorganization plan. Also, from time to time, we may cease to use certain facilities prior to expiration of the underlying lease agreements. Exit costs are reviewed in each of these circumstances on a case-by-case basis to determine whether a restructuring charge is required to be recorded in accordance with SFAS 146. The provisions of SFAS 146 require us to record an estimate of the fair value of the exit costs based on certain facts, circumstances and assumptions, including remaining minimum lease payments, potential sublease income and specific provisions included in the underlying lease agreements.

	Payments Due by Period
Contractual Obligations
	2002		2003		2004		2005		2006		Thereafter		Total
Property Leases	$	4,972	$	4,325	$	4,064	$	3,646	$	3,678	$	16,711	$	37,396
Convertible Notes								128,432						128,432
Total Contractual Obligations	$	4,972	$	4,325	$	4,064	$	132,078	$	3,678	$	16,711	$	165,828

Subsequent to recording such accrued liabilities, changes in market or other conditions may result in changes to assumptions upon which the original liabilities were recorded that could result in an adjustment to the liabilities and, depending on the circumstances, such adjustment could be material.

We believe that our available cash, cash equivalents, marketable securities and bank line of credit will be sufficient to meet our operating expenses, capital requirements and contractual obligations for

~~the~~Table foreseeable future. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions or competitive reasons, and may seek to raise such additional funds through public or private equity financing or from other sources. We cannot provide assurance that additional funding will be available at all or that, if available, such financing will be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including, but not limited to, the level of ~~sales we will be able to achieve in the future, the introduction of new products and potential acquisitions of related businesses or technology.~~ Contents

~~Recent~~ Income ~~Accounting~~Taxes. The ~~Pronouncements~~ preparation of our consolidated financial statements requires us to provide for income taxes in each of the jurisdictions in which we operate, including those outside the United States that may be subject to certain risks that ordinarily would not be expected in the United States. A change in our income by jurisdiction could cause a change in our annual effective tax rate. The income tax accounting process involves estimating our current income tax expense (benefit), including our uncertain tax positions, together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. We must then record a valuation allowance against our deferred tax assets if their realization does not meet the "more likely than not" criteria under SFAS 109 based on our current and projected financial statements.

InManagement's judgment ~~June 2001,~~is ~~the~~required ~~Financial~~in ~~Accounting~~determining ~~Standards~~our ~~Board~~provision ~~("FASB")~~for ~~issued~~income ~~Statement~~taxes, ofour ~~Financial~~deferred ~~Accounting~~tax ~~Standards~~assets ~~No. 141 ("FAS No. 141"), "Business Combinations"~~ and ~~Statement~~liabilities ~~of Financial Accounting Standards No. 142 ("FAS No. 142"), "Goodwill~~ and ~~Other~~any ~~Intangible~~valuation ~~Assets."~~allowance ~~FAS~~recorded ~~No. 141~~against ~~is effective for all business combinations for which~~ the ~~date~~majority of ~~acquisition is after June 30, 2001 and requires that the purchase method of accounting be used for all business combinations, establishes specific criteria~~our ~~for~~deferred ~~the~~tax ~~recognition of intangible~~ assets. ~~separately~~We ~~from~~have ~~goodwill~~recorded ~~and~~a ~~requires~~valuation ~~unallocated~~allowance ~~negative~~of ~~goodwill to be written off immediately as an extraordinary gain~~$160. ~~FAS No.~~4 ~~142~~million ~~requires~~as ~~that goodwill~~of ~~and indefinite lived intangible assets will no longer be amortized~~December 31, ~~goodwill~~2008 ~~will~~due beto ~~tested~~uncertainties ~~for~~related ~~impairment~~to atour ~~least~~ability ~~annually~~to atutilize ~~the~~our ~~reporting~~deferred ~~unit~~tax ~~level, intangible~~ assets ~~deemed to have an~~, ~~indefinite~~primarily ~~life~~consisting ~~will be tested for impairment at least annually and the amortization period~~ of ~~intangible~~net ~~assets~~operating ~~with~~loss ~~finite~~carry ~~lives will no longer be limited to forty years~~forwards. We ~~adopted~~establish ~~FAS No. 141~~valuation ~~and~~allowances ~~FAS~~based ~~No. 142~~ on ~~January 1,~~historical ~~2002.~~levels ~~The adoption~~ of ~~FAS~~profitability ~~No. 141~~as ~~did~~well ~~not~~as ~~have a significant impact on~~ our ~~consolidated~~estimates ~~financial~~of ~~statements.~~future ~~The~~taxable ~~adoption~~income ofby ~~FAS~~each ~~No. 142~~jurisdiction ~~will~~in ~~eliminate~~which ~~the~~we ~~amortization expense of goodwill from our consolidated statement of operations~~operate, ~~resulting~~and inthe aperiod ~~decrease~~over ofwhich our ~~operating~~deferred ~~expenses.~~tax ~~However,~~assets ~~this decrease~~ will be ~~offset~~ ~~by the amortization of intangible assets that were acquired during 2001~~recoverable. ~~Additionally,~~If asactual aresults ~~result~~differ offrom ~~the~~these ~~required~~estimates ~~periodic~~or ~~impairment~~we ~~reviews~~adjust ofthese ~~goodwill,~~estimates ~~if an impairment is indicated~~ in a future ~~reporting period~~periods, we may beneed ~~required~~ to ~~record~~adjust anour ~~impairment~~valuation ~~charge~~allowance, inwhich ~~that~~could ~~future~~materially ~~reporting~~impact ~~period~~our toconsolidated ~~reflect~~financial ~~the~~position ~~reduction~~and ofresults ~~the carrying value~~ of ~~goodwill to its fair value~~operations.

InThe ~~October 2001,~~provision ~~the~~for ~~FASB~~income ~~issued~~taxes ~~SFAS~~is ~~No. 144,~~computed ~~"Accounting~~based ~~for~~on ~~the~~pre-tax ~~Impairment~~income orincluded ~~Disposal~~in ofthe ~~Long-Lived~~consolidated ~~Assets."~~statements ~~SFAS~~of Nooperations. ~~144~~ ~~supersedes~~We ~~SFAS No. 121,~~recognize ~~"Accounting~~deferred ~~for~~tax ~~the~~assets ~~Impairment~~and ofliabilities for ~~Long-Lived~~the ~~Assets~~expected ~~and~~future ~~for~~tax ~~Long-Lived~~consequences ~~Assets~~of toevents Bethat ~~Disposed~~have ~~Of"~~been ~~and~~included ~~provides~~in athe ~~single~~financial ~~accounting~~statements. ~~model~~Under ~~for~~this ~~long-lived~~method, deferred tax assets toand beliabilities ~~disposed~~are ~~of.~~determined Webased ~~are~~on ~~required~~the todifference ~~adopt~~between ~~SFAS~~the ~~No. 144~~financial ~~for~~statement ~~our~~carrying ~~fiscal~~amounts ~~year~~and ~~beginning~~tax ~~after~~basis ~~December 15,~~of ~~2001~~assets and weliabilities dousing ~~not~~enacted ~~believe~~tax itrates ~~will~~in ~~have~~effect afor ~~significant~~the ~~impact~~year onin ~~our~~which ~~consolidated~~the ~~financial~~differences ~~statements~~are expected to reverse.

~~Quarterly~~ We determine ~~Results~~our ~~(Unaudited)~~ effective tax rate by dividing our income tax expense by our income before taxes as reported in our consolidated statement of operations. For reporting periods prior to the end of the fiscal year, we record income tax expense based upon an estimated annual effective tax rate. This rate is computed using the statutory tax rate and an estimate of annual net income adjusted for an estimate of deductible and non-deductible expenses.

~~The~~On January 1, ~~following~~2007, ~~tables~~we ~~set~~adopted ~~forth~~Financial ~~unaudited~~Accounting ~~selected~~Standards ~~financial~~Board ~~information~~("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 ("FIN 48"). FIN 48 clarifies the ~~periods~~accounting ~~indicated~~for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109, asAccounting ~~well~~for asIncome ~~certain~~Taxes ~~information~~("SFAS 109"). ~~expressed~~FIN 48 asprescribes a recognition ~~percentage~~threshold ~~of total~~and ~~revenues~~measurement attributes for the ~~same~~financial ~~periods~~statement recognition and measurement of a tax position taken in or expected to be taken in a tax return. This ~~information~~interpretation ~~has~~also provides ~~been~~guidance ~~derived~~on ~~from~~derecognition, ~~unaudited~~classification, ~~consolidated~~interest ~~financial~~and ~~statements~~penalties, ~~which,~~accounting in interim periods, and disclosure and transition. We had no adjustments to retained earnings as a result of the implementation ~~opinion~~of FIN 48. The majority of ~~management,~~our ~~include~~deferred ~~all~~tax ~~adjustments~~assets ~~(consisting~~have ~~only~~a full valuation allowance recorded against them as their realization does not meet the "more likely than not" criteria under SFAS 109 based on our current and projected financial status. As of ~~normal~~December 31, ~~recurring~~2008 ~~adjustments)~~and ~~necessary~~December 31, 2007, we had accrued $1.0 million and $0.6 million, respectively, for auncertain ~~fair~~tax ~~presentation~~positions, all of ~~such~~which ~~information~~will impact our effective tax rate when recognized. ~~This~~It ~~information~~is ~~has~~reasonably ~~not~~possible ~~been~~that ~~audited~~the total amount of unrecognized tax benefits will increase or ~~reviewed~~decrease byin the ~~Company's~~next ~~independent~~twelve months. ~~accountants~~As of the filing date of this annual report on Form 10-K, an estimate of the range that will reverse in ~~accordance~~the ~~with~~next twelve months of ~~standards~~reasonably ~~established~~possible ~~for~~outcomes ~~such~~cannot ~~reviews~~be made. ~~The~~Estimated ~~results~~interest ofand ~~operations~~penalty ~~for~~charges ~~any~~related ~~quarter~~to unrecognized tax benefits are ~~not~~classified ~~necessarily~~as ~~indicative~~income oftax expense in the ~~results~~accompanying toconsolidated statements beof ~~expected~~operations. ~~for~~At ~~any~~December 31, ~~future~~2008 ~~period.~~and 2007, we had

We achieved sequential increases in revenue over the prior quarter of 16% in the second quarter and 26% in the third quarter of 2000. In the quarter ended September 30, 2000, we achieved record revenues of $40.5 million representing a 100% increase over the same period in the prior year. Revenues of $34.2 million for the fourth quarter of 2000 decreased sequentially over the prior quarter

byTable ~~16% as we began to experience the effects~~ of the broad-based, worldwide economic slowdown affecting most technology sectors and communications in particular. Revenue continued to decline sequentially over prior quarters in the first, second and third quarters of 2001 by 22%, 37% and 4%, respectively. In the fourth quarter of 2001 we achieved a sequential increase over prior quarter revenue of 35%, primarily due to the revenue generated by VES. Contents

~~Our~~$0.1 million ~~cost of revenues~~ and ~~operating expenses over the two-year period ended December~~$0.1 31million, ~~2001~~respectively, ~~have generally increased as a percentage~~ of ~~revenue.~~accrued ~~For~~interest ~~cost~~expense ofrelated ~~revenues, this trend is due~~ to ~~increased~~uncertain ~~spending~~tax ~~to create future efficiencies in our supply chain operation~~positions. For operating expenses, this trend is due to increased acquisition and non-recurring expenses including, but no limited to, goodwill and other intangibles amortization, deferred compensation amortization, impairment charges and restructuring and other special charges.

~~We expect~~ toResults ~~continue to maintain our levels~~ of research and development and sales and marketing expenditures, and therefore we can only achieve profitability if we can significantly increase our revenues. If our revenues do not meet the levels that we anticipate, or if our costs and expenses exceed our expectations, we will again sustain operating losses. Operations

~~Our quarterly~~The ~~operating~~following ~~results~~table ~~may~~sets ~~fluctuate as a result of a number of factors~~forth, ~~some~~for ofthe ~~which~~periods ~~are beyond our control~~indicated, ~~including,~~certain ~~but~~items ~~not~~from ~~limited to: fluctuations in~~ our ~~customers' businesses;~~consolidated ~~demands~~statements ~~for our customers' products incorporating our products; timing and market acceptance~~ of ~~new~~operations ~~products~~as ora ~~enhancements introduced by us or our competitors; availability of components~~percentage ~~from our suppliers and the manufacturing capacity~~ of ~~our subcontractors; timing and level of expenditures for sales, marketing and product development; and changes in the prices of our products or of our competitors' products~~revenues.

In addition, we have historically operated with less than one quarter's worth of backlog and a customer order pattern that is skewed toward the later weeks of the quarter. Any significant deferrals of orders for our products would cause a shortfall in revenue for the quarter. Accordingly, we cannot be sure that we will be profitable in any particular quarter.

		Year Ended December 31,

		2008			2007			2006
Revenues			100.0	%		100.0	%		100.0	%
Cost of revenues			73.5			77.3			63.1

	Gross profit		26.5			22.7			36.9
Operating expenses:
	Selling, general and administrative		157.1			189.9			303.3
	Research and development		47.7			43.5			92.3
	Restructuring and other related charges		50.4			—			61.5
	Impairment of intangible assets and long-lived assets		74.4			—			—
	Impairment of goodwill		70.7			—			—

	Total operating expenses		400.3			233.4			457.1

Operating income (loss)			(373.8	)		(210.7	)		(420.2	)
Other income (expense), net			(8.7	)		4.1			10.6

Loss from continuing operations before income taxes			(382.5	)		(206.6	)		(409.6	)

Income tax expense			1.3			1.2			1.0

Net loss from continuing operations			(383.8	)%		(207.8	)%		(410.6	)%

~~For U~~ Revenues.S. Revenues ~~federal~~consist ~~income tax purposes we have net operating loss carryforwards available to reduce taxable income~~ of ~~approximately~~services ~~$59.1 million~~revenues, atincluding ~~December 31,~~managed ~~2001~~services, ~~a portion~~maintenance ofand ~~which~~support may be limited under Internal Revenue Code Section 382. These carryforwards will begin to expire in 2019. We also have a foreign net operating loss carryforward of approximately $13.8 million. We have $3.8 million of tax credits that are composed of federal research and ~~development~~professional ~~credits~~services, and product ~~state~~ and license ~~local~~sales ~~credits.~~provided ~~These~~to ~~credits~~our ~~expire beginning in 2002~~customers.

~~We believe~~ Cost ~~that~~of ~~our~~revenues. Cost of revenues consist primarily of the costs to deliver services and ~~results~~products to our customers, including the costs of delivering and hosting managed services, product and hardware costs and overhead associated with fulfillment operations. ~~have~~Our ~~not~~manufacturing ~~been~~process ~~significantly~~is ~~impacted~~outsourced byto ~~inflation~~a ~~during~~contract ~~the~~manufacturer. ~~past~~The amortization ~~three~~of ~~fiscal~~certain ~~years~~acquired intangible assets and stock-based compensation expense are also included in cost of revenues.

Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries, stock-based compensation, commissions and related personnel and overhead expenses for those engaged in our sales, marketing, executive, finance and administrative activities. The amortization of intangible assets related to acquired customer relationships from Groove Mobile and Openera is also included in selling, general and administrative expenses.

Research and development expenses. Research and development expenses consist primarily of salaries, personnel expenses, stock-based compensation, and other discretionary fees related to the design, development, testing and enhancement of our products and services. These costs are expensed as incurred.

Restructuring and other related charges. Restructuring charges consist of involuntary severance related costs, facility closures or downsizing and disposal of excess or unused assets.

Impairment charges related to goodwill. Impairment charges related to goodwill represent the charges incurred to write down our goodwill to its fair value.

~~All figures~~Table ~~set~~of ~~out in the table below are in thousands, except per share data, and are unaudited.~~ Contents

			Quarter Ended
			31-Mar-00			30-Jun-00		30-Sep-00			31-Dec-00			31-Mar-01			30-Jun-01			30-Sep-01			31-Dec-01
Revenues			$	27,722		$	32,125	$	40,536		$	34,229		$	26,617		$	16,764		$	16,034		$	21,569
Cost of revenues				10,589			11,991		17,450			15,784			11,454			9,379			8,942			11,579
	Gross profit			17,133			20,134		23,086			18,445			15,163			7,385			7,092			9,990
Operating expenses:
	Selling, general and administrative			11,011			11,806		28,840			28,191			21,562			25,772			22,410			17,695
	Research and development			6,984			6,940		8,434			8,847			8,678			10,007			9,186			9,295
	Purchased in-process research and development			—			—		3,300			—			—			—			—			—
	Impairment charges			—			—		—			—			—			55,347			250
	Restructuring and other special charges			—			—		—			—			—			3,037			—			7,992
		Total operating expenses		17,995			18,746		40,574			37,038			30,240			94,163			31,846			34,982
Operating income (loss)				(862	)		1,388		(17,488	)		(18,593	)		(15,077	)		(86,778	)		(24,754	)		(24,992	)
Other income (loss) net				1,976			3,989		2,571			148			(6,202	)		2,639			(3,309	)		(1,676	)
Income (loss) before income taxes				1,114			5,377		(14,917	)		(18,445	)		(21,279	)		(84,139	)		(28,063	)		(26,668	)
Income tax expense (benefit)				78			376		312			14			225			250			(3,652	)		(2,987	)
Net income (loss) before extraordinary item			$	1,036		$	5,001	$	(15,229	)	$	(18,459	)	$	(21,504	)	$	(84,389	)	$	(24,411	)	$	(23,681	)
Extraordinary gain on extinguishment of debt				—			—		—			—			—			—			5,666		$	5,661
Net income (loss)			$	1,036		$	5,001	$	(15,229	)	$	(18,459	)	$	(21,504	)	$	(84,389	)	$	(18,745	)	$	(18,020	)
Basic loss before extraordinary item per common share			$	0.04		$	0.15	$	(0.42	)	$	(0.51	)	$	(0.59	)	$	(2.31	)	$	(0.67	)	$	(0.65	)
Extraordinary gain on extinguishment of debt				—			—		—			—			—						0.16			0.16
Basic net loss per common share			$	0.04		$	0.15	$	(0.42	)	$	(0.51	)	$	(0.59	)	$	(2.31	)	$	(0.51	)	$	(0.49	)
Diluted net loss per common share			$	0.03		$	0.14	$	(0.42	)	$	(0.51	)	$	(0.59	)	$	(2.31	)	$	(0.51	)	$	(0.49	)

Impairment of intangible assets and long-lived assets. Impairment of intangible assets and long-lived assets represent the charges incurred to write down such assets to their fair value.

			Quarter Ended
(Percent of revenues)
			31-Mar-00		30-Jun-00		30-Sep-00		31-Dec-00		31-Mar-01		30-Jun-01		30-Sep-01		31-Dec-01
Revenues			100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues			38.2		37.3		43.0		46.1		43.0		55.9		55.8		53.7
	Gross profit		61.8		62.7		57.0		53.9		57.0		44.1		44.2		46.3
Operating expenses:
	Selling, general and administrative		39.7		36.8		71.1		82.4		81.0		153.7		139.8		82.0
	Research and development		25.2		21.6		20.8		25.8		32.6		59.7		57.3		43.1
	Purchased in-process research and development		—		—		8.2		—		—		—		—		—
	Impairment charges		—		—		—		—		—		330.2		1.5		—
	Restructuring and other special charges		—		—		—		—		—		18.1		—		37.1
		Total operating expenses	64.9		58.4		100.1		108.2		113.6		561.7		198.6		162.2
Operating income (loss)			(3.1	)	4.3		(43.1	)	(54.3	)	(56.6	)	(517.6	)	(154.4	)	(115.9	)
Other income (loss), net			7.1		12.4		6.3		0.4		(23.3	)	15.7		(20.6	)	(7.7	)
Income (loss) before income taxes			4.0		16.7		(36.8	)	(53.9	)	(79.9	)	(501.9	)	(175.0	)	(123.6	)
Income taxes expense (benefit)			0.3		1.2		0.8		0.0		0.8		1.5		(22.8	)	(13.8	)
Net income (loss) before extraordinary item			3.7		15.5		(37.6	)	(53.9	)	(80.7	)	(503.4	)	(152.2	)	(109.8	)
Extraordinary gain on extinguishment of debt			—		—		—		—		—		—		35.3		26.3
Net income (loss)			3.7	%	15.5	%	(37.6	)%	(53.9	)%	(80.7	)%	(503.4	)%	(116.9	)%	(83.5	)%

Other income (expense), net. Other income (expense), net, consists primarily of interest income, interest expense, foreign currency translation and transaction gains and losses and, for the year ended December 31, 2008, an other-than-temporary impairment of Verso common stock.

Discontinued Operations. On December 5, 2008, we sold our NMS Communications Platforms business to Dialogic. On December 21, 2007, we sold our NI Business to Verso. Accordingly, the operating results of the NMS Communication Platforms business and the NI Business have been reclassified as discontinued operations in the consolidated statements of operations for all historic reporting periods.

The NMS Communications Platforms business had revenues of $48.3 million, $69.2 million and $87.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. Income from the discontinued operations was $5.9 million (net of income tax provision of $0.6 million), $18.9 million (net of income tax provision of $0.1 million) and $28.4 million (net of income tax provision of $0.1 million) for the years ended December 31, 2008, 2007 and 2006, respectively. For the year ended December 31, 2008, we recorded a gain on the sale of the transaction of $16.3 million (net of income tax provision of zero).

The NI Business had revenues of $5.4 million and $3.6 million for the years ended December 31, 2007 and 2006, respectively. Loss from the discontinued operations was $0.4 million (net tax effect of zero), $2.4 million (net of income tax benefit of $0.1 million) and $7.7 million (net of income tax benefit of $0.1 million) for the years ended December 31, 2008, 2007 and 2006, respectively. For the year ended December 31, 2007, we recorded a gain on the sale of the transaction of $1.6 million (net of income tax expense of $6,000).

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenues

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Service revenues	$	10.2		65.6	%	$	5.1		38.7	%		99.9	%
Product revenues		5.4		34.4			8.1		61.3			(33.6	)%

Total revenues	$	15.6		100.0	%	$	13.2		100.0	%		18.1	%

We experienced a $2.4 million increase in total revenues for the year ended December 31, 2008, as compared to the year ended December 31, 2007. Service revenues for the year ended December 31, 2008 increased $5.1 million from $5.1 million for the year ended December 31, 2007, primarily due to revenues of $5.6 million from our recently introduced managed service offerings, which includes $4.2 million of revenues from the customer relationships obtained in connection with the acquisition of Groove Mobile in March 2008. Product revenues of our ringback platform decreased $2.7 million due to the variability in the timing of completion of these arrangements and an overall decline in the cap-ex portion of this business through our channel partners. The decrease caused by the variability of timing was offset by the recognition of $2.3 million in handset software distribution royalties from one customer. We recorded $1.3 million of these royalties in the first quarter of 2008. We expect a significant decline in handset software distribution royalties during 2009 and thereafter as this customer has phased out use of the handset product. We expect a continued decline in the cap-ex portion of our ringback platform business as we plan to focus our resources on our managed service offerings in

~~Item~~Table ~~7A. Quantitative~~of ~~and Qualitative Disclosures About Market Risk~~ Contents

~~Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Our investment portfolio of cash equivalents,~~North ~~marketable securities and non-marketable securities are subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments~~America. ~~At December 31~~Additionally, ~~2001,~~ we ~~had~~notified ~~$128.4 million~~channel ofpartners ~~long-term debt outstanding. A hypothetical 10% decrease~~ in ~~our weighted-average borrowing rate at December~~early ~~31,~~2009 ~~2001~~that ~~would~~we do not ~~have~~expect ~~materially affected the year-end carrying value of the debt. Our exposure~~ to ~~currency~~extend ~~exchange rate fluctuations has been moderate due to the fact that the operations of~~ our ~~international~~agreements ~~subsidiaries~~with ~~are~~them ~~primarily~~beyond ~~conducted in~~ their ~~respective~~current ~~local currencies~~terms. ~~During~~They ~~2000,~~may ~~two of our subsidiaries, a U.S.~~make ~~subsidiary~~last-time-buy ~~and~~purchases ain ~~Canadian subsidiary~~2009, ~~entered~~with ~~into~~maintenance ~~an intercompany debt arrangement whereby the U.S. subsidiary issued a loan to the Canadian subsidiary. The debt is denominated in U.S. dollars~~ and ~~will~~ besupport ~~settled~~available ~~during~~for ~~the ordinary course of business. In 2001 and 2000, as~~ a ~~result~~limited oftime ~~remeasuring the debt at each reporting period, we incurred a foreign exchange loss of approximately $4~~thereafter.~~7 million~~ ~~and $2.3 million, respectively. Further transaction losses or gains, which may be material, will be recorded in future reporting periods based upon changes in currency rates at the reporting dates.~~

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Americas	$	5.4		34.4	%	$	3.4		25.6	%		59.0	%
EMEA		6.4		41.2			7.2		54.9			(11.3	)%
Asia		3.8		24.4			2.6		19.5			47.0	%

Total revenues	$	15.6		100.0	%	$	13.2		100.0	%		18.1	%

Revenues derived from the Americas region increased during the year ended December 31, 2008, as compared to the year ended December 31, 2007, primarily due to variability in the timing of completion of our ringback platform arrangements and increased revenue generated from the customer relationships obtained in connection with the acquisition of Groove Mobile in March 2008. The decline in revenues derived from the EMEA region was primarily related to a decline in the cap-ex portion of our business where we sell our services as a bundled product and service (including installation, maintenance and support, and training), primarily through channel partners in this region. Revenues derived from the Asia region increased during the year ended December 31, 2008, as compared to the year ended December 31, 2007, primarily due to the recognition of $2.8 million in handset software royalty and maintenance revenue related to the multiple-element customer license and support arrangement described above.

Cost of Revenues and Gross Profit

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Cost of service revenues	$	9.0		57.4	%	$	5.0		37.8	%		79.3	%
Cost of product revenues		2.5		16.1			5.2		39.5			(51.9	)%

Cost of revenues	$	11.5		73.5	%	$	10.2		77.3	%		12.2	%

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Revenues	$	15.6		100.0	%	$	13.2		100.0	%		18.1	%
Cost of revenues		11.5		73.5			10.2		77.3			12.2	%

Gross profit	$	4.1		26.5	%	$	3.0		22.7	%		38.0	%

~~Item~~ ~~8. Financial~~ Table ~~Statements~~of ~~and~~Contents ~~Supplementary Data.~~

We experienced an increase in our cost of service revenues during the year ended December 31, 2008, as compared to the year ended December 31, 2007, primarily related to the acquisition of Groove Mobile in March, 2008, which increased costs related to delivery of our managed services, as well as amortization of related intangible assets, namely ~~Report~~acquired technology. We experienced a decrease in our cost of ~~Independent~~product ~~Accountants~~ revenues during the year ended December 31, 2008, as compared to the year ended December 31, 2007, primarily due to a decline in product sales related to the cap-ex portion of our ringback platform business. Our gross profit increased during the year ended December 31, 2008, as compared to December 31, 2007, primarily as a result of the recognition of $2.8 million in handset software royalties and maintenance revenues during 2008, which typically are at a higher margin than our other offerings. We expect a significant decline in handset software distribution royalties during 2009.

~~To the~~ ~~Board~~Selling, ofGeneral ~~Directors~~ and ~~Stockholders of NMS Communications Corporation:~~ Administrative

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of NMS Communications Corporation (formerly, Natural MicroSystems Corporation) and its subsidiaries (the "Company") at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Selling, general and administrative	$	24.5		157.1	%	$	25.1		189.9	%		(2.3	)%

~~/s/~~ Selling, ~~PricewaterhouseCoopers~~general ~~LLP~~and administrative expenses decreased $0.6 million to $24.5 million during the year ended December 31, 2008 from $25.1 million in the year ended December 31, 2007. The decrease was primarily due to a $2.6 million decrease in compensation expense due to headcount reductions and deferred compensation due to the full vesting of Openera options and restricted stock as of August 2008, partially offset by a $1.5 million increase in consulting expenses related to the purchase of Groove Mobile and the sale of the NMS Communications Platforms business. As a result of the sale of the NMS Communications Platforms business and our restructuring actions in 2008, we expect selling, general and administrative costs to significantly decline in 2009.

~~PricewaterhouseCoopers LLP Boston,~~ ~~Massachusetts January 16,~~Research ~~2002,~~and ~~except for Note 17 as to which the date is February 13, 2002~~ Development

	Year Ended December 31,

	2008					2007
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Research and development	$	7.5		47.7	%	$	5.7		43.5	%		29.7	%

Our research and development spending increased $1.7 million during the year ended December 31, 2008, as compared to the year ended December 31, 2007. The increase was primarily attributable to a $1.8 million increase in personnel and related costs associated with current development initiatives as well as the Groove Mobile acquisition during the first quarter of 2008. Our research and development activities are primarily focused on opportunities relating to mobile personalization applications and enhancing our current service offerings.

Impairment of Intangible Assets and Long-lived Assets

In accordance with SFAS 144, we performed an assessment as of December 31, 2008, and determined that a triggering event had occurred. The continued marked decline of our common stock during the fourth quarter of 2008 (a 75% decline during the fourth quarter of 2008), along with an anticipated impairment of goodwill, were indicators that the carrying value of our long-lived assets might not be recoverable. We performed our assessment at the asset group level which represented the lowest level of cash flows that are largely independent of cash flows of other assets and liabilities. For LiveWire Mobile, this asset grouping is at the reporting unit level and consists of acquired technology and customer relationships (which were recorded as a result of the acquisitions of Groove Mobile and

Table ~~NMS~~of ~~Communications Corporation Consolidated Balance Sheets~~ Contents

				December 31,
				2000			2001
				(In thousands except share and per share data)
Assets
Current assets:
		Cash and cash equivalents		$	280,152		$	84,010
		Marketable securities			29,002			77,168
		Accounts receivable, net of allowance for doubtful accounts of $1,260 and $1,178, respectively			18,840			12,540
		Inventories			7,781			11,062
		Prepaid expenses and other assets			5,189			4,263
		Income tax receivable			2,278			2,548
			Total current assets		343,242			191,591
Property and equipment, net					19,768			20,768
Other assets					16,340			5,587
Goodwill and other intangibles, net					119,428			101,159
			Total assets	$	498,778		$	319,105
Liabilities and Stockholders' Equity
Current liabilities:
		Accounts payable			6,576			5,763
		Accrued expenses and other liabilities			25,218			21,171
			Total current liabilities		31,794			26,934
Long-term debt less current portion					175,000			128,432
Commitments and contingencies (see note 15)
Stockholders' equity:
		Common stock, $.01 par value; 125,000,000 shares authorized at December 31, 2000 and 2001, 36,494,753 and 36,728,965 shares issued at December 31, 2000 and 2001, respectively, and 36,401,236 and 36,328,965 shares outstanding at December 31, 2000 and 2001, respectively			364			367
	Additional paid-in capital				375,663			366,969
	Accumulated deficit				(49,631	)		(192,289	)
	Accumulated other comprehensive loss				(1,065	)		(383	)
	Deferred compensation				(31,028	)		(9,049	)
	Notes receivable from common stockholders				(96	)		—
	Treasury stock, at cost, 93,517 and 400,000 shares in 2000 and 2001, respectively				(2,223	)		(1,876	)
	Total stockholders' equity				291,984			163,739
			Total liabilities and stockholders' equity	$	498,778		$	319,105

Openera), property and equipment, managed service assets, and long term deposits on leased space. When performing this test at the reporting unit level, goodwill is included in the carrying value of the asset group. We assessed the recoverability of the carrying value of our long-lived assets based on estimated undiscounted cash flows to be generated from such assets. The carrying value of the reporting unit, including goodwill (prior to the goodwill impairment charge described below), was greater than the undiscounted cash flows, indicating an impairment. We performed step two of the impairment test and determined there was a full impairment of our intangible assets and a partial impairment of the property and equipment and deposits, reducing those assets to their fair value. The fair value was determined based on the price that a willing buyer would pay in an orderly liquidation of those assets. As a result, we recorded an impairment charge of $9.6 million related to the intangible assets and $2.0 million related to other long-lived assets, including managed service assets of $1.1 million, property and equipment of $0.8 million and other long-lived assets of $0.1 million. We also reassessed the depreciation method and remaining depreciation period for the property and equipment, and determined that no changes to the depreciation period or method were necessary.

~~The accompanying~~ ~~notes~~Impairment ~~are an integral part~~ of ~~the consolidated financial statements.~~ Goodwill

We performed our annual impairment assessment of goodwill as of December 31, 2008. Our assessment for impairment was conducted in accordance with SFAS 142, which required us to determine the fair value of the Company as a whole since it is considered the reporting unit to which all goodwill is allocated. We estimated the fair value of the reporting unit utilizing industry accepted valuation techniques that included the present value of estimated future cash flows using a risk-adjusted discount rate, and a market multiple approach, which considered our market capitalization adjusted for a control premium. These valuation techniques require significant judgments by management, including estimates and assumptions about our projected future operating results, discount rates, and long-term growth rates. Our forecasts of future revenue were based on expected future growth from new as well as existing customers, and historical trends. In addition, we considered the expected gross margins attainable in the future and the required level of operating expenses needed to conduct our business.

Step one of our impairment assessment resulted in the carrying value of the reporting unit exceeding the fair value. In step two of our impairment analysis, we compared the implied fair value of goodwill to its carrying value. The implied fair value of goodwill was determined to be zero. Consequently, we determined that goodwill was fully impaired, resulting in an impairment charge of $11.0 million as of December 31, 2008.

Restructuring and Other Related Charges

In the fourth quarter of 2008, we committed to several cost reduction plans focused on streamlining our operations and the elimination of certain fixed costs. We eliminated 27 employee positions, primarily in the sales and marketing area of our business, to better position us to improve operating margins in response to adverse market conditions experienced in 2008. This action resulted in restructuring charges of $0.5 million, consisting primarily of employee severance-related costs. In connection with the sale of our NMS Communications Platforms business to Dialogic and in an effort to improve operating margins by eliminating business roles and functions which are not necessary for the go-forward business, we eliminated 20 employee positions which resulted in additional restructuring charges of $2.1 million, consisting primarily of employee severance-related costs.

Also in connection with the sale of our NMS Communications Platforms business, we pursued an exit plan to reduce our costs under a lease agreement for the office space at 100 Crossing Boulevard located in Framingham, Massachusetts. On December 30, 2008, we entered into a Lease Termination Agreement with our landlord and exited the space at 100 Crossing Boulevard by December 31, 2008. As a result, we recorded additional restructuring charges of $3.6 million related to 100 Crossing Boulevard, including $2.4 million of lease termination expenses and associated facility-related costs,

Table ~~NMS Communications Corporation Consolidated Statements~~ of ~~Operations~~ Contents

			Year Ended December 31,
			1999			2000			2001
			(In thousands except for per share data)
Revenues			$	79,476		$	134,612		$	80,984
Cost of revenues				31,520			55,814			41,354
Gross profit				47,956			78,798			39,630
Operating expenses:
	Selling, general and administrative			39,976			79,848			87,439
	Research and development			24,705			31,205			37,166
	Purchased in-process research and development			—			3,300			—
	Impairment charges			—			—			55,597
	Merger related expenses			1,235			—			—
	Restructuring and other special charges			(91	)		—			11,029
		Total operating expenses		65,825			114,353			191,231
Operating loss				(17,869	)		(35,555	)		(151,601	)
	Interest income			849			11,947			12,613
	Interest expense			(239	)		(2,640	)		(8,320	)
	Other			(429	)		(623	)		(12,841	)
		Other income (loss), net		181			8,684			(8,548	)
Loss before income taxes and extraordinary item				(17,688	)		(26,871	)		(160,149	)
	Income tax expense (benefit)			1,000			780			(6,164	)
Net loss before extraordinary item				(18,688	)		(27,651	)		(153,985	)
	Gain on early extinguishment of debt, net of tax
	expense of $7,551			—			—			11,327
Net loss			$	(18,688	)	$	(27,651	)	$	(142,658	)
Basic:
	Basic loss before extraordinary item per common share		$	(0.81	)	$	(0.83	)	$	(4.21	)
	Extraordinary gain on extinguishment of debt			—			—			0.31
	Basic net loss per common share		$	(0.81	)	$	(0.83	)	$	(3.90	)
	Weighted average basic shares outstanding			22,965			33,147			36,551
Diluted:
	Diluted loss before extraordinary item per common share		$	(0.81	)	$	(0.83	)	$	(4.21	)
	Extraordinary gain on extinguishment of debt			—			—			0.31
	Diluted net loss per common share		$	(0.81	)	$	(0.83	)	$	(3.90	)
	Weighted average shares outstanding			22,965			33,147			36,551

$0.9 million of leasehold improvement write-off costs and $0.3 million of broker fees. The Lease Termination Agreement requires cash termination payments in 2009 totaling $2.0 million, cash termination payments in 2010 of $1.0 million, and cash termination payments in 2011 of $0.1 million. The Lease Termination Agreement resulted in annual cost savings of approximately $2.6 million through May 2012. We also recorded a facility-related restructuring charge of $0.1 million related to our London office.

~~The~~ During ~~accompanying~~the ~~notes~~fourth ~~are~~quarter anof ~~integral~~2008, ~~part~~we updated our analysis of the ~~consolidated~~restructuring ~~financial~~costs ~~statements~~recorded in the first quarter of 2008 in connection with a restructuring event for an exit plan to vacate the Groove Mobile corporate headquarters. As a result, we recorded additional restructuring costs of approximately $0.1 million relating to additional real estate tax and operating costs.

In the third quarter of 2008, in order to further reduce operating costs, we eliminated one employee position which resulted in restructuring charges of $39,000.

In the second quarter of 2008, we recorded a restructuring charge of $1.0 million. Of this amount, $0.4 million related to exited office space located at our former headquarters at 100 Crossing Boulevard in Framingham, Massachusetts. We consolidated our use of office space subsequent to our relocation of our continuing operations to Littleton, Massachusetts in May 2008. We also recorded a facility-related restructuring charge of $0.1 million related to consolidation of our France office. In connection with the facility exit activities, we wrote down $0.5 million of fixed assets associated with the exited space, primarily consisting of leasehold improvements.

In the first quarter of 2008, in order to reduce operating costs, we eliminated nine employee positions in anticipation of synergies associated with the acquisition of Groove Mobile, which resulted in restructuring charges of $0.4 million, all of which was employee severance-related costs. In connection with the acquisition of Groove Mobile, we created an exit plan to vacate the Groove Mobile corporate headquarters and relocate employees to the LiveWire Mobile corporate headquarters. We recorded a facility exit cost of $0.3 million, which represents the estimated remaining net facility-related costs during the lease term.

There were no restructuring charges in 2007.

The following table sets forth activity during the years ended December 31, 2007 and 2008:

	Employee Related			Facility Related			Fixed Asset Write-offs			Other			Total

	(In thousands)
Restructuring accrual balance at December 31, 2006	$	791		$	3,541		$	—		$	—		$	4,332
Cash payments		(711	)		(866	)		—			—			(1,577	)
Adjustments		(80	)		74			—			—			(6	)

Restructuring accrual balance at December 31, 2007	$	—		$	2,749		$	—		$	—		$	2,749
Restructuring and other related charges		2,898			3,332			1,398			243			7,871
Restructuring for a business combination		—			311			—			—			311
Cash payments		(1,251	)		(1,533	)		—			—			(2,784	)
Non-cash adjustment		—			—			—			(243	)		(243	)
Write-off of property and equipment		—			—			(1,398	)		—			(1,398	)
Accretion of deferred rent		—			47			—			—			47
Reclassification of deferred rent		—			665			—			—			665

Restructuring accrual balance at December 31, 2008	$	1,647		$	5,571		$	—		$	—		$	7,218

Facilities and employee related restructuring charges are expected to be settled by May 2012 and June 2009, respectively.

~~NMS~~Table ~~Communications Corporation Consolidated Statements~~ of ~~Stockholders' Equity~~ Contents

		Preferred stock				Common stock											Accumulated other comprehensive loss						Notes receivable from common stockholders
											Additional paid-in capital			Accumulated earnings (deficit)						Deferred compensation						Treasury stock			Total stockholders equity			Comprehensive income (loss)
		Shares		Amount		Shares		Amount
		(in thousands)
Balance, December 31, 1998		38		$	—	23,903		$	239		$	68,523		$	(3,292	)	$	(48	)	$	(110	)	$	(99	)	$	—		$	65,213		$	(6,171	)
	Exercise of common stock options and warrants					737			7			2,285																		2,292
	Conversion of preferred into common	(38	)			784			8			140																		148
	Amortization of deferred compensation																				110									110
	Issuance of common stock under employee purchase plan					109			1			235																		236
	Stock repurchase					(200	)		(2	)																	(1,058	)		(1,060	)
	Tax benefit related to stock options											2,165																		2,165
	Treasury stock used in ESPP Plan					187			2			(552	)														990			440
	Change in market value of securities available for sale																	93												93			93
	Foreign currency translation adjustment																	(436	)											(436	)		(436	)
	Net loss														(18,688	)														(18,688	)		(18,688	)
Balance, December 31, 1999		—		$	—	25,520		$	255		$	72,796		$	(21,980	)	$	(391	)	$	—		$	(99	)	$	(68	)	$	50,513		$	(19,031	)
	Exercise of common stock options and warrants					1,295			13			5,911																		5,924
	Stock issued in follow-on offering, net of offering costs of $9,644					6,900			69			174,862																		174,931
	Stock issued in acquisition of IML					2,635			26			118,324																		118,350
	Issuance of common stock under employee purchase plan					144			1			2,170															68			2,239
	Settlement of QWES.com escrow					(73	)					1,600															(1,600	)		—
	Deferred compensation																				(39,696	)								(39,696	)
	Amortization of deferred compensation																				8,668									8,668
	Stock repurchase					(20	)																				(623	)		(623	)
	Debt repayment by common stockholders																							3						3
	Foreign currency translation adjustment																	(674	)											(674	)		(674	)
	Net loss														(27,651	)														(27,651	)		(27,651	)
Balance, December 31, 2000		—		$	—	36,401		$	364		$	375,663		$	(49,631	)	$	(1,065	)	$	(31,028	)	$	(96	)	$	(2,223	)	$	291,984		$	(28,325	)
	Exercise of common stock options and warrants					149			1			464																		465
	Issuance of common stock under employee purchase plan					295			3			(962	)														2,223			1,264
	Stock issued under Mobilee merger agreement					19			—			—																		—
	Stock forfeited under IML merger agreement					(135	)		(1	)		(9,129	)								9,130									—
	Deferred compensation											933									(1,933	)								(1,000	)
	Amortization of deferred compensation																				14,782									14,782
	Stock repurchase																										(1,876	)		(1,876	)
	Debt repayment by common stockholders																							96						96
	Change in market value of securities available for sale																	113												113			113
	Foreign currency translation adjustment																	569												569			569
	Net loss														(142,658	)														(142,658	)		(142,658	)
Balance, December 31, 2001		—		$	—	36,729		$	367		$	366,969		$	(192,289	)	$	(383	)	$	(9,049	)	$	—		$	(1,876	)	$	163,739		$	(141,976	)

Other Income (Expense), Net

The accompanying notes are an integral part of the consolidated financial statements.

	Year Ended December 31,

	2008			2007
	(In millions)
Interest income	$	0.2		$	1.2
Interest expense		(0.4	)		—
Other		(1.2	)		(0.7	)

Total other income (expense), net	$	(1.4	)	$	0.5

The decrease in interest income for the year ended December 31, 2008, compared with the year ended December 31, 2007, is attributable to a decrease in our cash, cash equivalents and marketable securities. We recorded $0.4 million of interest expense primarily attributable to our revolving line of credit from which we obtained $2.6 million of net proceeds since June 30, 2008 and capital leases. During the year ended December 31, 2008, we recognized an other-than-temporary impairment charge of $1.9 million related to our Verso common stock holdings. We deemed the impairment to be other-than-temporary as a result of Verso's filing for bankruptcy in April of 2008. This charge is included in other expense, net. Also included in other expense, net, in the year ended December 31, 2008, is a $0.8 million gain related to foreign currency translation. Included in other expense, net, in the year ended December 31, 2007, is a $0.5 million loss related to foreign currency rates.

Income Tax Expense

	Year Ended December 31,

	2008		2007
	(In millions)
Income tax expense	$	0.2	$	0.2

Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 ("FIN 48"), which resulted in no material adjustment in the liability for unrecognized income tax positions.

Income tax expense is primarily due to foreign income and withholding taxes incurred by foreign subsidiaries and additional accruals for uncertain tax positions, as discussed below.

We conduct business globally and, as a result, we or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2000. We are no longer subject to IRS examinations for the years prior to 2004 although carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by the tax authorities if they either have been or will be used in the future. Similar tax law provisions may also apply for state and international tax purposes.

We reached a settlement with the French Authorities regarding the audit for the years 2003-2004. The settlement of $0.2 million was finalized and paid in January 2008. As part of the settlement, we agreed to adjust its gross net operating loss carryforwards and related valuation allowances from $6.3 million to $1.6 million as of December 31, 2006. These gross net operating loss carryforwards had a full valuation allowance against them at December 31, 2007. Based upon the settlement there was no material impact to net income, accumulated deficit or net deferred taxes in any historic periods.

For U.S. federal income tax purposes, we had net operating loss carryforwards available to reduce taxable income of $310.6 million at December 31, 2008, a portion of which may be limited under

Table ~~NMS Communications Corporation Consolidated Statements~~ of ~~Cash Flows~~ Contents

					Years Ended December 31,
					1999			2000			2001
					(In thousands)
Cash flow from operating activities:
	Net loss				$	(18,688	)	$	(27,651	)	$	(142,658	)
Adjustments to reconcile net loss to cash
provided by (used) in operating activities:
	Depreciation and amortization of fixed assets					5,317			6,762			8,952
	Amortization of goodwill and other intangibles					1,264			15,358			23,438
	Foreign exchange translation loss on intercompany debt					—			2,291			4,688
	Loss on impairment of fixed assets					—			—			3,069
	Loss on impairment of goodwill and other intangibles					—			—			55,985
	(Gain) loss on minority investments					—			(2,228	)		7,000
	Gain on repurchase of convertible notes					—			—			(18,878	)
	Write-off of debt issuance costs					—			—			1,222
	Amortization of bond issuance costs					—			237			1,074
	Deferred stock compensation expense amortized or accrued					110			13,356			14,782
	Purchased in-process research and development					—			3,300			—
	Deferred income taxes					4,820			—			—
	Tax benefit from stock option exercises					2,165			—			—
	Other operating activities					163			(605	)		101
	Changes in operating assets and liabilities,
		net of effects of acquisition:
			Accounts receivable			5,132			(3,035	)		6,068
			Inventories			4,195			3,202			4,325
			Prepaid expenses and other assets			529			(1,725	)		299
			Income tax receivable			(2,002	)		1,385			(438	)
			Accounts payable			1,619			(1,480	)		(2,364	)
			Accrued expenses and other liabilities			2,975			5,399			(2,083	)
				Cash provided by (used in) operating activities		7,599			14,566			(35,418	)
Cash flow from investing activities:
	Additions to property and equipment					(6,194	)		(10,479	)		(12,798	)
	Purchases of marketable securities					(17,326	)		(672,777	)		(254,511	)
	Proceeds from the sale of marketable securities					16,393			650,570			206,022
	Acquisition of IML business, net of cash acquired					—			(65,836	)		—
	Acquisition of Mobilee, net of cash acquired					—			—			(12,218	)
	Acquisition of VES business					—			—			(61,627	)
	Proceeds from sale of investments					—			5,728			—
	Purchase of investments					—			(7,410	)		—
	Proceeds from the sale of property & equipment					61			194			—
	Additions to other assets and intangibles					(159	)		(64	)		(3	)
	Additions to goodwill for contingent payments					(515	)		—			—
	Receipts on notes receivable					—			984			1,500
				Cash used in investing activities		(7,740	)		(99,090	)		(133,635	)
Cash flow from financing activities:
	Repayment of long-term debt					—			—			(27,430	)
	Proceeds from the issuance of notes payable					2,256			—			—
	Payments of notes payable					—			(2,588	)		—
	Proceeds from issuance of common stock					2,125			8,111			1,729
	Issuance of common stock, net of issuance costs of $9,642					—			174,931			—
	Issuance of convertible notes					—			175,000			—
	Payment of issuance costs on convertible notes					—			(5,698	)		—
	Repurchase of common stock					(1,058	)		(623	)		(1,876	)
	Issuance of repurchased treasury common stock					990			68			—
	Other financing activities					(105	)		(24	)		62
				Cash provided by (used in) financing activities		4,208			349,177			(27,515	)
Effect of exchange rate changes on cash						378			(1,118	)		426
Net increase in cash and cash equivalents						4,445			263,535			(196,142	)
Cash and cash equivalents, beginning of year						12,172			16,617			280,152
Cash and cash equivalents, end of year					$	16,617		$	280,152		$	84,010
Supplemental cash flow information:
	Interest paid				$	239		$	674		$	8,922
	Taxes paid					197			242			1,280
Noncash transactions:
	Issuance of warrants					147			—			—
	Acquisition of treasury stock through settlement of QWES.com escrow					—			1,600			—
	Acquisition of business:
		Fair value of assets acquired, net of cash acquired				—			189,448			74,254
		Fair value of liabilities assumed				—			5,262			409
		Fair value of stock issued and common stock options exchanged				—			118,350			—
		Acquisition of business, net of cash acquired				—			65,836			73,845

Internal Revenue Code Section 382 in future years. Unutilized carryforwards will begin to expire in 2009 if unutilized. We also had foreign net operating loss carryforwards of $18.8 million. As of December 31, 2008, we had approximately $6.1 million of tax credits in the U.S. that are composed of federal research and development tax credits and state and local credits. These unutilized credits will begin to expire in 2009 if unutilized. In addition, we had Canadian investment tax credits of approximately $5.1 million as of December 31, 2008. These credits will begin to expire in 2014 if unutilized.

~~The~~ United States ~~accompanying~~income ~~notes~~taxes ~~are~~were annot ~~integral~~provided ~~part~~on cumulative undistributed earnings for certain non-U.S. subsidiaries of ~~the~~approximately ~~consolidated~~$5.8 million. ~~financial~~We ~~statements~~intend to reinvest these earnings indefinitely in our operations outside the U.S.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenues

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Service revenues	$	5.1		38.7	%	$	4.1		46.3	%		24.4	%
Product revenues		8.1		61.3			4.8		53.7			69.5	%

Total revenues	$	13.2		100.0	%	$	8.9		100.0	%		48.6	%

We experienced growth in our revenues during the year ended December 31, 2007, as compared to the year ended December 31, 2006, as a result of increased demand for our MyCaller Ringback Platform and related services. This increase was due to expansion orders from existing customers, as our customers experienced growth in subscribers, and additional new customers through our indirect channel. We continued to see growth in this area through new and existing operator deployments around the world. Also, in the fourth quarter of 2007, we recognized $0.5 million related to our managed service offerings, which we introduced in 2007.

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Americas	$	3.4		25.6	%	$	3.3		37.5	%		1.3	%
EMEA		7.2		54.8			5.4		60.9			33.9	%
Asia		2.6		19.6			0.2		1.6			1,667.8	%

Total revenues	$	13.2		100.0	%	$	8.9		100.0	%		48.6	%

For the year ended December 31, 2007, revenues derived from the Americas region increased slightly as compared to the year ended December 31, 2006, due to expansions orders from existing customers. For the year ended December 31, 2007, as compared to the year ended December 31, 2006, we experienced an increase in the revenues from the EMEA region due to the increase in demand for our products and services. Revenues attributable to the Asia market increased during the year ended December 31, 2007, as compared to the year ended December 31, 2006, due to growth in sales of our MyCaller Ringback Platform and related services through our indirect channel.

Table ~~NMS~~of ~~Communications Corporation Notes to Consolidated Financial Statements~~ Contents

~~1—Summary~~ Cost of ~~Significant~~Revenues ~~Accounting~~and ~~Policies~~Gross Profit

Business Description

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Cost of service revenues	$	5.0		37.8	%	$	1.8		19.8	%		184.7	%
Cost of product revenues		5.2		39.5			3.8		43.3			35.6	%

Cost of revenues	$	10.2		77.3	%	$	5.6		63.1	%		82.3	%

NMS Communications Corporation (the "Company") provides complete, open systems to the world's leading wireless and wireline network operators and network equipment providers. These systems enable communications service providers to rapidly create new services, including voice quality enhancements and voice application systems. The Company provides system building blocks that enable network equipment manufacturers and solutions developers to rapidly develop and deploy new voice communications services in wireless, wireline and enterprise networks.

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Revenues	$	13.2		100.0	%	$	8.9		100.0	%		48.6	%
Cost of revenues		10.2		77.3			5.6		63.1			82.3	%

Gross profit	$	3.0		22.7	%	$	3.3		36.9	%		(8.8	)%

~~Principles~~ We experienced a decrease in gross profit in the year ended December 31, 2007, as compared to the year ended December 31, 2006, primarily due to increased costs associated with investments in our professional and technical services delivery capabilities related to the cap-ex portion of ~~Consolidation~~ our business.

~~The~~ ~~consolidated~~Selling, ~~financial~~General ~~statements include the accounts of the Company~~ and ~~its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated.~~ Administrative

Reclassifications

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Selling, general and administrative	$	25.1		189.9	%	$	27.0		303.3	%		(6.9	)%

~~Certain~~Selling, general ~~prior~~and administrative expenses decreased during the year ~~amounts~~ended ~~have~~December 31, ~~been~~2007, ~~reclassified~~compared to ~~conform~~the toyear ended December 31, 2006. The decrease was primarily comprised of a $1.7 million decrease in personnel and related costs, including travel and related costs that resulted from the ~~current~~restructuring ~~year's~~actions ~~presentation~~taken in the second half of 2006 and other personnel reductions.

~~Use~~ ofResearch ~~Estimates~~and Development

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to revenue recognition, accounts receivable, inventories, investments, intangible assets, income taxes, restructuring and other special charges, and accounting for acquisitions. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

	Year Ended December 31,

	2007					2006
	Amount		% of Revenues			Amount		% of Revenues			Change
	(In millions)					(In millions)
Research and development	$	5.7		43.5	%	$	8.2		92.3	%		(30.1	)%

~~Foreign~~ Our research ~~Currency~~and ~~Translation~~ development spending decreased during the year ended December 31, 2007 in comparison to the year ended December 31, 2006. This decrease was primarily attributable to a decrease in personnel and related costs as a result of the restructuring actions taken in the second half of 2006. Our research and development spending was directed to enhance our existing MyCaller Ringback Platform product line.

~~Assets~~ ~~and~~Restructuring liabilities of the Company's subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Revenues and ~~expenses~~Other ~~are~~Related translated at the average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within shareholders' equity. Gains and losses resulting from foreign currency transactions are included in other income (expense), net and were immaterial for 1999. During 2000, two of the Company's subsidiaries, a U.S. subsidiary and a Canadian subsidiary, entered into an intercompany debt arrangement whereby the U.S. subsidiary issued a loan to the Canadian subsidiary. The debt is denominated in U.S. dollars and will be settled during the ordinary course of business. In 2000 and 2001, as a result of remeasuring the debt at each reporting period, the Company incurred a foreign exchange loss of approximately $2.3 million and $4.7 million, respectively. Further transaction losses or gains, which may be material, will be recorded in future reporting periods based upon changes in currency rates at the reporting dates. Charges

There were no restructuring charges in 2007.

~~Revenue~~ ~~Recognition~~ Table of Contents

~~Revenue~~In ~~from~~the ~~product~~fourth ~~sales~~quarter isof ~~generally~~2006, ~~recognized~~in ~~upon~~order ~~shipment~~to ~~providing~~further ~~that~~reduce ~~persuasive~~operating ~~evidence~~costs, ofwe aneliminated ~~arrangement~~40 ~~exists~~employee positions, ~~the~~which ~~sales~~resulted ~~price~~in isrestructuring ~~fixed~~charges orof ~~determinable,~~$1.9 million. ~~collection~~These ischarges ~~reasonably~~primarily ~~assured~~consisted ~~and~~of ~~title~~severance-related ~~and~~costs. ~~risk~~In the fourth quarter of ~~loss~~2006, ~~have~~we ~~passed~~also entered into an agreement to sublease to a third party office space located in Framingham, Massachusetts, which was formerly used by the ~~customer~~Company as supplementary conference, training and corporate office space (the "2006 sublease"). IfWe aexited ~~future~~this ~~obligation~~facility toas ~~install~~of December 31, 2006 and recorded pre-tax restructuring charges of $1.4 million during the ~~system~~year orended toDecember 31, ~~obtain~~2006. ~~customer~~In ~~acceptance~~2001 ~~exists~~and 2002, ~~revenues~~the Company recorded restructuring charges ~~are~~related ~~deferred~~to ~~until~~other exited space in this ~~obligation~~facility, ~~has~~equal ~~been~~to ~~met~~the difference between committed lease payments and the estimated sublease rental income for such space. ~~The~~During ~~Company~~the ~~does~~fourth ~~not~~quarter ~~offer~~of ~~rights~~2006, we updated our analysis of ~~return~~the onestimated ~~sales~~sublease ~~made~~rental ~~through~~income ~~its~~based ~~direct~~on ~~sales~~the ~~force.~~signing ~~The~~of ~~Company~~the ~~does~~2006 ~~offer~~sublease, ~~quarterly~~and ~~return~~other ~~rights~~expected tomarket conditions. As a ~~limited~~result, we recorded additional pre-tax ~~number~~restructuring costs of ~~indirect~~approximately ~~channel~~$0.9 million. ~~customers~~The ~~that~~actions ~~allow~~resulted ~~the~~in ~~indirect~~annual ~~channel~~costs ~~customer~~savings toof ~~rotate~~approximately a$2.6 million, ~~percentage~~which consists of ~~its~~$2.1 million ~~inventory~~of ~~based~~personnel onrelated costs ~~its~~and ~~prior~~$0.5 million ~~quarter~~of ~~purchases~~reduced facility related costs. The ~~Company~~following ~~provides~~table ~~for~~illustrates ~~these~~the ~~return~~components ~~rights~~of ~~each~~the ~~quarter~~restructuring byand ~~deferring~~other ~~revenue~~related ~~equal~~charges toincurred during the ~~estimated~~year ~~return~~ended December 31, ~~amount~~2006.

~~The~~In ~~Company's~~the ~~products~~third ~~are~~quarter ~~generally~~of a2006, ~~bundled~~in ~~hardware~~order ~~and~~to ~~software~~reduce ~~solution~~operating ~~that~~costs, ~~are~~we ~~shipped~~eliminated ~~together.~~17 ~~The~~employee ~~Company~~positions ~~offers~~and aclosed ~~warranty~~our onengineering ~~all~~facility ofin ~~its~~Red ~~products~~Bank, ~~that~~New ~~generally~~Jersey, ~~provides~~which ~~for~~resulted in itrestructuring toand ~~repair~~other orrelated ~~replace~~charges ~~any~~of ~~defective~~$1.3 million. ~~product~~These ~~within~~charges ~~eighteen~~consisted ~~to twenty-four months~~ of ~~the invoice date~~$0.8 million ~~Based~~of ~~upon~~employee ~~historical~~severance-related ~~experience~~costs, ~~and~~$0.4 million ~~expectation~~ of ~~future~~lease ~~conditions,~~termination ~~the Company reserves for the estimated~~ costs ~~to fulfill customer warranty~~ and $0.1 million ~~other contractual obligations upon the recognition~~ of ~~the~~fixed ~~related~~asset ~~revenue~~write-offs.

~~Shipping~~The ~~and~~following ~~handling~~table ~~fees,~~sets ifforth ~~any,~~restructuring ~~billed~~activity toduring ~~customers~~the ~~are~~years ~~recognized~~ended asDecember 31, ~~revenue.~~2006 ~~The~~and ~~related~~2007: ~~costs are recognized in cost of revenues.~~

Service revenue represents 8.4%, 5.8% and 6.5% of revenue for the years ended December 31, 2001, 2000 and 1999, respectively. Service revenue is primarily comprised of consulting services and technical support services. Consulting services consist of hardware and/or software customization projects provided to customers through consulting contracts. The Company recognizes revenue for consulting services based on the percentage-of-completion method for fixed fee contracts and as the services are performed for time and materials contracts. Technical support services, which are sold separately from products, consist of on-site support, telephone support, system hosting and training. The Company recognizes revenue for technical support services ratably over the contractual period or as services are provided, based on the nature of the service. The Company does not provide maintenance service or rights to upgrades or enhancements on any of its products.

		Employee Related			Facility Related			Fixed Asset Write-offs			Total

		(In thousands)
Restructuring accrual balance at December 31, 2005		$	—		$	916		$	—		$	916
Restructuring and other related charges			2,653			2,710			106			5,469
Cash payments			(1,862	)		(702	)		—			(2,564	)
Reclassification of deferred rent			—			617			—			617
Write-off of property and equipment			—			—			(106	)		(106	)

Restructuring accrual balance at December 31, 2006		$	791		$	3,541		$	—		$	4,332
Cash payments			(711	)		(866	)		—			(1,577	)
Adjustments			(80	)		74			—			(6	)

	Restructuring accrual balance at December 31, 2007	$	—		$	2,749		$	—		$	2,749

~~Cash~~ The facility ~~Equivalents~~ related obligation is expected to be settled by May 2012.

~~Cash~~ ~~equivalents~~Other ~~include~~Income ~~short-term~~(Expense), ~~investments with remaining maturities of three months or less at date of purchase.~~ Net

Investments

	Year Ended December 31,

	2007			2006
	(In millions)
Interest income	$	1.2		$	1.7
Other		(0.7	)		(0.8	)

Total other income (expense), net	$	0.5		$	0.9

The decrease ~~Company classifies all of its investments~~ in ~~marketable~~interest ~~securities~~income ~~as available-~~for~~-sale~~ ~~securities.~~the ~~These~~year ~~securities~~ended ~~are~~December 31, ~~stated at market value~~2007, ~~with unrealized gains and losses reflected~~ as ~~other~~compared ~~comprehensive~~with ~~income~~the ~~(loss)~~year inended ~~stockholders'~~December 31, ~~equity.~~2006, ~~The amortized cost of debt securities~~ is ~~adjusted~~attributable ~~for amortization of premiums and accretion of discounts~~ to ~~maturity~~a $2.1 million ~~Such amortization and accretion are included~~ decrease in ~~interest~~our ~~income.~~cash, ~~Realized~~cash ~~gains~~equivalents and ~~losses on~~ marketable securities, ~~are~~as ~~included~~well inas ~~earnings~~a ~~and~~decrease ~~are~~in ~~derived using~~interest ~~the specific identification method for determining the cost of securities~~rates. ~~Other~~Included ~~equity investments~~ in ~~which~~other ~~the~~expense, ~~Company~~net, ~~does~~in ~~not have~~ the ability to exercise significant influence and for which there is not a readily determinable market value are accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of its investments for other than temporary impairment.

~~Advertising~~ Table of Contents

~~Advertising~~years ended ~~costs~~December 31, ~~are~~2007 ~~expensed~~and ~~when~~2006 ~~incurred~~are $0.5 million and ~~were~~$0.7 million, ~~immaterial~~respectively, ~~for~~of ~~each~~loss ofrelated ~~the~~to ~~years~~foreign ~~presented~~exchange.

~~Inventories~~ Income Tax Expense

Inventories are valued at the lower of cost (first-in, first-out method) or market. Reserves related to excess and obsolete inventory are based primarily on estimated forecast of product demand and production requirements over the next twelve months.

	Year Ended December 31,

	2007		2006
	(In millions)
Income tax expense	$	0.2	$	0.1

~~Property~~ Effective January 1, ~~and~~2007, ~~Equipment~~ we adopted the provisions of FIN 48, which resulted in no material adjustment in the liability for unrecognized income tax benefits.

~~Property~~Income tax ~~and~~expense ~~equipment~~is ~~are~~primarily ~~recorded~~due atto ~~cost.~~foreign ~~Depreciation~~income isand ~~based~~withholding ontaxes ~~the~~incurred ~~following~~by ~~estimated~~foreign ~~useful~~subsidiaries, ~~lives~~withholding oftaxes ~~the~~in ~~assets~~certain ~~using~~jurisdictions, ~~the~~and ~~straight-line~~additional accruals for ~~method:~~uncertain tax positions, as discussed below.

Machinery and equipment		3 years
Computer equipment		3-5 years
Furniture and fixtures		5 years
Telecommunications computer equipment		5 years
Leasehold improvements		Shorter of the lease term or economic life

~~Expenditures~~We reached a settlement with the French Authorities regarding the audit for ~~additions,~~the ~~renewals~~years ~~and~~2003-2004. ~~betterments~~The settlement of ~~property~~$0.2 million was finalized and ~~equipment~~paid ~~are~~in ~~capitalized~~January 2008. As ~~Expenditures~~part ~~for~~of ~~repairs~~the settlement, we agreed to adjust its gross net operating loss carryforwards and ~~maintenance~~related ~~are~~valuation ~~charged~~allowances from $6.3 million to ~~expense~~$1.6 million as ~~incurred~~of December 31, 2006. AsThese ~~assets~~gross ~~are retired~~net oroperating ~~sold,~~loss ~~the~~carryforwards ~~related~~had ~~cost~~a ~~and~~full ~~accumulated~~valuation ~~depreciated~~allowance ~~are~~against ~~removed~~them ~~from~~at ~~the~~December 31, ~~accounts~~2007 and ~~any~~December 31, ~~resulting~~2006. ~~gain~~Based upon the settlement there was no material impact to net income, accumulated deficit or ~~loss~~net isdeferred ~~included~~taxes in ~~the~~any ~~results~~historic ~~of operations~~periods.

~~Goodwill~~ For U.S. federal income tax purposes, we had net operating loss carryforwards available to reduce taxable income of $201.2 million at December 31, 2007. Of this amount, $21.1 million related to deductions from the exercise of stock options, of which $1.5 million is tracked separately and ~~Other~~not ~~Intangibles~~ included in our deferred tax asset in accordance with SFAS 123R. The future benefit from these deductions will be recorded as a credit to additional paid-in capital when realized. Under the provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), Section 382, certain changes in our ownership structure may result in a limitation on the amount of net operating loss carryforwards and research and development tax credit carryforwards that may be used in future years. These carryforwards began to expire in 2008. We also had foreign net operating loss carryforwards of $20.5 million. As of December 31, 2007, we had approximately $6.5 million of tax credits in the U.S. that are composed of federal research and development tax credits and state and local credits. These credits would begin to expire in 2009 if unutilized. In addition, we had Canadian investment tax credits of approximately $5.0 million as of December 31, 2007. These credits begin to expire in 2014 if unutilized.

~~Goodwill, which is being amortized on a straight-line basis over its estimated useful life of five years, was $106.7 million and~~United ~~$69.2 million,~~States ~~net,~~income attaxes ~~December 31, 2000 and 2001, respectively. Accumulated amortization was $14.7 million and $28.5 million as of December 31, 2000 and 2001, respectively. Other intangible assets~~ were ~~$12.7 million~~not ~~and~~provided ~~$31.9 million, net, at December 31, 2000 and 2001, respectively. These amounts include patents, trademarks, customer lists and other items, which are being amortized~~ on acumulative ~~straight-line~~undistributed ~~basis~~earnings ~~over~~for ~~lives~~certain ~~ranging from 3 to 17 years~~non-U. ~~Other intangibles also include license agreements which are stated at cost~~S. ~~Amortization~~subsidiaries of ~~licenses~~approximately ~~is computed on the shorter of a per unit sold basis or over the estimated useful lives of these licenses. At December 31, 2000 and 2001, accumulated amortization amounted to~~ $3.4 ~~million and $6~~.15 million~~, respectively~~. AtWe ~~January 1,~~intend ~~2000, the Company revised its estimate of the useful life of existing goodwill from seven~~ to ~~five~~reinvest ~~years.~~these ~~The~~earnings ~~net~~indefinitely ~~effect of such change was a charge of $260,000 for the year ended December 31, 2000, which is included~~ in ~~the~~our ~~statement of~~ operations ~~classification,~~outside ~~"Amortization of goodwill and other intangibles". Amortization expense for~~ the ~~years ended December 31, 1999, 2000 and 2001 was $1~~U.~~3 million, $15~~S.~~4 million~~ ~~and $23.4 million, respectively.~~

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including goodwill, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. If an impairment is indicated, the asset is written down to its estimated fair value. During 2001, the Company wrote down approximately $56.0 million of impaired long-lived assets which consisted of approximately $55.3 million

~~related~~Table to the goodwill associated with the IML acquisition and approximately $638,000 related to the goodwill and acquired technology associated with the ViaDSP acquisition. Based on the declining historical and forecasted operating results of IML as they related to earlier estimates and the economic condition of the telecommunications industry as a whole, the estimated value of IML's and ViaDSP's goodwill had decreased. Furthermore, based on the uncertain future utilization of the acquired technology, the estimated value of ViaDSP's acquired technology had decreased. As a result, these assets were written-down to their fair value. The charge of approximately $55.6 million related to the write-down of goodwill is included in the statement of operations classification "impairment charges" while the charge of approximately $388,000 related to acquired technology is included in the statement of operations classification "cost of revenues." Contents

~~It is~~ ~~reasonably~~Liquidity ~~possible~~and ~~that~~Capital ~~the Company may incur additional impairment charges for long-lived assets, including goodwill, in future reporting periods.~~ Resources

Research and Development

	December 31,

	2008		2007
	(In millions)
Cash, cash equivalents and marketable securities	$	19.3	$	30.2
Working capital	$	13.7	$	32.0

~~Research~~As of ~~and~~December 31, ~~development~~2008, ~~expenses~~our ~~consist~~liquid ~~primarily~~assets included cash of ~~salaries~~$19.3 million. We intend to use our cash for general corporate purposes, ~~personnel~~which ~~expenses~~includes working capital and capital ~~prototype~~expenditures. ~~fees~~In connection with the sale of the NMS Communication Platforms business in the fourth quarter of 2008, we (i) received approximately $22.0 million in cash from Dialogic, net of deal costs, (ii) paid $2.8 million funded into an escrow account to support any indemnification claims, (iii) paid $0.4 million which is being be held in escrow to settle certain contingencies that may arise related to levels of working capital, and (iv) immediately subsequent to the ~~design~~consummation of the Asset Sale on December 5, ~~development~~2008, entered ~~testing~~into ~~and~~a ~~enhancement~~Receivables Purchase Agreement with Dialogic to purchase $4.0 million of certain billed accounts receivables owned by Dialogic for $3.8 million in cash. Also, in connection with the sale of the ~~Company's~~NI ~~products~~Business in the fourth quarter of 2007, we received consideration of $0.9 million ~~All~~of ~~research~~cash and ~~development~~5,374,033 ~~costs~~shares ~~are~~of ~~expensed~~Verso common stock, for which we recognized an other-than-temporary impairment charge of $1.9 million during the three months ended March 31, 2008 as ~~incurred~~a result of Verso's filing for bankruptcy in April, 2008.

~~Capitalized~~ On March 17, ~~Software~~2008, ~~Development~~we, ~~Costs~~ through one of our subsidiaries, acquired Groove Mobile for a total purchase price of $15.9 million, including cash consideration of $14.5 million, and total transaction costs and facility exit costs of approximately $1.4 million. In connection with the acquisition of Groove Mobile, we assumed short term debt of $0.5 million and, subsequent to the acquisition, repaid the obligation in March 2008.

~~The~~On May 6, ~~Company~~2008, ~~capitalizes~~we ~~software~~entered ~~development~~into ~~costs~~a ~~incurred~~Loan ~~after~~and aSecurity ~~product's~~Agreement ~~technological~~(the ~~feasibility~~"Original ~~has~~Credit ~~been~~Facility") ~~established~~with ~~and~~Silicon ~~before~~Valley itBank is("SVB"), ~~available~~which ~~for general~~permitted ~~release~~us to ~~customers.~~borrow ~~Amortization~~up ofto $6.0 million ~~capitalized~~in ~~software~~the ~~costs~~form isof ~~computed~~revolving onloan anadvances, ~~individual~~including ~~product~~up ~~basis~~to ~~and~~$6.0 million isin the ~~greater~~form of a) letters of credit, foreign exchange contracts, or cash management services. Under the Original ~~ratio~~Credit ~~that~~Facility, ~~current~~principal ~~gross~~borrowings ~~revenues~~accrued ~~for~~interest at a ~~product bear~~floating per annum rate equal to SVB's prime rate. Loans under the ~~total~~Original ofCredit ~~current~~Facility ~~and~~were ~~anticipated~~(i) collateralized ~~future~~by ~~gross~~a security ~~revenues~~interest ofin ~~that~~substantially ~~product~~all orour bassets (other than certain intellectual property assets), and (ii) ~~the~~guaranteed ~~straight-line~~by ~~method~~certain ~~over~~of ~~the~~our ~~estimated~~domestic ~~economic~~subsidiaries, ~~life~~each of ~~the~~which ~~product.~~entered ~~Costs~~into ~~qualifying~~an ~~for~~unconditional ~~capitalization~~guaranty ~~have~~agreement ~~been~~and ~~immaterial~~a ~~for~~security ~~all~~agreement ~~periods~~effective ~~presented~~as ~~and~~of May 6, ~~accordingly~~2008 ~~have~~in ~~not~~favor ~~been~~of ~~capitalized~~SVB.

~~Financial~~ On June 30, ~~Instruments~~ 2008, we, together with our wholly-owned subsidiaries NMS Communications International Corporation and Groove Mobile, a wholly-owned subsidiary of LiveWire Mobile (later renamed LWM Corporation) (collectively, the "Borrowers"), entered into an Amended and Restated Loan and Security Agreement (the "Amended Credit Facility") with SVB, which permits the Borrowers to borrow up to 80% of $5.0 million in the form of advances based on a portion of eligible accounts receivable. Principal borrowings under the Amended Credit Facility accrue interest at a floating per annum rate equal to SVB's prime rate plus one percentage point. The Amended Credit Facility terminates on June 29, 2009. The Amended Credit Facility amends and restates in its entirety the Original Credit Facility.

~~Financial~~On November 6, ~~instruments~~2008, ~~primarily~~we ~~cash~~entered ~~and~~into ~~cash~~a ~~equivalents,~~Second ~~marketable~~Loan ~~securities~~Modification ~~and~~Agreement ~~accounts~~(the ~~receivable~~"Loan ~~are~~Modification ~~carried~~Agreement") atwhich ~~amounts~~amends ~~which~~the ~~approximate~~Amended ~~their~~and ~~fair value.~~Restated ~~Fair~~Loan ~~value~~and ofSecurity ~~long-term~~Agreement with ~~debt~~SVB atdated ~~December~~June 3130, ~~2001~~2008 is(together ~~approximately~~with the Loan Modification Agreement, the "Amended Credit Facility"). The amount of the Amended Credit Facility was $766.425 million with borrowings of up to 80% in the form of advances based on a portion of eligible accounts receivable. Upon closing of the sale of the NMS Communications Platforms business, the amount of the Amended Credit Facility was reduced

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted statutory tax rates in effect in the year in which the differences are expected to reverse. A deferred tax asset is established for the expected future benefit of net operating loss and credit carry-forwards. A valuation reserve against net deferred tax assets is required, if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Basic and Diluted Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the sum of the weighted-average

~~number~~Table of ~~common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common stock equivalents had been issued.~~ Contents

~~Stock~~to $3.75 million, ~~Split~~ of which $3.0 million can be borrowed in the form of advances based on a portion of eligible accounts receivable. Principal borrowings under the Amended Credit Facility accrue interest at a floating per annum rate equal to SVB's prime rate plus two percentage points. As of December 31, 2008, we borrowed $2.6 million under the Amended Credit Facility.

~~Per~~The Amended ~~share~~Credit ~~amounts~~Facility includes customary lending and ~~share~~reporting ~~data~~covenants ~~have~~including, ~~been~~without ~~retroactively~~limitation, ~~restated~~the periodic delivery of financial information to ~~give~~SVB, ~~effect~~and the provision of notice to SVB upon the ~~two~~occurrence of specified events including threatened litigation and threats to protected intellectual property. The Amended Credit Facility also includes customary representations and warranties including, without limitation, that the accounts receivable upon which SVB will advance funds remain eligible in accordance with the terms of the Amended Credit Facility, and that payment of the accounts receivable by third-~~for-one~~party ~~stock~~debtors ~~split~~is ~~distributed~~not contingent in nature and is based on an actual sale and delivery of goods and services. The Amended Credit Facility ~~August 7~~also includes several potential events of default, ~~2000~~which upon occurrence could cause interest to be charged at prime plus four percentage points. These events of default include, ~~effected~~without limitation, payment defaults, defaults in the ~~form~~performance of aaffirmative ~~stock~~and ~~dividend~~negative covenants, the inaccuracy of representations or warranties, material adverse change conditions, attachment of assets, insolvency conditions, defaults relating to uninsured judgments or defaults under other agreements, guarantees or indebtedness. Any uncured events of default may result in SVB's right to declare all outstanding obligations immediately due and payable.

~~Recent~~ The Amended ~~Accounting~~Credit ~~Pronouncements~~ Facility contains negative covenants applicable to the Borrowers, including, without limitation prohibitions on certain transfers of its business or property, the payment of certain dividends, changes in business, management or business locations, certain mergers or acquisitions, incurrence or assumption of indebtedness, encumbrance of assets, certain distributions or investments, certain transactions with affiliates, improper debt payments and certain actions related to the Investment Company Act of 1940 and ERISA.

InAmounts borrowed ~~June 2001,~~under the ~~FASB~~Amended ~~issued~~Credit ~~SFAS~~Facility ~~No. 141,~~are ~~"Business~~secured ~~Combinations"~~by ~~and~~a ~~SFAS~~security ~~No. 142,~~interest ~~"Goodwill~~in ~~and~~substantially ~~Other Intangible Assets." SFAS No. 141 is effective for~~ all ~~business~~assets ~~combinations for which the date of acquisition is after June 30, 2001~~ and ~~requires~~intellectual ~~that~~property ~~the purchase method~~ of ~~accounting be used for all business combinations, establishes specific criteria for~~ the ~~recognition~~Borrowers. ofWe ~~intangible~~intend ~~assets separately from goodwill and requires unallocated negative goodwill~~ to beutilize written off immediately as an extraordinary gain. SFAS No. 142 requires that goodwill and indefinite lived intangible assets will no longer be amortized, goodwill will be tested for impairment at least annually at the ~~reporting~~Amended ~~unit~~Credit ~~level,~~Facility ~~intangible~~as ~~assets~~a ~~deemed~~source toof ~~have~~capital ~~an indefinite life will be tested~~ for ~~impairment~~ongoing atoperations ~~least annually~~ and ~~the~~working ~~amortization~~capital ~~period~~needs. ofWe ~~intangible assets with finite lives will no~~incurred ~~longer~~approximately ~~be limited to forty years~~$0. ~~The Company adopted FAS No.~~2 ~~141~~million ~~and~~in ~~FAS~~deferred ~~No. 142~~financing onfees ~~January 1,~~associated ~~2002.~~with ~~The~~the ~~adoption~~Original ofCredit ~~FAS~~Facility ~~No. 141~~and ~~did not have a significant impact on~~ the ~~Company's~~ ~~consolidated~~Amended ~~financial~~Credit ~~statements~~Facility. The ~~adoption~~deferred offinancing ~~FAS~~fees ~~No. 142~~are ~~will~~capitalized ~~eliminate~~as ~~the~~other ~~amortization expense of goodwill from the Company's consolidated statement of operations, resulting~~current ~~in a decrease in its operating expense. However, this decrease will be offset by the amortization of intangible~~ assets ~~acquired~~and ~~during~~are ~~2001.~~amortized ~~Additionally,~~on as a ~~result~~straight-line ofbasis ~~the~~over ~~required periodic impairment reviews of goodwill, if an impairment is indicated in a future reporting period, an impairment charge will be recorded in that reporting period to reflect~~ the ~~reduction~~term of the ~~carrying value~~Amended ofCredit ~~goodwill to its fair value~~Facility.

InWe ~~October 2001~~believe that our available liquid assets, net proceeds from the ~~FASB~~sale ~~issued~~of ~~SFAS~~the ~~No. 144~~our NMS Communications Platforms business and working capital are sufficient to meet our operating expenses, ~~"Accounting~~capital requirements and contractual obligations for the ~~Impairment~~next ortwelve months. ~~Disposal~~Material risks to cash flow include lower than anticipated revenues and delayed cash receipts from sales of ~~Long-Lived~~our ~~Assets."~~services ~~SFAS~~and Noproducts. ~~144~~ ~~supersedes~~Our ~~SFAS~~future liquidity and cash requirements will depend on numerous factors, including, but not limited to, the ability of our business to generate enough cash to sustain ~~No. 121~~our operations, ~~"Accounting~~the ~~for~~level of revenue we will be able to achieve in the ~~Impairment~~future, the successful introduction of ~~Long-Lived~~new ~~Assets~~services in the market and ~~for~~capital expenditures required to support our business. Long-~~Lived~~term ~~Assets~~cash torequirements Befor ~~Disposed~~normal ~~Of"~~operating expenses are anticipated for the continued development and ~~provides~~deployment aof ~~single~~new ~~accounting~~services. ~~model~~In ~~for~~the future, we could require additional external ~~long~~financing through the sales of additional equity or debt, obtaining loans from financial institutions or other financing vehicles, or selling our core or non-~~lived~~core assets. toThere is no assurance that such financing can be ~~disposed~~obtained ofon favorable terms, if at all. ~~The~~As ~~Company~~a isresult ~~required~~of expected payments of lease termination costs, restructuring costs, transaction costs associated with the sale of the NMS Communications Platforms business in 2008 and cash expected to ~~adopt~~be ~~SFAS~~used Noin operations in 2009, we estimate our cash balances to be approximately $8.0 ~~144~~million ~~for~~in the ~~fiscal~~fourth quarter ~~year~~of ~~beginning~~2009, ~~after~~including ~~December 15,~~anticipated ~~2001~~receipt ~~and~~of ~~does~~escrow ~~not~~funds ~~believe~~of it$3.2 million ~~will~~relating ~~have~~to ~~a significant~~the ~~impact~~sale onof ~~its~~the ~~consolidated~~NMS ~~financial~~Communications ~~statements~~Platforms business.

2—Risks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, dependence on suppliers, rapid industry changes, competition, competitive pricing pressures, changes in foreign laws and regulations, risks associated with indirect channels of distribution, historically uneven quarterly sales patterns, ability to sustain and manage growth, inability to attract and retain key personnel, undetected problems in the Company's products, risks associated with acquisitions, investments and alliances, enforcement of the Company's intellectual property rights, litigation, changes in regulations, a lessening demand in the telecommunications market and stock price volatility. It is reasonably possible that the Company may incur impairment charges for intangible assets, including goodwill, or investments in future reporting periods.

~~3—Mergers~~Table ~~and~~of ~~Acquisitions~~ Contents

~~VES~~ Deterioration in the business environment and market conditions could negatively impact operating results and liquidity. There is no assurance that, if operations were to deteriorate and additional financing were to become necessary, we will be able to obtain financing in amounts sufficient to meet operating requirements or at terms which are satisfactory and which allow us to remain competitive. There is also no assurance that if conditions deteriorate that our Amended Credit Facility will be available. Our expectation that existing resources will fund capital expenditure and working capital requirements is a forward-looking statement that is subject to risks and uncertainties. Actual results could differ from those indicated as a result of a number of factors, including the use of currently available resources for possible acquisitions and possible additional stock repurchases.

~~On November 30~~During 2008, ~~2001,~~there ~~the~~has ~~Company~~been ~~acquired~~distress in the ~~voice~~global ~~enhancement~~economy and ~~echo~~the ~~cancellation~~market ~~business~~price ~~("VES")~~ of ~~Lucent~~our ~~Technologies Inc.~~common ~~("Lucent"). Under~~stock ~~the~~and ~~terms~~our ofmarket ~~the~~capitalization ~~agreement,~~has ~~the~~declined ~~Company paid cash totaling $60 million for all assets of VES~~significantly. ~~The~~As ~~Company also entered into~~ a ~~multi-year~~result, ~~agreement~~we toperformed ~~serve as the exclusive~~an ~~supplier~~impairment oftest ~~stand-alone~~on ~~voice~~our ~~enhancement~~intangible assets and ~~echo~~our ~~cancellation~~annual ~~systems~~test for ~~Lucent,~~impairment asof ~~Lucent~~our ~~continues~~goodwill toas ~~supply~~of ~~these~~December 31, ~~systems~~2008. toWe ~~its~~incurred ~~global~~$11.0 million ~~service~~of ~~provider~~charges ~~customers.~~related ~~The~~to ~~Company~~the ~~also~~impairment ~~received~~of aour ~~perpetual~~goodwill ~~license~~and ~~from~~$11.6 million ~~Lucent for a substantial portfolio~~ of ~~complementary~~charges ~~intellectual~~related ~~property~~ to ~~support~~ the ~~development~~impairment ~~efforts~~of ~~and~~intangible ~~growth~~assets ofand ~~the~~other ~~acquired~~long-lived ~~business~~assets.

~~The acquisition~~ ~~has~~Cash been accounted for as a purchase business combination under the transition guidance of FAS 141 and 142. Accordingly, the results of operations of VES have been included with those of the Company for periods subsequent to the date of the acquisition. Including transaction costs of $1.6 million, the total cost of the acquisition was approximately $61.6 million. The following table presents the allocation of the purchase price (in thousands): Flow

	Amount		Estimated Life
Acquired technology	$	11,000	6
Supply agreement with Lucent		12,000	3
Trademarks and tradenames		200	6
Net fair value of tangible assets acquired		9,462	—
Goodwill		28,965	—
Total purchase price allocation	$	61,627

Sources and uses of cash for the 2008, 2007 and 2006 years are summarized in the table below.

The values assigned to acquired technology, supply agreement and trademarks and tradenames were based upon a modified discounted cash flow model. The Company based the cash flow projections for revenue on the projected incremental increase in revenue that the Company expected to receive from the acquired technology and supply agreement. The Company deducted estimated operating expenses from estimated revenue to arrive at estimated pre-tax cash flows. Projected operating expenses included cost of goods sold, selling, general and administrative expense, and research and development expense.

	Year Ended December 31,

	2008			2007			2006
	(In millions)
Net cash provided by (used in) operating activities	$	(15.2	)	$	0.1		$	(5.5	)
Net cash provided by (used in) investing activities	$	12.5		$	(5.2	)	$	1.4
Net cash provided by (used in) financing activities	$	2.1		$	0.2		$	(22.4	)

The ~~amounts~~principal ~~allocated~~driver toin ~~acquired~~the ~~technology~~change ~~and~~in ~~trademarks~~cash flows used in operations is net loss adjusted by certain non-cash items such as impairments, depreciation, amortization and stock-based ~~tradenames~~compensation. ~~are~~Net ~~being~~loss ~~amortized~~increased ~~using~~by $28.9 million from a net loss of $9.3 million for the ~~straight-line~~year ~~method~~ended ~~over~~December 31, 2007, to a ~~six-~~net loss of $38.2 million for the year ~~period~~ended December 31, ~~while~~2008. We recognized a net loss of $15.8 million in 2006. In the years ended December 31, 2008, 2007 and 2006, we incurred amortization expense of ~~supply~~$3.8 million, ~~agreement~~$1.2 million ~~between~~and $1.2 million, respectively, as a result of the ~~Company~~acquisition of Groove Mobile in March 2008 and ~~Lucent~~Openera isin ~~being~~February ~~amortized~~2006. ~~using~~In addition, we recorded a gain on the ~~straight-line~~disposal ~~method~~of ~~over~~our NMS Communications Platforms business, aggregating $16.3 million during the ~~three-~~year ~~life~~ended December 31, 2008. This gain was offset by an impairment loss of approximately $22.6 million recorded as a result of an impairment of the ~~agreement~~value of our goodwill, intangibles and certain long-lived assets. ~~The~~On ~~amortization~~December 21, 2007, we sold our NI Business to Verso for consideration of ~~acquired~~$0.9 million and 5,374,033 shares of Verso common stock, which was valued at $1.8 million as of December 31, 2007. We recognized a gain ~~technology~~of $1.6 million related to the transaction during the year ended December 31, ~~trademarks~~2007. ~~and~~During ~~tradenames~~the ~~and~~first ~~supply~~quarter ~~agreement~~of is2008, ~~included~~we inrecognized an other-than-temporary impairment charge of $1.9 million related to our Verso common stock holdings. We deemed the ~~statement~~impairment to be other-than-temporary as a result of ~~operations~~Verso's ~~classifications,~~filing ~~"Cost~~for bankruptcy in April of ~~revenues"~~2008. We also incurred stock-based compensation expense of $4.1 million (of which $0.4 million was paid in cash in December 2008), ~~"Research~~$5.1 million and $4.8 million ~~development"~~during the years ended December 31, 2008, 2007 and ~~"Selling~~2006, ~~general~~respectively. These amounts include stock-based compensation expense of $1.9 million, $3.0 million and ~~administrative~~$2.5 million for the years ended December 31," 2008, 2007 and 2006, respectively, related to the restricted stock and common stock consideration used to purchase Openera in February 2006.

~~Pro~~Our ~~forma~~cash ~~data~~flows ~~summarizing~~from ~~the~~operating ~~combined~~activities ~~results~~are also affected by changes in our operating assets and liabilities. As of ~~the~~December 31, ~~Company~~2008, 2007, and ~~VES~~2006, ~~have~~DSO ~~been~~from ~~omitted~~continued ~~since~~and discontinued ~~the~~operations, ~~use~~collectively, ofwas ~~forward-looking~~82 days, ~~information~~57 days, isand ~~necessary~~49 days, torespectively. ~~meaningfully~~DSO ~~present~~is significantly affected by the ~~effects~~timing of customer shipments and invoicing. For our ~~the~~services, ~~acquisition~~we generally invoice as delivered. For most of

~~Mobilee~~ Table of Contents

~~Effective April 10~~our products, ~~2001,~~we invoice at the ~~Company~~time ~~acquired~~of ~~Mobilee, Inc~~shipment. ~~("Mobilee"),~~For aother ~~privately held Massachusetts company~~products, ~~for~~we apartially ~~total~~invoice ~~cost~~our ~~of $13.3 million,~~customers ~~including~~at ~~transaction~~the ~~costs~~time of ~~approximately~~order ~~$150~~receipt,~~000.~~ ~~In connection~~ with the ~~acquisition,~~remainder of the ~~Company~~order ~~paid~~being ~~net~~invoiced ~~aggregate~~at ~~cash~~certain milestones. ~~consideration~~Deferred ofrevenues ~~$11.2 million~~represent toinventory in the ~~founders~~ ~~and~~channel, ~~shareholders~~systems ofshipped ~~Mobilee.~~to Ancustomers ~~additional~~that ~~$1.0 million~~are ~~was~~awaiting ~~placed~~acceptance, inor ~~escrow~~other ~~and~~deferred ~~will~~elements beof ~~released~~a tocontract, ~~the~~maintenance ~~founders~~and ofsupport ~~Mobilee~~services billed onbut ~~April 10,~~not ~~2002,~~yet ~~less~~delivered ~~any~~and ~~potential~~managed ~~losses incurred~~services bywhere ~~the~~revenue ~~Company~~is ~~that~~not ~~are~~yet ~~allowed~~recognized. toFor bethe ~~off-set~~year ~~against~~ended ~~the~~December 31, ~~escrow~~2008, ~~per~~cash ~~the~~flows ~~escrow~~provided ~~agreement.~~by ~~This~~accounts ~~amount~~receivable ~~was~~and ~~recorded~~deferred asrevenue activity ~~deferred~~were ~~compensation~~$6.8 million and is$1.1 million, ~~being~~respectively. ~~amortized~~These asbalances ~~compensation expense~~may ~~ratably~~vary ~~over~~based ~~the~~on ~~one-year~~timing ~~escrow~~of ~~period.~~invoicing, ~~The~~cash ~~Company~~receipts ~~also~~and ~~will~~timing ~~issue~~of ~~stock~~revenue ~~valued~~recognition. atWe ~~approximately~~used cash of $~~300,000~~6.8 million to apay ~~founder~~accounts ofpayables ~~Mobilee~~and inaccrued ~~four~~expenses ~~equal~~during ~~quarterly~~the ~~installments~~year ~~beginning July~~ended December 31, ~~2001~~2008, ~~provided~~primarily ~~that~~related ~~this~~to ~~individual~~the ispayout ~~still~~of ~~employed~~vendors, bypayroll, ~~the~~and ~~Company~~bonus atand commissions earned during the ~~time~~fourth ~~each~~quarter ~~respective~~of ~~stock~~2007. ~~issuance~~In isaddition, towe bepaid ~~made~~$1.6 million ~~This~~for ~~amount~~licensed ~~was~~technology ~~recorded~~we aspurchased ~~deferred~~in ~~compensation~~December ~~and~~2007. ~~is being~~The ~~amortized~~licensed astechnology ~~compensation~~was ~~expense~~sold ~~ratably~~to ~~over~~Dialogic as part of the ~~one-year~~Asset Sale ~~period~~in December 2008.

~~The~~Our ~~acquisition~~cash ~~has~~flows ~~been~~provided ~~accounted~~by ~~for~~investing asactivities awere ~~purchase~~primarily driven by the proceeds received in connection with the sale of the NMS Communications Platforms business ~~combination~~aggregating $22.0 million ~~Accordingly~~in net proceeds, and proceeds from the ~~results~~sales ofand ~~operations~~maturities of ~~Mobilee~~our ~~have~~marketable ~~been~~securities ~~included~~of ~~with~~approximately ~~those~~$9.5 million ofduring the ~~Company~~year ~~for~~ended ~~periods~~December 31, 2008. We ~~subsequent~~utilized tocash in the ~~date~~amount of $13.6 million related to the acquisition of Groove Mobile. ~~The~~In ~~following~~2007 ~~table~~and ~~presents~~2006, our cash flows used in investing activities were primarily driven by the ~~allocation~~purchases of fixed ~~the~~assets ~~purchase~~and ~~price~~other ~~(in~~long ~~thousands):~~term assets and purchases and maturities of our marketable securities. On December 21, 2007, we sold our NI Business to Verso for consideration of $0.9 million and 5,374,033 shares of Verso common stock, which was valued at $1.8 million as of December 31, 2007.

	Amount		Estimated Life
Acquired technology	$	1,200	4
Workforce		130	4
Deferred compensation		1,300	1
Net fair value of tangible assets acquired and liabilities assumed		673	—
Goodwill		9,948	4
Total purchase price allocation	$	13,251

Our cash flows provided by financing activities were primarily driven by the $2.6 million in net proceeds obtained from our revolving line of credit. The cash flows used in financing activities included $0.5 million of debt we assumed and paid in connection with the Groove Mobile acquisition and $0.3 million paid related to our capital lease obligations. In 2006, as part of our board of director's plan to repurchase our common stock, we used $23.3 million to repurchase 7,888,985 shares of our common stock. The stock repurchase programs were completed in September 2006. In connection with the acquisition of Openera, we acquired debt of $0.7 million, which was repaid in 2006.

~~The Company~~ assigned values of $1.2 million and $130,000 to existing core technology and acquired workforce, respectively. The amounts allocated to acquired technology, workforce and goodwill are being amortized over a fourOff-~~year~~Balance ~~period.~~Sheet The amortization of acquired technology is included in the statement of operations classification, "Cost of revenues," and the amortization of workforce and goodwill is included in the statement of operations classification, "Selling, general and administrative expense." Arrangements

~~Pro forma~~We ~~data~~do ~~summarizing~~not ~~the~~have ~~combined~~any ~~results~~off-balance ofsheet financing arrangements, other than property and equipment operating leases that are disclosed in the ~~Company~~contractual obligations table below and ~~Mobilee~~in our consolidated financial statements, nor do we have ~~been~~any ~~omitted~~transactions, asarrangements ~~the~~or ~~results~~other ofrelationships ~~operations~~with ofany ~~Mobilee~~special ~~are~~purpose ~~immaterial~~entities established by us, at our direction or for ~~all~~our ~~prior~~benefit. ~~periods~~The following table details our future contractual payment obligations.

IML

Effective July 7, 2000, the Company acquired InnoMediaLogic Inc. ("IML"), a privately held company headquartered in Canada. IML is a leading provider of enabling technology used in voice over digital subscriber line (VoDSL) gateways and other network access solutions. In connection with the acquisition, the Company issued or reserved for issuance 2,635,300 shares of NMS common stock valued at an average price of $39.66 per share, paid net aggregate cash consideration of $65.8 million, and assumed the obligation to issue up to an additional 318,672 shares of NMS common stock upon exercise of outstanding stock options for the purchase of the common stock of IML. The Company

~~valued~~ ~~the~~ Table ~~IML~~of ~~options~~Contents ~~that were exchanged for NMS options using the Black-Scholes option pricing model.~~

~~The total~~ ~~cost~~Contractual of the acquisition, including transaction costs of $2.4 million, was approximately $189.9 million. For each of the years ended March 31, 2001 and 2002, certain employees of IML were entitled to additional consideration based on the financial results of IML for the years then ended. The maximum potential total additional consideration was $12.5 million and is payable in the common stock of the Company. During the year ended December 31, 2000, the Company had accrued $4.7 million related to this additional consideration as compensation expense, which is included in the statement of operations classification, "Selling, general and administrative expense". During the first quarter of 2001, when it became known that the financial results necessary to earn this additional compensation would not be met, the accrual was reversed. Furthermore, the original agreement that provided for this potential additional consideration was amended in 2001 to eliminate this additional consideration provision. Obligations

~~During 2001,~~The ~~the~~following ~~Company~~table ~~wrote~~details ~~down~~our ~~approximately~~future ~~$55.3 million~~contractual ofpayment ~~impaired~~obligations ~~long-lived assets related to the goodwill associated with the IML acquisition. Based on the declining historical and forecasted operating results of IML~~ as ~~they related to earlier estimates and the economic condition~~ of ~~the telecommunications industry as a whole~~December 31, ~~the~~2008: ~~estimated value of IML's goodwill had decreased. As a result, these assets were written-down to their fair value.~~

The acquisition has been accounted for as a purchase business combination. Accordingly, the results of operations of IML have been included with those of the Company for periods subsequent to the date of the acquisition. The following table presents the allocation of the purchase price (in thousands):

	Payments due by Period

(In Thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		All Other
Revolving line of credit	$	2,610	$	2,610	$	—	$	—	$	—	$	—
Operating lease obligations		7,523		2,345		3,789		1,389		—		—
Capital lease obligations		835		441		360		34		—		—
Purchase obligations		2,011		2,011		—		—		—		—
Lease termination obligations		3,157		2,043		1,114		—		—		—
Uncertain tax positions and related interest		1,116		—		—		—		—		1,116

Total contractual obligations	$	17,252	$	9,450	$	5,263	$	1,423	$	—	$	1,116

	Amount		Estimated Life
In-process research and development	$	3,300	—
Acquired technology		6,000	4
Customer list		6,300	4
Workforce		1,600	4
Deferred compensation		39,696	2-3
Net fair value of tangible assets acquired and liabilities assumed		7,356	—
Goodwill		125,691	5
Total purchase price allocation	$	189,943

Operating lease obligations do not include (i) estimated sublease income of $3.0 million, which is expected to be received over the next five years or (ii) $0.2 million of estimated payments from Dialogic, Inc. related to space to be occupied in accordance with a Transition Services Agreement signed on December 5, 2008 in conjunction with the sale of the NMS Communications Platforms business.

~~During~~Lease ~~the~~termination ~~fourth~~obligations ~~quarter~~relate ofto ~~2000,~~a ~~the~~Lease ~~Company~~Termination ~~finalized~~Agreement ~~its~~we ~~business~~entered ~~plan~~into ~~related~~on toDecember 30, ~~the~~2008 ~~acquisition~~with ~~and~~our ~~integration~~landlord ofand ~~IML.~~exited ~~As a result,~~ the ~~Company~~space ~~recorded~~at an100 ~~increase~~Crossing toBoulevard ~~goodwill of~~by ~~$137~~December 31,~~400~~ in2008. ~~order~~The toLease ~~account~~Termination ~~for~~Agreement ~~the~~requires ~~severance~~cash oftermination ~~six~~payments ~~former~~in ~~IML~~2009 ~~employees.~~totaling ~~Additionally~~$2.0 million, ~~the~~cash ~~Company~~termination ~~reduced~~payments ~~goodwill~~in by2010 of $1.10 million, inand ~~the~~cash termination ~~fourth~~payments ~~quarter~~in 2011 of ~~2000~~$0.1 million. toThe ~~adjust~~Lease ~~for~~Termination ~~an unsubstantiated~~Agreement ~~liability~~resulted onin ~~the~~annual ~~opening~~cost ~~balance~~savings ~~sheet~~ of ~~IML~~approximately $2.6 million through May 2012.

~~The~~Purchase ~~in-process~~obligations ~~research~~are ~~and~~open ~~development~~purchase isorders ~~comprised~~defined ofas aagreements ~~category~~to ofpurchase ~~products~~goods ~~that~~or ~~provide~~services ~~interface~~that ~~technology~~are ~~consisting~~enforceable ofand ~~high~~legally ~~capacity~~binding ~~line~~and ~~interfaces~~ that ~~convert telephony~~specify ~~signals~~all ~~into~~significant ~~computer~~terms, including: ~~data.~~fixed ~~These~~or ~~products~~minimum ~~are~~quantities ~~used~~to inbe ~~media~~purchased; ~~access~~fixed, ~~gateway~~minimum ~~products~~or tovariable ~~interface~~pricing ~~aggregate~~provisions; ~~DSL~~and orthe ~~wireless~~approximate ~~traffic~~timing toof the ~~PSTN~~transactions. ~~(Public~~These ~~Switched~~obligations ~~Telephone~~primarily ~~Network)~~relate orto IPhardware ~~based~~components, ~~data~~software ~~networks.~~licenses Atand ~~the~~services, ~~date~~and ofequipment ~~acquisition,~~rental ~~these~~and ~~products~~maintenance ~~were~~services. ~~estimated~~The toamounts beare ~~58%~~based ~~complete~~on our contractual commitments.

As of December 31, 2008, and included in the purchase obligations total in the table above, we had a $0.8 million purchase commitment with our contract manufacturer, Arrow Electronics, for the purchase of ringback platform components. This commitment was reduced by agreement in January 2009 to $0.3 million and paid in February 2009.

As of December 31, 2008, we recorded a liability related to uncertain tax positions of $1.0 million and related interest of $0.1 million. In January 2008, we paid $0.2 million of taxes and interest related to an uncertain tax position recorded in 2007. We are unable to reasonably estimate the timing of the remainder of uncertain tax positions and related interest in individual years beyond twelve months due to uncertainties in the timing of the effective settlements of tax positions.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures regarding fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not

~~A significant~~Table ~~amount~~ of uncertainty existed surrounding the successful development and completion of the research and development acquired. Significant risks exist because the Company is unsure of the obstacles it will encounter in the form of time and cost necessary to produce technologically feasible products. Should these products fail to become viable, it is unlikely that the Company would be able to realize any value from the sale of the technology to another party. The work performed as of the acquisition date on these in-process products is very specific to the tasks and markets for which it is intended. There are no alternative uses for the in-process work in the event that the products are not feasible. Contents

~~The~~require ~~Company~~any ~~assigned~~new ~~values~~fair ofvalue $3measurements.3 SFAS ~~million~~157 tois ~~in-process~~effective ~~research~~for ~~and~~fiscal ~~development~~years ~~and~~beginning ~~$6.0~~after November ~~million~~15, to2007. ~~existing~~However, ~~core~~in ~~technology~~February, ~~based~~2008, ~~upon~~the aFASB ~~modified~~issued ~~discounted~~FSP ~~cash flow model. The in~~FAS 157-~~process~~2 ~~research~~"Effective ~~and~~Date ~~development~~of ~~amount~~FASB ofStatement $3No.3 ~~million~~157 ~~was~~" ~~immediately~~("FSP ~~expensed~~FAS 157-2"), ~~under~~which ~~applicable~~delays ~~accounting standards. The Company based~~ the ~~cash~~effective ~~flow~~date of ~~projections~~SFAS 157 for ~~revenue~~all onnonfinancial ~~the~~assets ~~projected~~and ~~incremental~~nonfinancial ~~increase~~liabilities, inexcept ~~revenue~~those that ~~the~~are ~~Company~~recognized ~~expected~~or todisclosed ~~receive~~at ~~from~~fair ~~the~~value ~~completed acquired~~ in~~-process~~ ~~research~~the ~~and~~financial ~~development.~~statements ~~IML~~on ~~expected revenue~~a torecurring ~~commence~~basis ~~with~~(at ~~each~~least annually). ~~product's~~FSP ~~release~~FAS 157-2 ~~date,~~partially ~~which~~defers ~~occur on various dates in~~ the ~~fourth~~effective ~~quarter~~date of ~~2000~~SFAS 157 ~~and~~to ~~the~~fiscal ~~first~~years ~~half~~beginning ofafter ~~2001~~November 15, ~~and continue throughout each product's economic life~~2008, ~~which range~~and ~~from~~interim ~~three~~periods towithin ~~six~~those fiscal years. ~~The~~for ~~Company~~items ~~deducted~~within ~~estimated~~the ~~operating~~scope ~~expenses~~of ~~from~~FSP ~~estimated~~FAS 157-2. ~~revenue~~Effective toJanuary 1, ~~arrive~~2008, atwe ~~estimated~~adopted ~~pre-tax~~SFAS 157 ~~cash~~except ~~flows.~~as ~~Projected~~it ~~operating~~applies ~~expenses~~to ~~included cost~~those ofnonfinancial ~~goods~~assets ~~sold, selling general~~ and ~~administrative~~nonfinancial liabilities ~~expense,~~as ~~and~~noted ~~research~~in ~~and~~FSP ~~development expense~~FAS 157-2. The ~~Company~~adoption ~~estimated~~of ~~operating~~SFAS 157 ~~expenses~~had asno amaterial ~~percent~~impact ~~of revenue based~~ on ~~IML's historical~~our ~~results~~financial ~~for~~statements ~~the~~upon ~~years~~adoption ~~ended~~and ~~March 31, 1999 to 2000. Projected results~~ for the ~~fiscal~~year ~~years~~ ended ~~March~~December 31, ~~2001 to 2005 were also used in combination with past operating~~ ~~results and industry averages~~2008. ~~The~~We ~~Company~~are ~~also~~currently ~~deducted~~evaluating ~~capital charges, or cash flow attributable to other assets such as working capital, customer list and assembled workforce, from pre-tax operating income to isolate~~ the ~~cash~~potential ~~flow~~impact ~~solely~~of ~~attributable~~adoption toof ~~the~~FSP inFAS 157-~~process~~2 ~~research~~ and ~~development.~~have ~~Income~~not ~~taxes~~yet ~~were~~determined ~~then deducted to arrive at after-tax cash flows. The Company discounted~~ the ~~after-tax cash flow projections using a risk-adjusted rate of return of 23%. In using the discounted model~~impact, ~~the Company~~if ~~excluded the costs to complete the in-process technology from the research and development expense for 2000~~any, ~~and~~that ~~the~~its ~~Company~~adoption ~~reflected~~will ~~the~~have ~~percentage~~on ~~completion~~our ofresults ~~the~~of ~~in-process~~operations ~~research~~or ~~and~~financial ~~development in each year's projected cash flow~~condition.

~~The~~In ~~amounts~~February ~~allocated~~2007, tothe ~~acquired~~FASB ~~technology~~issued SFAS No. 159, ~~customer~~The ~~list~~Fair Value Option for Financial Assets and ~~workforce~~Financial ~~are~~Liabilities, ~~being~~including ~~amortized~~an ~~over~~amendment aof ~~four-year~~FASB Statement ~~period~~No. 115 ~~Goodwill~~("SFAS 159"). isSFAS 159 ~~being~~permits ~~amortized~~entities ~~over~~to achoose to measure many financial instruments and certain other items at fair value that are ~~five-year~~not ~~period~~currently required to be measured at fair value. ~~The~~Unrealized ~~amortization~~gains ofand ~~acquired~~losses ~~technology~~on isitems ~~included~~for inwhich the ~~statement~~fair ofvalue ~~operations~~option ~~classification,~~has ~~"Cost~~been ofelected ~~revenues,"~~are ~~and~~reported ~~the~~in ~~amortization~~earnings. ofSFAS 159 ~~customer~~does ~~list,~~not ~~workforce~~affect any existing accounting literature that requires certain assets and ~~goodwill~~liabilities to be carried at fair value. SFAS 159 is ~~included~~effective infor ~~the~~fiscal ~~statement~~years beginning after November 15, 2007. The adoption of ~~operations~~SFAS 159, ~~classification~~effective January 1, ~~"Selling~~2008, ~~general~~did ~~and~~not ~~administrative~~have ~~expense~~a material impact on our financial position, results of operations or cash flows as we elected not to apply SFAS 159 to any assets or liabilities."

~~The~~In ~~amount~~December ~~allocated~~2007, tothe ~~deferred~~FASB ~~compensation~~issued ofSFAS ~~$39~~No.7 ~~million~~141 is(revised ~~the~~2007), ~~total~~Business ofCombinations ~~$25~~("SFAS 141R") and SFAS No.9 ~~million~~160, Noncontrolling ~~related~~Interests toin Consolidated Financial Statements, an ~~employment~~amendment ~~agreement~~of ~~with~~Accounting ~~the~~Research ~~founder~~Bulletin ofNo. 51 ~~IML~~("SFAS 160"). SFAS 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent ~~$13~~periods.8 SFAS ~~million~~160 ~~related~~will tochange the ~~value~~accounting ofand ~~pre-acquisition~~reporting ~~options~~for ~~issued~~minority tointerests, ~~IML~~which ~~employees~~will ~~that~~be ~~were~~recharacterized ~~converted~~as ~~into~~noncontrolling ~~NMS~~interests ~~options~~and classified as a ~~result~~component of equity. The provisions of SFAS 141R and SFAS 160 are effective for fiscal years beginning on or after December 15, 2008. The impact that SFAS 141R and SFAS 160 will have on our results of operations or financial condition will depend on whether we complete acquisitions in the ~~acquisition~~future.

AsIn ~~part~~March ~~of the merger agreement~~2008, the ~~Company~~FASB ~~entered~~issued ~~into~~FASB anStatement ~~employment agreement with the founder of IML~~No. 161, ~~This~~Disclosures ~~employment~~about ~~agreement~~Derivative ~~also~~Instruments ~~served~~and asHedging ~~a non-compete agreement.~~Activities ~~Based~~("SFAS 161"). onSFAS 161 ~~the~~requires ~~terms~~expanded ofdisclosures regarding the ~~agreement,~~location ~~541,536~~and ~~shares~~amounts of ~~NMS~~derivative ~~stock~~instruments ~~were placed~~ in ~~escrow~~an ~~and~~entity's ~~are~~financial ~~being~~statements, ~~paid~~how ~~out~~derivative toinstruments ~~the~~and related ~~founder~~hedged ofitems ~~IML~~are inaccounted ~~quarterly~~for ~~increments~~under ~~over~~SFAS 133, ~~the~~Accounting ~~two~~for ~~year~~Derivative ~~period~~Instruments ~~following~~and ~~the closing~~Hedging ~~date~~Activities, ofand ~~the~~how ~~acquisition.~~derivative instruments ~~The~~and ~~price~~related ofhedged ~~NMS~~items ~~shares~~affect onan ~~the~~entity's ~~closing~~financial ~~date was $47.75~~position, ~~which~~operating results inand ~~this~~cash ~~employment~~flows. ~~agreement~~SFAS 161 ~~being~~is ~~valued~~effective aton ~~$25.9~~January ~~million~~1, 2009. ~~During~~Since ~~2001,~~SFAS 161 ~~the~~affects ~~Company~~only ~~terminated~~disclosures, ~~this~~it ~~employment~~will ~~agreement~~not ~~and~~impact ~~the~~our ~~founder~~financial ofposition ~~IML~~or ~~forfeited~~results ~~the remaining unearned shares~~ of ~~135,384~~operations ~~shares~~upon adoption. ~~As a~~

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 is effective for financial statements issued for the fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which means we will adopt FSP 142-3 in our fiscal year 2009. FSP 142-3 amends the factors that should be considered in developing renewal of extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). FSP 142-3 is intended to improve the consistency between the useful life of an intangible asset under SFAS 141R and other US GAAP. We are currently evaluating the impact, if any, of the adoption of FSP 142-3 on our financial position, results of operations or cash flows.

~~result,~~Table ~~the associated unamortized deferred compensation~~ of ~~$9.1 million~~Contents ~~was written off by the Company.~~

~~The value~~ ~~of $13.8 million assigned to the stock options issued in the IML acquisition was calculated using the guidance of Financial Accounting Standards Board Interpretation~~ ~~No. 44,~~ ITEM ~~"Accounting for Certain Transactions Involving Stock Compensation—an Interpretation of APB 25~~7A." QUANTITATIVE ~~The value~~AND ofQUALITATIVE ~~the~~DISCLOSURES ~~unvested~~ABOUT ~~stock~~MARKET options granted by NMS in exchange for stock options held by employees of IML were calculated as the intrinsic value of the replacement options at the closing date of the acquisition. This amount is being amortized as compensation expense over the three-year remaining vesting period of the options. RISK

~~The following~~ ~~unaudited~~Foreign ~~pro~~Currency ~~forma~~Exchange data summarize the combined results of operations of NMS and IML for the twelve months ended December 31, 1999 and 2000 as if the acquisition had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisition and adjustments to interest expense, goodwill and other intangibles amortization and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred at the beginning of the periods presented or that may be obtained in the future. Risk

	Twelve months ended December 31,
	1999			2000
	(in thousands, except per share data)
Revenue	$	85,696		$	142,948
Operating loss	$	(65,980	)	$	(52,174	)
Net loss	$	(61,328	)	$	(47,862	)
Basic and diluted net loss per share	$	(2.40	)	$	(1.38	)

We maintain business operations in foreign countries. As such, we have exposure to adverse changes in exchange rates associated with billings and operating expenses of our foreign operations. The majority of our orders are billed in U.S. Dollars; however, we do accept orders and bill in currencies other than U.S. Dollars. We regularly monitor the level of non-U.S. Dollar accounts receivable balances to determine if any actions should be taken to minimize the impact of fluctuating exchange rates on our results of operations. Our exposure to foreign currency exchange risk also relates to the re-measurement of our intercompany balances. The balances are re-measured at each reporting period at the current foreign exchange rates. We do not believe that a 10% change in the foreign currency exchange rates would have a material adverse impact on our financial position or results of operations.

~~QWES~~ Interest Rate Sensitivity

InWe ~~December 1999,~~had ~~the~~cash ~~Company~~and ~~acquired~~cash ~~QWES~~equivalents of $19.~~com,~~3 ~~Inc.~~million ~~("QWES")~~at inDecember 31, a2008. ~~transaction~~The ~~accounted~~cash ~~for~~and ascash aequivalents ~~pooling~~are ofheld ~~interests. QWES is a business in the~~for ~~differentiated~~working IPcapital ~~service provisioning~~ and ~~application~~capital ~~traffic shaping markets~~expenditures. InWe ~~connection~~do ~~with~~not ~~the~~enter ~~acquisition,~~into ~~the~~investments ~~Company~~for ~~exchanged~~trading or ~~reserved~~speculative ~~3,000,000~~purposes. ~~shares~~Some of ~~its~~the ~~common~~securities ~~stock~~in ~~for~~which ~~the outstanding~~we ~~shares~~invest, ~~options and warrants of QWES~~however, atmay anbe ~~exchange~~subject ~~ratio~~to ofmarket 0risk.~~1372~~ ~~shares~~This means ~~for~~that ~~each~~a ~~QWES~~change ~~common~~in ~~equivalent.~~prevailing ~~Upon~~interest ~~effectiveness~~rates ofmay ~~the~~cause ~~merger,~~ the ~~Company~~principal ~~issued~~amount ~~an aggregate~~ of ~~2,899,570 shares of common stock in exchange for~~ the ~~outstanding~~investment ~~shares~~to offluctuate. ~~capital~~To ~~stock~~minimize ofthis ~~QWES~~risk, ~~and~~we itintend ~~reserved~~to ~~60,628~~maintain ~~shares~~our ~~and~~portfolio ~~39,802 shares, respectively, for issuance upon exercise~~ of ~~the~~cash ~~options~~equivalents and ~~warrants~~short-term ~~that~~investments itin ~~assumed~~cash ~~from~~and ~~QWES.~~other Oflow-risk ~~the issued shares~~securities, ~~289,922~~including ~~shares~~money ~~were~~market ~~placed~~funds, incertificates ~~escrow~~of asdeposit aand ~~reserve~~U.S. ~~for~~government ~~general management representation~~ and ~~warranties~~agency ofbonds. ~~QWES~~The ~~that~~risk ~~were unknown as of the~~associated ~~date~~with offluctuating ~~the~~interest ~~merge~~

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